José Augusto Fontoura Costa  Marilda Rosado de Sá Ribeiro  Ely Caetano Xavier Junior  Vivian Daniele Rocha Gabriel Editors Energy Law and Regulation in Brazil Energy Law and Regulation in Brazil (cid:129) José Augusto Fontoura Costa (cid:129) Marilda Rosado de Sá Ribeiro (cid:129) Ely Caetano Xavier Junior Vivian Daniele Rocha Gabriel Editors Energy Law and Regulation in Brazil Editors JoséAugustoFontouraCosta MarildaRosadodeSáRibeiro FacultyofLaw FacultyofLaw UniversityofSaoPaulo RiodeJaneiroStateUniversity SaoPaulo,Brazil RiodeJaneiro,Brazil ElyCaetanoXavierJunior VivianDanieleRochaGabriel DepartmentofLaw FacultyofLaw FederalRuralUniversityofRiodeJaneiro UniversityofSaoPaulo RiodeJaneiro,Brazil SaoPaulo,Brazil ISBN978-3-319-73455-2 ISBN978-3-319-73456-9 (eBook) https://doi.org/10.1007/978-3-319-73456-9 LibraryofCongressControlNumber:2018935299 ©SpringerInternationalPublishingAG,partofSpringerNature2018 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartofthe materialisconcerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation, broadcasting,reproductiononmicrofilmsorinanyotherphysicalway,andtransmissionorinformation storageandretrieval,electronicadaptation,computersoftware,orbysimilarordissimilarmethodology nowknownorhereafterdeveloped. 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Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland Introduction BrazilisLatinAmerica’slargestandworld’stenthlargestenergyproducer.In2015, Brazil’s total energy production reached 279.37 Mtoe, and the country achieved 94% of energy self-sufficiency (International Energy Agency 2017).1 In 2016, Brazil’stotalenergyproductionincreasedto294.72Mtoe,whereasthetotalenergy consumption amounted to 255.43 Mtoe. In the same year, the country reduced its total external dependency on energy to 2.1% (Empresa de Pesquisa Energética 2017a).BrazilseeksincreasingenergyintegrationwithneighborcountriesinLatin Americaandengagesinimportingandexportingdifferentenergysources.In2016, forexample,Brazil’snetimportofenergyamountedto8.83Mtoe,eventhoughthe country exported 35.8 Mtoe of petroleum in the same year (Empresa de Pesquisa Energética2017a). Brazil’senergymatrixpresentsadistinctivebalancebetweenrenewable(41.5%) andnonrenewable(58.5%)energysources.Themainenergysourcescontributingto the total energy production are petroleum (44.2%), natural gas (12.8%), sugarcane products (17.2%), and water (11.1%). Even though the total energy production largely depends on petroleum and natural gas, the domestic electricity supply is mostly (68.1%)based on renewable hydropower production(Empresade Pesquisa Energética 2017a). In the last decades, the energy matrix became increasingly diversified due to the growing participation of renewable energy sources. From 2015 to 2016, for instance, the domestic wind energy supply increased by 54.9%, while the solar energy domestic generation increased by 44.7% (Empresa de PesquisaEnergética2017b). AccordingtoBrazil’sMinistryofMinesandEnergy(MME)projections,thetotal energy consumption is expected to reach 309–474 Mtoe by the end of the period 2005–2030 (Ministério de Minas e Energia 2007b). In this scenario, the required 1In2015,theworld’slargestenergyproducerswereChina(2.5thousandMtoe),theUnitedStates (2.02 thousand Mtoe), Russia (1.33 thousand Mtoe), Saudi Arabia (648.61 Mtoe), India (554.39 Mtoe), Canada (471.33 Mtoe), Indonesia (425.86 Mtoe), Australia (381.33 Mtoe), Iran (394.18Mtoe),andBrazil(279.37Mtoe)(InternationalEnergyAgency2017). v vi Introduction energy production would demand an average of US$32 billion in investments per year,amountingtoatotalinvestmentofmorethanUS$800billionbytheendofthe period(MinistériodeMinaseEnergia2007a).Inthedecadefrom2016to2026,the estimatedannualgrowth ofdomesticenergy supplyis2.0%. Thedecennialenergy plan forecasts that domestic supply produced from renewable energy sources will haveamoreintenseannualgrow(2.6%)incomparisonwithnonrenewablesources (1.5%). Furthermore, the energy sector is expected to demand US$423 billion in investmentsinthedecade(MinistériodeMinaseEnergia2017). The