Brazil at the crossroads – House of Representatives vote to roll back environmental regulation, slew of killings troubling reminders of dark past

June 2, 2011
Posted by Steve Schwartzman in Deforestation, News

This past week I could have sworn I was back in the 1980s, based on the news coming out of Brazil.
Brazil's powerful agriculture caucus (bancada ruralista) and Communist Party led the charge in the House of Representatives to pass a bill that, if enacted, would essentially legalize deforestation in vast amounts of land.

And three activists who worked for years to protect forests from illegal logging were killed for their efforts.

Then, yesterday, the Brazilian environmental agency approved the Belo Monte dam – a hydroelectric project so controversial and flawed that the Federal Attorney General's office brought a series of lawsuits against it, most of which have not been judged, and recommended that it not be licensed.

As someone who works with indigenous and environmental groups in Brazil and has been active in tropical forest policy for years, I find this series of events deeply troubling, and reminiscent of the Brazilian Amazon's dark past. And these events come at a time when, because of strong pressure on land use from increasing commodity prices, and an expectation that the Congress would revise the 1965 Forest Code, the clearing of trees for expanding farms and cattle ranching in the Amazon rainforest is on the rise, possibly up 30% over last year.

Brazil's government is at a crossroads – either it can go back to a future of rampant deforestation and frontier chaos, or ahead, to the future of a sustainable and equitable green economy leader, with rule of law, good governance and a secure natural and investment environment. Senate action on the Forest Code over the next few months could spell the difference.

Is Brazil going backward or forward?
Forests are slashed and burned in Brazil primarily to expand cattle ranching and agriculture. Above: Cows graze in a pasture where lush forests -- still visible in the distance -- once stood in Mato Grosso, Brazil.

This series of events recalls the former status-quo, business-as-usual days when deforestation was accepted – even promoted – as a necessary corollary to development and prosperity.

Those were the days when Brazil was the fourth largest emitter of greenhouse gases in the world, with about 70% of its emissions caused by clearing forests. At the height of deforestation, the Amazon was losing more than 21,000 km2 – more than 8,000 square miles, about twice the size of Connecticut – of forest a year.

Those were also the days when grassroots environmental and union leaders were killed for working to protect the forest and forest peoples' rights; prominent activists like rubber tapper and union leader Chico Mendes and Roman Catholic Sister Dorothy Stang were both slain for their efforts to keep forests standing for the sake of communities' livelihoods and the environment.

Brazil has come a long way since then, particularly in reducing deforestation and altering public perception of it.

Reducing deforestation: Brazil has experienced seven years of almost uninterrupted decreases in deforestation, establishing it as the world leader in greenhouse gas pollution reductions. Between 2006 and 2010, Brazil has reduced Amazon deforestation about two-thirds below the annual average from 1996–2005, reducing about 1 billion tons of greenhouse gas pollution. This was due largely to the 2003 National Plan to Prevent and Control Amazon Deforestation and the subsequent 2009 National Climate Change Policy, in which Brazil committed to reducing deforestation 80% below the 1996–2005 average by 2020.

Social shift against deforestation: Popular opinion on the Amazon has clearly changed – most people want deforestation to stop. Most people also think that murders for hire in land conflicts should be punished – and in cases when international spotlights shone on Amazon assassinations, like Chico Mendes and Sister Dorothy Stang, it seemed as though the rule of law could be taking hold.

But despite these encouraging environmental strides, and even aside from the passage of the explicitly anti-environment bill, three disturbing themes of the past couple weeks are calling into question just how permanent Brazil's environmental progress is:

1. Lethal intolerance of activists who protect forests
José Claudio Ribeiro da Silva, a Brazil nut gatherer and forest defender, was slain the morning of the Forest Code vote with his wife Maria do Espírito Santo in Nova Ipixuna, in Pará state in the Brazilian Amazon. The couple had long resisted illegal logging and forest clearing for smelters for pig iron (made from iron ore and charcoal and used for manufacturing steel) and had received numerous death threats. In a public lecture in November 2010 José Claudio said, recalling slain grassroots environmental leaders Chico Mendes (1988) and Sister Dorothy Stang (2005), "What they did to Chico Mendes and Sister Dorothy, they want to do to me."

