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Brazil / UK push offshore oil pact, a potential climate change disaster

  • This month, as Brazil ratified the Paris Agreement, President Michel Temer and the Congress pressed forward with Provisional Measure 795, which must be approved by Friday or it will expire. PM 795 would offer billions in tax breaks to transnational oil companies seeking to tap into Brazil’s 176 billion barrel offshore oil reserve.
  • In November, Britain reaffirmed its Paris Climate Agreement commitments, but diplomatic telegrams released by Greenpeace show the UK was in clandestine talks with Brazil in 2017 to smooth the way for offshore drilling, massive tax incentives and relaxation of environmental licenses for transnational oil and gas companies, including British Petroleum (BP).
  • Brazil has also announced major auctions for oil and gas exploration blocks in its offshore pre-salt region. Ten rounds of bids have been authorized to occur between 2017 and 2019. The September and October auctions counted BP, Shell, Exxon, and Brazil’s Petrobras among the big winners.
  • Exploitation of Brazil’s offshore oil reserves could release 74.8 billion tons of carbon into the atmosphere, compromising the Paris Agreement goal of keeping global temperatures from rising 2 degrees Celsius (3.6 degrees Fahrenheit) by 2100. UPDATE: Late on Dec. 13 Brazil’s House passed PM 795 in its original form. Now the bill goes to Pres. Temer. Court challenges may follow.
Exploitation of the pre-salt layer off the coast of Brazil could result in the burning of a carbon reserve equivalent to the release of 74.8 billion tons of carbon into the atmosphere, potentially compromising the Paris Agreement goal to keep average global temperatures from rising more than 2 degrees Celsius (3.6 degrees Fahrenheit). Photo by nate2b on / CC BY-NC-ND

Opposing forces within the Temer administration are engaged in a tug-of-war over Brazil’s dire need to slash greenhouse gas emissions, and its desire to unleash an orgy of deep water drilling off the country’s coast to hugely profit transnational oil companies.

Similar is Great Britain’s divided mind, which at the COP23 Climate Summit last month recommitted to its carbon reduction goals, while plotting a deal to help BP, Shell and other firms drill for 176 billion barrels of Brazilian crude.

Pulling in one direction is Brazil’s Ministry of the Environment which says it is standing firm against fossil fuel exploration expansion – the ministry, through its communications office, told Mongabay that it is working to fulfill Brazilian carbon cut commitments made under the Paris Agreement, which was ratified by Brazil on 12 December.

Pulling forcefully in the opposite direction is Brazil’s Presidency of the Republic, with the support of the Ministry of Finance and Ministry of Mines and Energy (MME). Both are working aggressively for approval of Provisional Measure (PM) 795/2017 that provides gigantic tax exemption to foreign oil companies operating in deep water offshore in what is known as the pre-salt layer of sedimentary rock on the ocean floor.

Driving these huge tax giveaways was clandestine lobbying by the UK government on behalf of the big oil firms.

Brazilian Environment Minister José Sarney Filho (left) and Minister of Mines and Energy Fernando Coelho Filho at a press conference announcing the end of protections for the RENCA reserve in the Amazon, and its opening to mining (a presidential decree first made by President Temer, then rejected by him after a wave of public outrage). Photo by Fabio Rodrigues Pozzebom / Agência Brasil

The art of the deal

On 29 November, Brazil’s House of Deputies approved PM 795 by a 208 to 184 vote. The bill moved on to the Senate, which on 12 December approved it by 27 votes to 20. But that’s not the end of it: The text of the bill was altered in the Senate and so must go back to the Chamber of Deputies for another vote, which needs to act by this Friday, 15 December, or the legislation loses its validity and expires.

Under the original House and Senate bills, PM 795 provides huge tax breaks as incentives for offshore drilling. It eliminates for an indefinite period a government requirement for transnational oil companies to pay a social contribution on their net profits and income federal tax. The bill, if passed this week, would suspend the payment of import taxes and a tax on industrialized products. The corporate tax waiver would cost Brazil – an economically stressed nation in dire need of revenue – R$ 40 billion (about US$ 13 billion) per year, or R$ 1 trillion (US$ 300 billion) over 25 years, according to a congressional technical study.