Brazilian government has promoted electricity generation and transmission auctions in the last years, and two new electricity auctions for the generation of hydraulic,wind,solar,andbiomasselectricityareannouncedinlate2017(Agência Nacional de Energia Elétrica 2017). Following the petroleum bidding rounds recently concluded, the National Council for Energy Policy (CNPE) announced newbiddingrounds takingplacein2018for onshoreandoffshoreexplorationand production of petroleum, including some offshore blocks in the pre-salt area (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis 2017). The announcement by Brazilian authorities of the country’s commitment to promote theenergysectorillustratestheneedforsystematicunderstandingofboththelegal constraints and the regulatory atmosphere with impact on several operations of production,transmission,distribution,andconsumptionofenergyinthecountry. ThecomplexregulatorystructureofBrazil’senergy sectorreflects thediversifi- cationofitsenergymatrix.Thegeneralrulingofthesectorfallswithinthescopeof the constitutional exclusive powers of the federal government. In this regard, the Ministry of Mines and Energy (MME) is the main executive body responsible for energy-related issues.2 The formulation of energy policies and guidelines is none- theless assigned to the National Council for Energy Policy (CNPE), an advisory committeetothepresidentoftherepublic.3 ThemostintenseregulatoryactivityisperformedbytheNationalElectricEnergy Agency(ANEEL)andtheNationalAgencyofPetroleum,NaturalGasandBiofuels (ANP),twoimportantregulatoryagenciessupervisedbytheMinistryofMinesand Energy(MME).TheNationalAgencyofPetroleum,NaturalGasandBiofuelsisin charge of the regulation, supervision, and control of operations in the oil, gas, and biofuelsindustry,includingthederivativesofthesematerials.4TheNationalElectric EnergyAgency,ontheotherhand,isinchargeoftheregulationandsupervisionof 2ThecompetencesandthestructureoftheMinistryofMinesandEnergywereredefinedaccording toDecreeno.8871(6October2016). 3TheNationalCouncilforEnergyPolicy(CNPE)wasestablishedunderLawno.9478(6August 1997)andstructuredaccordingtoDecreeno.3520(21June2000).Thecounciliscomposedof severalministersandrepresentativesofthecivilsociety,theacademia,andthestates. 4TheNationalAgencyofPetroleum,NaturalGasandBiofuels(ANP)wasestablishedunderLaw no.9478(6 August1997)andstructured according to Decreeno. 2455(14January1998).The currentdenominationoftheagencywasestablishedaccordingtoLawno.11097(13January2005), whichincludedreferencestonaturalgasandbiofuels. Introduction vii the production, transmission, distribution, and sale of electric energy.5 Therefore, most operations relating to hydraulic, wind, and solar electricity generation, trans- mission,anddistributionareregulatedbytheNationalElectricEnergyAgency. The institutional competences are not always quite clear. Both the National Agency of Petroleum, Natural Gas and Biofuels and the National Electric Energy Agency regulate biomass energy production, depending on whether thebiomassis transformedintobiofuelsorconvertedtoelectricity.Nuclearenergyisalsosubmit- tedtosharedcompetences:whiletheNationalElectricEnergyAgencyisresponsible for the regulation of electricity generated from nuclear power plants, the general regulation, authorization, and supervision of the production and use of nuclear energyareassignedtotheNationalNuclearEnergyCommission(CNEN),6overseen bytheMinistryofScience,Technology,InnovationandCommunication(MCTIC). There are other agencies, administrative bodies, public companies, and mixed- capital companies that have different degrees of regulatory impact over the energy sector in Brazil. Moreover, many issues relating to the distribution of energy, the environmental protection, and research and development are regulated by other institutions. States and municipalities might also have supplementary legislative andexecutivepowersincertainphasesoftheenergyproductionchain.Thecontri- butions in this book are attempts to reveal the structure of the multilayered and