Principal investigator: Viviane Pires Ribeiro
Paper Title: Wind and solar power in Brazil and China: interests, state–business relations, and policy outcomes
Authors: Kathryn Hochstetler and Genia Kostka
Location of the Intervention: Brazil and China
Sample Size: 2 Renewable energy sources
Main theme: Environment, Energy & Climate Change
Main Variable of Interest: Solar and wind energy
Type of Intervention: Analysis of developments in the renewable energy sector in Brazil and China.
Methodology: Field Research
Hochstetler and Kostka (2015) examine developments in the renewable energy sector in Brazil and China. The results show that the two countries share many interests regarding solar and wind energy, but institutional differences in state-business relations have led to different outcomes. In China, within a context of corporate relations between the state and businesses, state interventions have been more comprehensive, with the state coordinating with state-owned banks and offering significant financial and investment incentives to state-owned or state-linked enterprises. In contrast, in Brazil's public-private partnerships, state support for promoting renewable energy has been shaped by a stronger preference for competitive auctions and stricter financing rules.
Evaluation Context
International climate negotiations have failed, in part due to conflicting expectations about the role that major emerging powers like China and Brazil should play in reducing their greenhouse gas emissions. Their economic growth rates since 2000 have been accompanied by an equally rapid increase in emissions. The energy investments these countries are making to support their economic growth aim to lock in emission levels for the next few decades. Even while growing rapidly, these emerging powers continue to have millions of low-income citizens, making it clear that any climate mitigation action must address national development needs.
The hybrid wind-solar energy sector in Brazil establishes a political economy of energy that alternates between national public planning, procurement and financing agencies, as well as an increasingly private generation sector. This public-private partnership approach began to include state support for the renewable energy sector after 2002, but since 2009 it has also imposed a competitive auction system. The independent regulator conducts regular auctions for licenses to supply energy to the national grid, with the participation of public and private generation companies. Those who commit to supplying energy at lower prices win the auction. Similarly, the National Bank for Economic and Social Development (BNDES) provides credit for many projects at subsidized rates.
In China, relations between the state and enterprises can best be described as state-corporate relations. The continued centrality of the state and state-owned or state-supported enterprises in the political economy and its decentralized authoritarian governance structure locate the calculus of interests primarily in the complex relationships between central and local governments. The state works with state-owned and mixed-ownership enterprises to develop a globally competitive renewable energy sector. The state retains overall market control, decides the rules, and exerts control over market entry. A unique feature of the Chinese case is the relatively large discretion granted to local governments in guiding economic development, giving Chinese state corporatism a decidedly local character.
Intervention Details
Hochstetler and Kostka (2015) assume that development is a priority as a starting point for their study, in which the authors examine developments in the renewable energy sector in Brazil and China since 2000. Renewable energies were almost non-existent in both countries in the 1990s, but during the 2000s, China expanded its wind and solar power generation, while simultaneously achieving world leadership in both sectors. Brazil generates substantial wind power and has a thriving wind industry, although the expansion of solar power generation is slow. Both countries have combined their renewable energy acquisitions with policies to develop related industrial capacity, but they have done so in different ways and with distinct results.
In this sense, Hochstetler and Kostka (2015) raise the following question: what explains the differences in policies initiated and in the outcomes of climate development and emissions? To answer this question, the authors use explanatory variables from classical theories of comparative politics, examining the roles of institutions in determining policies and outcomes.
Methodology Details
The analysis is based on field research conducted in Brazil and China between 2010 and 2014. In Brazil, Hochstetler and Kostka interviewed officials from energy planning agencies and the National Bank for Economic and Social Development, as well as representatives from industry and the community. In China, the authors conducted field research in Beijing, and in the provinces of Hunan, Jiangsu, and Shandong. The analysis also draws on government policy documents, media reports, and available secondary sources.
Results
The results of renewable energy development policies differ sharply in Brazil and China. In Brazil, advances in renewable energy are more modest, including some successes in wind turbine manufacturing, with an increase in the number of component manufacturers and accelerated growth in wind power generation. However, few deployment activities for solar energy have been identified, despite the country's abundant solar resources. In contrast, during the same period, China gained world leadership in the manufacturing and deployment of both wind and solar energy.