However, under strong opposition pressure, Senator Romero Jucá presented an amendment on Tuesday reversing a portion of the text as approved by the House of Deputies that was in conflict with Brazil’s Annual Budget Law (LOA). The House deputies had originally established that the suspension of taxes would occur until 2040. But the Budget Law only allows incentives of up to five years, or until 2022, which is what led to the adjustment in PM 795 and its return for a second vote to the House.

This still didn’t eliminate Senate opposition: “This provisional measure is the official theft of national public money,” protested senator Lindbergh Farias.

Daily oil output at the pre-salt layer soared from approximately 41,000 barrels per day in 2010, to 1 million barrels per day in mid-2016, a nearly 24-fold increase, with more rapid expansion expected if PM 795 is approved. The pre-salt area encompasses 149,000 square kilometers (57,529 square miles) of ocean, an area nearly three and a half times the size of Rio de Janeiro state.

Contacted by Mongabay, the Civil House of the Presidency’s communications office referred questions concerning PM 795 to the Ministry of Mines and Energy. The MME, in turn, referred questions about oil exploration in the pre-salt layer to the Ministry of the Environment. And the Ministry of the Environment, as already mentioned maintained its commitment to the Paris Agreement.

Brazilian Mines and Energy Minister Fernando Coelho Filho during the October 2017 pre-salt block oil and gas auction in Rio de Janeiro. Credit Tomaz Silva / Agência Brasil

Brazil’s split petro-personality

Written by the Ministry of Finance, PM 795 was published in the Union Official Gazette last August, the same month in which the Presidency issued Decree 9.128/2017, which temporarily extended from 2020 to 2040 the suspension of federal taxes on imports of equipment for exploration and production of oil and gas deposits.

But even as some sectors of the Temer government hurried to create fiscal incentives for fossil fuel exploration, the Ministry of the Environment – which would need to monitor a rapid expansion in offshore deep water drilling, and clean up spills – faced a 2018 budget cut of more than 50 percent. Meanwhile, Environmental Minister José Sarney Filho is expected to leave the government in order to run for office In Brazil’s October elections.

“The Temer government has not even considered investing [significantly] in renewable sources of energy, such as solar and wind. In fact, it fears that oil will no longer be exploited and get replaced,” by other alternative energy sources, said Márcio Astrini, coordinator of public policies at Greenpeace Brazil.

British Petroleum’s Deepwater Horizon drilling rig explosion on April 20, 2010 off the Louisiana coast. British Petroleum (BP) is one of the big winners in bids for Brazilian deep water oil development. Photo by Deepwater Horizon Response on Visual hunt / CC BY-ND

In early 2015, the NGO joined with federal deputy Arnaldo Jordy in presenting a bill that would have suspended payments of import tariffs for imported solar panels. “We consulted the Ministry of Finance, which showed great concern. They said the exemption would bring a ‘monstrous impact’ and would break the Severance Indemnity Guarantee Fund (FGTS) [designated to support Brazilian workers],” recalled Astrini. But according to bill supporters, individuals could use part of their FGTS to purchase solar equipment for their homes.

Meanwhile, PM 795 has a very good chance of passage by Friday in light of a resumption of major auctions for oil and gas exploration blocks in the offshore pre-salt region. Ten rounds of bids have been authorized to occur between 2017 and 2019. This year, the auctions held in September and October raised, respectively, R$ 3.84 billion (about US$ 1.28 billion) and R$ 6.15 billion (US$ 2.05 billion), money that will be used to reduce the country’s 2017 fiscal deficit.

The country’s September oil auction saw a consortium made up of Brazil’s Petrobras and Exxon Mobil as the big winners. In October, Shell, British Petroleum (BP) and Exxon Mobil ranked among the biggest winners of the two oil and gas block auctions.

Brazilian minister Wellington Moreira Franco, head of the General Secretariat of the Presidency, was exultant: “We had an extremely important day for the Brazilian economy. It represents the importance of the [oil] sector recovery, which accounts for 13 percent of the [nation’s] GDP. ”

UK Minister of the Department for International Trade Greg Hands in March, 2017: “With Brazil’s Energy & Mines Minister Paulo Pedrosa [left] at our UK Energy Showcase, outlining UK capability in offshore, decommissioning & more!” Photo by Greg Hands on flickr,

Brazil betrays Paris with a little help from the UK

Brazil’s drive to drill – with the PM 795 push, and the new pre-salt auctions – wasn’t born out of nothing. It apparently arose out of clandestine lobbying by the United Kingdom on behalf of transnational oil companies, Greenpeace revealed on 19 November.