Then, on Friday, May 27th small-scale farmer leader Adelino Ramos was shot dead in Vista Alegre do Abunã, in Rondonia state. Ramos had received death threats for denouncing illegal logging in the region.
And on Saturday May 28th, the body of a small-scale farmer Eremilton Pereira dos Santos, was found shot to death about 7 km away from where José Claudio and Maria were killed. Police say they do not know whether these three killings are related, but representatives of the Pastoral Land Commission surmise that Eremilton may have witnessed the earlier killings.

2. Heavy influence of the Agriculture Caucus on Congress's Forest Code debate
Listening to the Forest Code debate in the Brazilian Congress so far is about as informative and edifying as listening to the U.S. Congress talk about climate change – that is, to say, not very.

It is commonly agreed within Brazil that the 1965 Forest Code needs revision and updating. But Communist Party representative and author of the just-passed bill Aldo Rebelo didn't focus on looking at other solutions, like using taxes, credit or a carbon market to incentivize farmers to keep forests standing or restore past deforestation.

The Rebelo proposal instead falsely supposes that forests are inherently, as Márcio Santilli of the Instituto Socioambiental put it, "nothing more than 'anti-food'" – that more forest means less agriculture, less growth and less development. Rebelo's bill, and its ultimate success, capitalized on the erroneous, purely ideological notion that environmental regulation is a foreign plot designed to keep Brazilian agriculture from competing with U.S. agriculture.

The agriculture caucus leadership has a sense of entitlement and cronyism about it that can get ugly. During the discussion before the vote on Tuesday, former Environment Minister and current Congressman José Sarney Filho made a motion in the House to ask for the federal police to investigate the killing of Ribeiro and his wife – and was met with boos from the agriculture caucus.

Brazil's farmers deserve better political representation than this. I've met farmers and ranchers across
the Amazon who have worked hard to build productive, competitive businesses, and are proud that they're in compliance with the current law. These voices are not being heard in this debate, and if the Rebelo bill is enacted, they will be penalized for their efforts, while the scofflaws will be rewarded.

3. Surge in deforestation
In mid-May, we learned that deforestation in the Brazilian Amazon in March and April may have spiked dramatically over those same months last year, and Brazil's Environment Ministry and many researchers hold that expectations that the Congress would weaken forest protection requirements in the Forest Code are contributing to the increase. Preliminary reports from Brazil's National Space Research Agency (INPE) now suggest that deforestation has increased about 30% from last year, which is also widely attributed to the anticipation of the approval of the new Forest Code.

Deforestation in the Brazilian Amazon in March and April may have increased dramatically over last year. Above: Deforestation has replaced tropical forest with cattle pasture in Mato Grosso, Brazil.

So, what does all this mean for Brazil?
EDF believes that the brutal killings, the influence of the agriculture caucus, the rapidly increasing deforestation, and the House vote to cripple Brazil's environmental legislation, must be met with a solid government response for Brazil to maintain its international leadership on the environment. And we're not the only ones calling for action at this critical juncture.

The Forest Code changes were opposed by Brazil's major national scientific associations – the Brazilian Academy of Sciences and the Brazilian Society for the Advancement of Science – as well as numerous forestry sector trade associations and ten former Environment Ministers. The Ministers wrote in a letter to President Dilma Rousseff:

"We understand… that history has reserved for our times… above all, the opportunity to lead a great collective effort for Brazil to proceed on its pathway as a nation that develops with social justice and environmental sustainability."

And the range of interests that came together to support forest protect protection – the scientific community, the National Council of Brazilian Bishops, the national association of attorneys, small farmers' organizations and environmentalists — are coming together to provide the efforts needed to produce balanced and fair revisions to the Forest Code.

If enacted, the House language would open up wholesale entire categories of land that are now protected, and could completely roll back the progress Brazil has made in the last seven years by:

Giving amnesty for past illegal deforestation
Opening up to deforestation hundreds of thousands of acres of currently protected forests along watercourses, on steep slopes and hilltops and mangrove swamps

Making virtually any regulation against forest clearance unenforceable, by inter alia, allowing illegal deforestation to be compensated with replanting over a twenty year period.

Justification for change in Forest Code "patently false"
The most common justification for Congressional support for the bill – that environmental regulationhas shackled Brazil's development and growth of agriculture – is patently false. The Communist Party's Rebelo and his large landholder and rancher allies also justified the measure in the name of small farmers burdened with environmental restrictions.

