Energy Policy and Regional Inequalities in the Brazilian Economy

The objective of this paper is to evaluate the long-run regional impacts of the tariff policy of the Brazilian electric power sector. This sector has undergone a reform process started in the 1990’s. Since the beginning of the reform, two spatial trends of distribution of electric power tariffs have emerged among the Brazilian states; one of convergence and another of spatial divergence. These trends have been guided by the new electric power tariff policy and by the spatial features of the Brazilian economy, which is marked by high degree of spatial concentration and hierarchical distribution of large markets. In addition, because of the presence of strong economies of scale, the recent electric power prices differentials might be caused by differentials in market size, which provide better conditions for the achievement of economies of scale for electric power utility companies located in large markets. Based on the fact that electric power is an important intermediate input to the production process, and the economic sectors have input-output linkages among then, an Energy Interregional Computable General Equilibrium model was used to simulate the long-run regional impacts of electric power tariff policy in Brazil. The simulations showed that, the heterogeneity of energy-intensity and the differentials of energy substitution drive the spatial impacts of changes in electric power prices. On the other hand, the recent trend of spatial dispersion of electric power prices might contribute to decrease the long-run economic growth and to increase the regional inequalities in Brazil.