fragmenteduniverseofenergylawandregulationinBrazil. Inthefirstchapter,MarildaRosadodeSáRibeirodiscussestheevolutionofthe upstreamsectorofpetroleumexplorationandproductioninBrazil,highlightingthe impact of the discovery of pre-salt reserves in the institutional competences and contractualframeworkoftheindustry.Thechapteralsoexaminescurrentdebateson unitization, arbitration, and environmental impacts related to the production of petroleum in Brazil. The second chapter deals with the downstream operations of thepetroleumindustry.ClarissaBrandãoandRenatoBarcellospresentanoverview of the Brazilian regulation on refining, transportation, selling, and consumption of petroleum subproducts, stressing the ongoing renewal of the National Agency of Petroleum,NaturalGasandBiofuels(ANP)’sregulatoryrulesontheseoperations. The natural gas sector is covered in three chapters. In the third chapter of the book, Marcos Cintra, Hirdan Costa, Eduardo Guedes, and Edmilson Moutinho examine the upstream operations of natural gas exploration and production, discussing important matters such as environmental licensing and the obstacles to unconventional gas—in particular shale gas—production in Brazil. In the fourth chapter, Thiago Brito, Hirdan Costa, Raul Penazzo, and Edmilson Moutinho con- centrate on the midstream operations of natural gas transportation in pipelines, discussing some controversial issues such as the tariff policy and the third-party openaccesstonaturalgastransportfacilities.Inthefifthchapter,MariaD’Assunção, 5The National Electric Energy Agency (ANEEL) was established under Law no. 9427 (26December1996)andstructuredaccordingtoDecreeno.2335(6October1997). 6The National Nuclear Energy Commission (CNEN) was established under Law no. 4118 (27August1962)andrestructuredaccordingtoDecreeno.8886(24October2016). viii Introduction Hirdan Costa, andEdmilsonMoutinhopresenttheregulatorychallengesofnatural gasdownstreamoperationsinBrazilandtheassociatedsystemicrisks,focusingon theregulationofdifferenttypesofpipelinesandofthefreeconsumeraswellason naturalgastransportation,purchase,andsalecontracts. The sixth chapter discusses the electricity sector in Brazil. Raphael Gomes and Renato Poltronieri explain the institutional model of the electric energy sector in Brazil, presenting the roles of the Ministry of Mines and Energy (MME), the National Electric Energy Agency (ANEEL), the National System Operator (ONS), andtheElectricEnergyTradingChamber(CCEE),amongotherregulatorybodies. The authors also underline that the increasing litigation in the electricity sector is suggestiveoftheurgentneedofreformingtheinstitutionalmodelandredefiningthe regulatorycompetences.Intheseventhchapter,WanderleyFernandesconcentrates on the distribution of electricity in Brazil, analyzing core issues such as the tariff calculationandrevision,theconcessioncontracts,andtheconsumerprotection. Intheeighthchapter,ViniciusSoaresexaminestheshapingoftheso-calledNew RegulatoryFrameworkapplicabletowindenergy,discussingthepreviousattempts oftheBraziliangovernmenttoregulatethesector.Furthertopresentingthecurrent regulated market environment, the author underlines important matters such as the environmental licensing and the problems arising from the connection of wind energyproductionsitestothegridsystemanditstransmissionlines. SolangeTeles,CarolinaDutra,andLucasNouraanalyze,intheninthchapter,the dawn of the “solar cities” in Brazil, presenting the regulatory framework for the generationofsolarenergyasapromisingrenewableenergysource.Inparticular,the authors examine the energy compensation system for mini- and microgeneration projects and the local legal incentives for theconstruction and adaptation of build- ingswithadequatewaterheatingsystemsusingsolarenergy. Inthetenthchapter,LuizellaGiardinodiscussesthecurrentcertificationschemes forsocialandenvironmentalcomplianceofbiofuels,stressingtheproblemof“green protectionism” through the establishment of environmental standards that might limit market access. The author emphasizes the necessary convergence of existing programsandthedevelopmentofinternationallyagreedprinciplessoastoestablish