The fact is, since 2003, Brazil's economy has grown steadily and robustly and some 25 million people escaped poverty, all while Amazon deforestation declined two-thirds below the average of the previous decade. In recent years, Brazil has become the world's largest exporter of beef, chicken and sugar, and the second biggest exporter of soy.

And major small farmers' organizations actually opposed the bill. The Amazon has enormous potential for growth through intensification – some 80% of the deforested land in the Amazon is extremely low-yield cattle pasture (less than one head per hectare). Small farmers are poor because they lack access to credit, technology and technical assistance, not because of environmental regulation, as Rebelo claims.

World watching Brazil as Forest Code moves to Senate, President
The House passage of the Forest Code is certainly not the end of this story.

The bill now goes to Brazil's Senate, which could spend months debating it. (Before last week's passage of the bill, the House had been debating the Forest Code since 2009). The rapporteur for the bill, Senator Jorge Viana, has an outstanding record on forest protection and sustainable development as former governor of Acre state. If the Senate makes any changes, the bill goes back to the House, and so on, until the bill's language is agreed. The bill is then sent to President Rousseff, who has the option to veto portions of the bill or the entire bill.

During Rousseff's presidential campaign last fall, she pledged to reduce deforestation in the Amazon by 80 percent and to reduce greenhouse gas emissions by about 39 percent by 2020. Reuters quotes the then-candidate saying, in regards to these pledges from her environmental platform:

"I will keep those promises.”
President Rousseff and the Senate have — and should grab — the opportunity to preserve Brazil's leadership on sustainable development and signal investors that they can count on rule of law and a stable investment environment in a plethora of sustainable, green economy alternatives from biofuels, to sustainable forestry and forest carbon credits.

However, if the bill should pass the Senate and be enacted as currently written, it could, over time, erase Brazil's gains in controlling Amazon deforestation, undermine the considerable international stature the country gained through its environmental leadership, and foreclose Brazil's enormous green growth potential.

With Brazil set to host the Rio +20 United Nations Conference on Sustainable Development next year, the world will be watching the Senate and President closely.

China’s CDM market: Will Shanghai say goodbye to CERs? /// Energy Risk

Author: Lianna Brinded

Source: Energy Risk

03 Mar 2010

With China widely blamed for the failure of Copenhagen, some experts believe CDM investors could now shun the country in favour of India and Brazil, or that the EU may even take action again Chinese CDM certificates, creating a two-tier market. Lianna Brinded reports

The Climate Change conference in Copenhagen (COP15) rounded off 2009 on a sour note, following a lack of collective will to determine a binding agreement. Although, none of the 140 countries signed a much-talked about agreement, the blame for the de-railing of the Copenhagen talks was put mainly at the door of China.

Some analysts believe China may suffer a backlash as a result, with Clean Development Mechanism (CDM) project investors choosing to put their money into projects in countries that have a better green track record. The European Union may also take punitive measures intended to dilute China’s top slot in the CDM market in favour of other players such as India and Brazil, some analysts say. There is even talk that the EU could decide not to recognise certain Chinese CDM certificates (Certified Emissions Reductions – CERs) which would create a two-tier CDM market.

“China is no doubt the largest issuer of CERs on the market and some of its largest projects may be objected to by the EU in the future,” says Emmanuel Fages, head of market analysis at French emissions trading house Orbeo, when asked about whether the EU will be taking punitive measures on China following COP15. “Also, people may find that their portfolios are loaded with these kind of CERs and will be forced to diversify.”

Phase III (2012–2020) of the EU Emissions Trading Scheme (EU ETS) starts in less than two years and already analysts and law firms say this could be the turning point for the Chinese CDM market.

“CERs generated in Phase II can be carried over in Phase III up to 2020,” says Fages. “However, the issue now is what type of CERs will be eligible for the carry-over. The EU may force only CERs from certain countries to be eligible for compliance use in Phase III.”

If this were to happen, there would be glut of CERs left over that could not be used in the EU ETS system. This has caused a wave of concerns that a two-tier system may be implemented, leaving China out in the cold.

People are certainly upset with what has been seen as China’s lack of commitment at the Copenhagen talks.

