Brazilian energy efficiency and energy substitution: A road to cleaner national energy system

Recognizing the need to increase energy efficiency across various sectors of the economy, the Brazilian government through the national energy efficiency plan (adopted in 2011) seeks to avoid 30 million tons of CO2 emissions through a reduction in electricity consumption of about 10% by 2030. Notwithstanding, we believe that a complete realization of such initiative will be dependent on the level of substitutability between different production factors and fuel types. Using the translog production function method, this paper, first provides insight on the economic impact of both factor and fuel inputs in Brazil. Most importantly, we examine the possibility of substitution among capital, labor, petroleum, and electricity. The ridge regression technique was used to estimate the parameters after our data depicted the existence of multicollinearity. Our results show that capital and labor are positively linked to output; however, petroleum and electricity contribute negatively to economic output in Brazil of which corruption is a plausible reason. Again, all variable inputs are substitutes with their relative technological progress depicting features of convergence. This implies that Brazil can achieve a cleaner energy system without much challenges due to the possibility of switching from greenhouse gas (GHG) emitting petroleum to a cleaner energy electricity. Our findings also highlight the importance of policies that advance merger of enterprises, and renewable energy use.