asustainableandinclusivecertificationsystemfortheproductionofbiofuels. LeonamGuimarães,CarlosFeu,andOlgaMafraanalyze,intheeleventhchapter, theregulatory frameworkfor theproductionofnuclearenergy inBrazil,clarifying the governance of the nuclear sector. Furthermore, the authors stress the desirable rearrangement of the nuclear sector and discuss some important issues such as the controlofthenuclearwastepolicyandtheimplementationofprojectsthatfacilitate theintegrationofexistingcapabilitiesandinfrastructure. In the twelfth chapter, Fernando Rei and José Goldemberg summarize the regulatory framework of the biomass energy production in Brazil, highlighting majorcurrentissuesrelatedtotheproductionofethanolfromsugarcaneandtothe efficientuseofcharcoal. Inthethirteenthchapter,WelberBarral,RenataAmaral,andThiagoElertfocus ontheinternationalregulationofenergytradeandonthevarioustypesofsubsidies Introduction ix within the energy sector, emphasizing the impact of international rules on Latin Americancountriesandtheirenergyintegrationprojects. Weexpectthatthebookcontributestoprovideusefulupdatedinformationandto local specialists’ insights into the complexities of the Brazilian energy sector. The interdisciplinaryapproachadoptedinthebookaimsataconvergencethatnotonly will offer a safer background for scholars, practitioners, and investors interested in this sector but will also indirectly enhance development and attraction of opportu- nitiesforthecountry. Acknowledgments Editors would like to acknowledge thecollaboration of PedroCini, Vitória Lombello,andArthurBrasiltotheearlyformattingandcorrectionofthemanuscripts. FacultyofLaw JoséAugustoFontouraCosta UniversityofSaoPaulo SaoPaulo,Brazil FacultyofLaw MarildaRosadodeSáRibeiro RiodeJaneiroStateUniversity RiodeJaneiro,Brazil DepartmentofLaw ElyCaetanoXavierJunior FederalRuralUniversity ofRiodeJaneiro RiodeJaneiro,Brazil References Agência NacionaldeEnergiaElétrica (2017)Secretaria Executiva deLeilões. http://www.aneel. gov.br/leiloes.Accessed6Nov2017 AgênciaNacionaldoPetróleo,GásNaturaleBiocombustíveis(2017)CNPEaprovaa4ªRodadade LicitaçõesnoPré-Salea15ªRodadadeConcessões.http://www.anp.gov.br/wwwanp/noticias/ 4143-cnpe-aprova-a-4-rodada-de-licitacoes-no-pre-sal-e-a-15-rodada-de-concessoes. Accessed 12Nov2017 EmpresadePesquisaEnergética(2017a)BalançoEnergéticoNacional2017.EPE,RiodeJaneiro EmpresadePesquisaEnergética(2017b)BalançoEnergéticoNacional2017:relatóriosíntese.EPE, RiodeJaneiro International Energy Agency (2017) IEA Energy Atlas. http://energyatlas.iea.org/#!/tellmap/ -297203538/0.Accessed12Nov2017 MinistériodeMinaseEnergia(2007a)MatrizEnergéticaNacional2030.MME,Brasília MinistériodeMinaseEnergia(2007b)PlanoNacionaldeEnergia2030.MME,Brasília MinistériodeMinaseEnergia(2017)PlanoDecenaldeExpansãodeEnergia2026.MME,Brasília Contents LegalRegulationofPetroleumUpstreaminBrazil. . . . . . . . . . . . . . . . . 1 MarildaRosadodeSáRibeiro BrazilianRegulationofPetroleumDownstream. . . . . . . . . . . . . . . . . . . 27 ClarissaBrandãoandRenatoBarcellosdeSouza RegulatoryFrameworkofUpstreamandOnshoreUnconventional GasinBrazil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 HirdanKatarinadeMedeirosCosta,MarcosCintra,EduardoG.Pereira, andEdmilsonMoutinhodosSantos MidstreamRegulationinBrazil:MainIssuesinPipelineNaturalGas System. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 HirdanK.M.Costa,ThiagoL.F.Brito,RaulP.Pinto, andE.MoutinhodosSantos RegulatoryChallengesofNaturalGasDownstreaminBrazil. . . . . . . . . 91 MariaD’AssunçãoCosta,HirdanKatarinadeMedeirosCosta, andEdmilsonMoutinhodosSantos TheElectricitySectorandtheStructureoftheShort-TermMarket inBrazil. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 RaphaelGomesandRenatoPoltronieri LegalRegulationoftheDistributionofElectricityinBrazil. . . . . . . . . . 137 WanderleyFernandes RegulatoryFrameworkofWindPowerinBrazil. . . . . . . . . . . . . . . . . . 159 ViniciusFonsecaSoares SolarEnergyandtheDawnof‘SolarCities’inBrazil. . . . . . . . . . . . . . 183 SolangeTelesdaSilva,CarolinaDutra, andLucasNouradeMoraesRêgoGuimarães xi