“China behaved appallingly throughout the duration of COP15,” says William de Lucy, director at financial instrument trading house Amplify Trading. “Wen Jiabao, the Chinese premier representative at the conference, acted on two agendas. First, to limit the impact of any international agreement on China’s growth and second to make the point that they are to be respected and will not be coerced into deals under other nations agendas, especially that of the US and EU.”

If action, whether direct or indirect, were to be taken against China’s CDM market, it would certainly hurt the country and upset the existing balance in the CDM market. China is the largest supplier of CERs in the world, issuing 47.67% of all CERs, according to the United Nations Framework Convention on Climate Change (UNFCCC). Analysts say China will make $8 billion by 2012 from the sale of all CERs it issues.

In addition, the latest data from the China’s National Development and Reform Commission shows the Chinese government has approved 42 new CDM projects, estimated to generate more than 3.7 million CERs, with 67% purchased by Western buyers from December 24 to January 19 alone.

Some people believe that drastic action against China is very unlikely. “Excluding China as a whole would have negative effects on the markets, the cost containment functions of the mechanism and the ultimate objective of the CDM – fostering technology transfer and reducing global emissions,” says Alexander Sarac, General Counsel – Carbon Transactions Associate Director EcoSecurities. “In terms of the climate change debate, it would make little sense to ban China CDM generated CERs from the EU ETS market.”

Alternatively, analysts say that indirect ways for the EU to curb China’s hold over the CERs market is by allowing only CERs generated from new CDM projects, in the least developed countries, which would of course exclude China.

Analysts say this could be the key. While a complete ban on Chinese CERs seems very unlikely, despite market rumours, it appears that the EU could take this more indirect approach to “throttling back” CERs from the major developing economies, says Vitelli. “I can fully understand why the EU now feels that the Chinese do not deserve the rewards from the EU ETS, but I do not see a change in the rules as likely, as member states still need the CERs from China to commit to their targets,” says De Lucy.

Diluting China’s presence in the CDM markets is another focal point. According to the UNFCCC, China is still expected to provide the largest amount of CERs in the market, with an average annual forecast of CERs from registered projects by host party at nearly 60%. India comes in second with nearly 12% (see figure 1).

However analysts say that the EU may start concentrating on other participants, such as Brazil, which currently has over 6% of the market and is in third place, by developing its technology transfer and investments into CDMs, in order to cool off the Chinese stronghold.


The COP15 cop-out
China was an easy target to blame for the failure of the Copenhagen talks, but many believe the US is equally culpable. US President Barack Obama took the opportunity late last year to openly criticise China in a speech on the country’s lack of commitment. But here lies the problem.

“It is like the chicken and the egg situation. The US won’t do any more, if China doesn’t do any more and vice versa. Under the UNFCCC, the US is a developed country and China is not, so therefore they are not ‘equals’,” says Alessandro Vitelli, director at independent advisory and strategy for carbon finance group IDEAcarbon.

“But this is an advantage for China, as it does not need to participate in mandatory emissions cuts. So why would China want to agree to this if nothing is happening from the US, who is under obligation to cut emissions [due to the US being a major emitter and a developed country].”

The US is an Annex 1 country and China is a non-Annex 1 country under the UNFCCC definition. Annex 1 countries mainly refer to developed nations and carbon emission limitations are only placed on these parties. However, non-Annex 1 refers to developing countries and these nations only participate in the Kyoto Protocol by investing in CDMs or Joint Implementation (JI) projects that earn them CERs. These CERs are subsequently sold onto Annex 1 countries, in order for them to fulfil their compliance obligations.

“If we look at the large political picture, what was clear was that the EU and UN were marginalised in Copenhagen,” says Bjarne Schieldrop, head commodities analyst at SEB Bank. “The US concentrated on large emitters like China and Brazil rather than a broad UN agreement.”

While many UNFCCC-defined ‘developed countries’ continue to focus on China to agree on a deal, analysts say its economic backdrop stops it from inking an agreement.

“The living standards for the majority of China’s population are below the world average and the per capita GDP is lagging behind that of other nations,” says Armand Cao, consulting analyst and Chinese CDM specialist at research consultancy Frost & Sullivan. “So for European countries to try to compel China to bear more obligation than its capability is unreasonable. The Chinese government and people can not afford it. Therefore, there is nothing wrong in China’s position.”