Thus, the authors argue that the observed difference in renewable energy outcomes is partially explained by the variation in the relationships between the state and companies in Brazil and China. Brazil's public-private partnership model and China's state-owned corporate model are different approaches to aligning the interests of the state and market participants.
In Brazil, the public-private partnership approach encouraged a more coordinated and deliberate start to renewable energy generation, working best for wind power. The Incentive Program for Alternative Sources of Electrical Energy (Proinfa) used “generous” tariffs to attract private actors to wind power production and offered market protection to encourage local production of wind turbines and components. Auctions and subsidized financing from BNDES (Brazilian Development Bank) managed to attract companies to both generation and industrial production, but also disciplined the industry by subjecting it to fierce price competition in auctions and strict supervision of BNDES loans. Over time, this allowed Brazil to develop a fairly lean, if not entirely globally competitive and innovative, wind power industry that helps meet national demand.
For solar energy, the requirement that prices, generation, and parts production meet both public and private objectives has, to date, failed. Many policy tools cannot be considered, either because private actors cannot be forced to participate or because public actors have been forced to make short-term calculations based on market-driven fundamentals. Strong environmental interests in solar production and sound material bases for such an industry have been hampered by the contradictions between price and domestic production objectives.
In China, the state-owned corporate model gives central and local governments a greater number and variety of leverage to promote solar and wind energy. Managers in state-owned enterprises are subject to the same annual performance review system as civil servants, making it easier for such governments to guide corporate behavior. Furthermore, the banking system is dominated by large state-owned banks, which finance state-owned or state-linked renewable energy companies. Within China's decentralized authoritarian political structure, local governments actively support the expansion of the wind and solar industries.
However, China's corporate state approach also presents serious challenges for renewable energy development. Excessive intervention by local governments and local branches of state-owned banks sometimes distorted the plans and policies of the central government. The ease of granting bank loans at the local level resulted in enormous amounts of short-term debt, much of which appears destined to become non-performing loans. Easy access to financing, combined with a lack of strong budgetary constraints, resulted in large-scale industrial overcapacity and, subsequently, deteriorating corporate finances.
Lessons in Public Policy
Hochstetler and Kostka (2015) argue that Brazil and China share many interests with respect to renewable energy, but institutional differences in relations between the state and companies have led to different outcomes. In Brazil, a public-private partnership approach played a key role in promoting wind power generation and a new wind industry, but left the solar sector largely uninvested. In China, a state-owned corporate approach meant that the political agendas of national and local governments, as well as the investment interests of powerful state-owned enterprises and state-backed companies, shaped policy outcomes.
Policymakers in both countries share many of the same interests in the development of solar and wind energy. Such energies improve local air pollution and help national leaders meet international commitments related to climate change. Renewable energy also helps solve domestic energy security problems. The installation and operation of wind and solar farms bring potential economic benefits, although the benefits are greater if local industries are established to produce components for these industries.
In short, while China's state-dominated model provides the institutional basis for remarkable success in renewable energy development, the approach comes at a significant cost. In particular, prioritizing renewable energy manufacturing over domestic demand for that energy itself has created several undesirable outcomes, as renewable energy deployment was initially sacrificed in the effort to build a strong solar and wind power production sector.
For other developing countries, the experiences of Brazil and China illustrate the many trade-offs and dilemmas that grid-based renewable energy generates. The construction of wind and solar power plants continues to be more expensive than fossil fuel plants for most countries, although the last decade of developments in Brazil and especially China has changed these calculations notably. For countries wishing to balance higher generation costs with the economic gains of adding a dynamic new component manufacturing industry, the experiences of these two giants suggest they will face a delicate balancing act between these two objectives.
References
Hochstetler, K., & Kostka, G. (2015). Wind and solar power in Brazil and China: interests, state–business relations, and political outcomes. Global Environmental Politics, 15
