Energy: The impact of the New 13th Five-Year Plan of China. What Brazil and the world have to do with it?


Being the main trading partner of Brazil and already materially increasing and diversifying its presence within Brazilian economy, China became a strategic business partner for Brazil and the 13th Five Year Plan brings significant policies, goals and directions to Chinese state-owned and private corporations that are very active in Brazilian energy, oil & gas, mining, natural resources, telecom/technology and infrastructure sectors

The preparation of the 13th Five-Year Plan took into account several recommendations, inputs, analysis made by major governmental agencies, distinguished Chinese and international universities and study centers, specialists and experts worldwide. The growth of China, currently around 7%, has obvious impact on the serious crisis which lane the world economy, with a significant impact in particular in emerging countries and exporters of mineral commodities and food, such as the case of Brazil.

But the relevance of Chinese 13th Fiver-Year Plan 2016-2020 also occurs when addressing another extremely important issue to the world: China aims to implement massive investment and an ambitious action plan to develop the “green economy”, increasing the use of renewable energy sources and developing applicable technologies in order to reduce in a planned manner, the emission of CO2 gases and other greenhouse gases.

Among the concrete steps, according to the Law Centre for Environmental Policy at Yale University, there are measures for the reduction of CO2 emissions, coal’s use for power generation and the development of new renewable energy technologies, and adoption of new legal framework,

specific taxes over GHG emissions and the promotion of international multilateral agreements. It is important to note that the adoption and  intensive use of clean coal technologies in new projects is a reality, an in China the Government has issued in early 2015, specific legislation to govern the use of certain types of coal, so-called “Interim Measures on the Management of Marketing and Coal Quality “, which deal with coal quality standards to be produced, sold and used in the Chinese market.

In other words, China wants less pollution, less energy greed and promote a more sustainable social and economic development for its huge population. Chinese companies will be highly stimulated to invest in renewable and clean energy projects in China and overseas and the Government has ambitious goals, including the setting up green and lowcarbon industry systems, promote green finance, and establish a green development fund. Promote the use of new-energy vehicles and further build the e-car sector.

But how Brazil’s energy sector and infrastructure can get benefits from the 13th Chinese Five-Year Plan?

In 2015, the two countries have signed 35 trade cooperation agreements involving investments of US$53 billion in eight sectors during the visit of Chinese Prime Minister, Li Keqiang, including the power oil and gas, environmental, technology and other natural resources related sectors.

Additionally, Brazilian federal government controlled energy planning and research company, EPE, announced the Brazilian Ten Year-Plan for Energy Expansion 2024, the so -called PDE 2024, whose final report was released
by EPE and the Ministry of Energy and Mines on December, 2015.

The concept of sustainability, increasing energy efficiency and increasing the use of renewable energy are concrete measures that are expressly planned in PDE 2024, which advocates an energy matrix for the country, with “large share of renewable energy sources at the end of the horizon”. The increase of renewable energy sources “allows the country to reach the greenhouse gas targets (GHG) established the National Policy on Climate Change – NPCC and international agreements on climate. The Decree 7.390/10, which regulates the NPCC provides that, in the energy sector, the sectoral plan for mitigation and adaptation to climate change is the Ten Year Energy Plan itself.”

In addition, the Joint Action Plan in force between Brazil and China, which sets out strategic and comprehensive guidelines for the development of  China-Brazil Global Strategic Partnership provides in paragraph 6, among its general objectives, the following:
“Working for the prioritization of sustainable development into country cooperation strategies and initiatives, ensuring the integration of economic, social and environmental.”

More specifically, with regard to the energy sector, the Joint Action Plan recognizes, in the Article 6, the great potential for cooperation between countries that agreed to “promote the implementation of cooperation projects in the area of energy and mining, monitor the implementation of projects and facilitate bilateral investment and joint development of technologies.” Such bilateral cooperation will be strengthened in the areas of electricity generation, with exchange of “perceptions of technology and joint technological development and facilitate cooperation in energy transmission technologies and construction projects.”

Given the large potential in renewable energy sources, Brazil and China agreed that the cooperation will also cover the ‘energy efficiency, smart grids and the development of new sources of energy, especially from renewable sources (wind, solar, hydroelectric, biofuels and biomass).”

There is also forecast for the development of partnerships in biofuels, “with a view to consolidating their role as energy commodities and disseminate its production and international use.”

In item 10 of the Article 6, the parties deal with the exchange for “public policy, long-term planning methodologies, conservation efforts and joint development of new technologies.”

 

CONCLUSIONS

We can easily find a very interesting alignment between the principles, goals and actions contained in the Chinese 13th Five-Year Plan 2016-2020 and Brazilian Ten-Year Energy Expansion Plan (PDE 2024) and the Joint Action Plan for trade cooperation promotion between the two countries.

Facing a complex political and economic crisis, Brazil, may have in China a reliable and strategic partner to get access to the necessary investments  and technology that may help Brazil to achieve its objectives in the area of energy efficiency and increasing the share of clean and renewable sources in Brazilian Energy matrix, asset forth in PDE 2024, getting benefits from China’s green and low-carbon Energy policies and investments provided in the 13th Fiver-Year Plan.

Certainly, the Chinese 13th Five Year Plan will encourage their enterprises and financial institutions to search for overseas renewable and clean energy projects and Brazil may be a preferred place because of its market and large potential in renewable energy sources, such as wind and solar energy, Brazil already has an energy mix that favors clean sources, mainly due to the hydro power generation of water and can be a interesting market for Chinese investments in green energy technologies, equipment and services.

On the other hand, Brazilian PDE 2024 estimates that the country will need more than USD 250 billion to meet total energy expansion goals by 2024, being 24,4% of such estimated amount for the electricity sector. The PDE 2024 also estimates jumping the wind power generation capacity to 23,9GW and Solar+ Biomass + Small Hydro Dams to 32,6GW. In parallel, we cannot forget that Brazil continues holding giant oil and gas reserves and Chinese oil companies are directly or indirectly investing in such sector, as well. In some key regions, such as the South Brazil, the use of coal is also of great importance to the regional development. Chinese EPC companies are already carrying out power plant construction projects using clean coal technologies aiming at reducing greenhouse gas emissions impacts.

Professor of Economics, Hu Angang, of Tsinghua University, who participated in the drafting of the 13th Fiver-Year Plan said: “China needs to change itself from being the largest black cat in the world into the world’s largest green cat”.

The Brazilian energy sector is open and should be eligible to actively participate and take benefits to foster the trade and technology cooperation with China and capture from Chinese companies’ and financial institutions’ planned investments in the green energy area in order to foster Brazil’s energy sector expansion and infrastructure modernization in order to implement several key projects in the renewable and clean energy area.

Marcelo Mello, LL.B., M.Sc, Partner and Head of the Energy, China Desk and International Trade Practice at Marcelo Mello Advogados MMA (www.mmalegal.com.br), Rio de Janeiro, Brazil. Legal Advisor for Chinese Companies in Brazil and Brazilian Companies doing business in China, Professor, International Trade, Energy at FGV Law School and Business Law Post-graduation Programs; Legal Council Member at CERNE – Center for Natural Resources and Energy Strategies(www.cerne.org.br), Vicepresident of FUNCOGE and Arbitration Chamber for Energy Disputes(www.funcoge.org.br) and Member at IADC – Brazil Chapter( IADC -International Association of Drilling Contractors, Houston, USA) and AIPN (Association of International Petroleum Negotiators, Hosuton, USA).

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