Analysts say combined with this and its awareness of how the EU ETS depends largely on its CER input, China holds political clout and is ‘confident’ it will not be left out of the EU ETS system.

One analyst who did not want to be named says: “China knows it’s the largest supplier in the market. However because of this, it knows it has an inseparable position in the CER market and the EU ETS will really lose out if it excludes them.”

China’s economy expanded 10.7% in the fourth quarter of 2009 from a year earlier, picking up from 9.1% growth in the third quarter and bringing full-year growth to 8.7%. Some analysts argue its exponential growth should allow it to be considered as an Annex 1 country.

And despite the argument that China is staying within its means as a developing country, analysts say that China could prevent the EU limiting, removing or cooling down its CDM development and market stronghold and therefore CERs, by agreeing to a deal.

“If the Chinese sign a legally binding agreement, it is likely that most of their CERs will be eligible post-2012,” says Fages. “However, if there is no bilateral agreement, certain CERs and certain CDM projects may be banned.”


Investment digression
While the lack of clarity over Phase III of the EU ETS is enough to make investors wary, China, which is the cornerstone of the CER market and depends heavily on Western money to develop projects, could see the fear of uncertainty suppress developing the market further.

“The wider issuer is not just the Chinese CDM market but CDM projects in general,” says Vitelli. “It will all depend on whether investment into new projects will still be flowing and whether CERs generated from these will be used as a compliance tool.”

Project specialists and analysts say that the fate of the Chinese CDM project will be more determined by the flow of investment, rather than by fears that the EU ETS will disallow a large number of China-generated CERs.

“We are going to see a major shift. I do see investments moving away from CDM projects and being diversified elsewhere, such as in renewable and sustainable energy with no reliance on carbon credit-based revenue,” says Richard Burrett, partner at environmental investment advisors Earth Capital Partners. “Financial capital is relatively fungible and can be earmarked to wherever delivers the best return.”

Burrett sees investors looking beyond the CDM and eyeing up forestry and renewable energy sectors for a more “sustainable” return.

According to a report by Bank of America Merrill Lynch, after years of sustained growth, 2009 saw companies cut back aggressively on spending to reduce carbon emissions, which means the offsets from CDM or JI offsets stalled last year. So to tackle this, some analysts say that China will find a way of seeking revenue elsewhere in the green sector.

“If China’s revenue from CERs is impacted in the long term, they will no doubt find others ways to broaden their emissions securities, like more development in renewable energy and finding other routes for technology transfers,” says Fages.

The future of the Chinese CDM still hangs in the balance.

If China does leave the CDM sphere, as the EU tries to promote CDM development in other countries, analysts predict project investments will flow into other countries and therefore other CDM projects, which would further dilute China’s market presence.

“If China leaves the market, other countries such as India, South Africa, will look to take up the market,” says Cao. “India is one of the biggest CER suppliers now, so it will take up the proportion where China leaves off. Without a mature market of their own, technology and adequate funding, emerging markets are a good helper for many countries developing CDMs to solve the problem of emission reduction.”

“Also, the governments of these countries encourage their companies to apply for CDM projects,” he adds.

The CER futures market price currently does not inspire much confidence in the long term.

CER future prices have taken a hit following COP15. The December 2010 CER futures contract, the most liquid on the market at the moment, traded at €11.78 per tonne of carbon dioxide equivalent (/tCO2e) at the time of going to press, and between €10.98 and €13.27/tCO2e during the month before Copenhagen.

The United Nations (UN) agency UNEP Risoe also cut by 5% its forecast for the total volume of CERs likely to be available up until the end of 2012 for the sixth time. The UN issued 123.4 million CERs in 2009, 11% less than the 137.9 million distributed in 2008 (see figure 2).

While China may have another fight on its hands to maintain its relative freedom in the CDM and therefore CER market placement, the country may be forced into a corner for a legally binding deal under the Kyoto Protocol. Although, a two-tier system has been discussed in the markets, this seems unlikely in the end.

The uncertainty of Phase III has only exacerbated the situation, but it could be the ticket for China to diversify its revenue base in the environmental arena and see it broaden into different sectors to maintain its rapid economic growth. And if China does take a step back from its CDM participation, it could pave the way for many other countries to develop and heavily contribute to the EU ETS system.