The NGO reported that Greg Hands, the UK Minister of the Department for International Trade, traveled to Brazil last March to smooth the path within the Temer administration for BP, Anglo-Dutch Shell and Premier Oil to secure oil blocks in the country’s pre-salt auctions, and be “direct beneficiaries of the changes” in the national oil exploration environmental rules and tax code.

According to an official diplomatic telegram released by Greenpeace, the UK trade minister met with Paulo Pedrosa, Brazilian deputy minister of Mines and Energy, to talk about the concerns of the British oil companies regarding “environmental licensing and taxes.” Pedrosa, for his part, confirmed that the Brazilian Mining Ministry was already interceding in favor of the oil companies.

A portion of the a diplomatic telegram released by Greenpeace providing a window into the Brazil / Great Britain oil deal which will benefit BP, Shell, Premier and other oil companies with billions in Brazilian tax breaks, while completely disregarding climate change concerns. Image courtesy of Greenpeace

The news of this clandestine UK/Brazil oil drilling deal surfaced just two days after the end of the COP23 Climate Summit in Bonn, Germany.

At the event, UK Climate Change Minister Claire Perry stated that the British government intends to go “further and faster” on cutting carbon emissions, and called on countries to move towards a “low carbon, sustainable economy.”

Brazil’s Temer likewise claimed to be on track to meet Paris Agreement goals – a claim that seems to run counter of Brazil’s nearly 10 percent annual increase in greenhouse gas emissions last year, and its continued commitment to agribusiness and mining expansions which seem poised to cause major Amazon and Cerrado deforestation.

“The episode is shameful for both Brazil and the UK,” said Astrini, of Greenpeace. “While diplomats were negotiating the terms of the climate agreement at the conference, the reality is that other Brazilians and British representatives were discussing how to get fossil fuels from the ocean’s pre-salt area.”

Something similar happened with Temer’s attempt to open the vast National Copper and Associated Reserve (RENCA) to mining, said Astrini. In March, five months prior to the president’s decree opening RENCA, (an order put on hold by Temer days later due to public outcry), Minister of Mines and Energy Fernando Coelho Filho met with Canadian mining executives, informed them that RENCA reserve protections would soon be abolished, and invited the firms to participate in a mining concession auction.

“In the case of PM 795, its publication [by the Temer government] took place five months after the UK minister negotiated with the Brazilian government,” explained the Greenpeace coordinator.

First images of the Amazon coral reef taken from a submarine launched from the MY Esperanza. This Greenpeace ship was then sailing near the Amazon River mouth, Amapá State, for the “Defend the Amazon Reef campaign. Photo by Greenpeace

A coral reef and the global climate put at risk

Environmentalists noted that the Brazil / UK deep water drilling scheme is being forwarded at the same time a vast new environmental treasure requires protection. Drilling could put at risk the coral reef discovered last year at the mouth of the Amazon River, stretching from Amapá to Maranhão states and covering approximately 9,500 square kilometers (nearly 3,700 square miles). In 2013, BP and Total obtained blocks for oil exploration next to the then unknown reef, though the companies have yet to receive a drilling license from IBAMA, Brazil’s environmental agency.

The mouth of the Amazon River includes seven oil exploration blocks. The closest to the coral reef belongs to France’s Total, a five-block concession held in consortium with BP and Petrobras. At the end of August, IBAMA demanded that Total provide further clarification to document how it would avoid environmental impacts in the region in case of oil spills. Past studies presented by the company were considered insufficient.

In addition to the potential destruction of the coral reef and other marine ecosystems, exploitation of the pre-salt layer would result in the burning of a carbon reserve equivalent to the release of 74.8 billion tons of carbon into the atmosphere, potentially compromising the Paris goal to keep average global temperatures from rising more than 2 degrees Celsius (3.6 degrees Fahrenheit).

O Globo newspaper columnist Ricardo Noblat referred to the PM 795 as “a crime against Brazil.” Considering the carbon emissions that could arise due to this provisional measure, it could also be called a crime against humanity, according to experts.

Offshore oil rigs. Daily oil output at the pre-salt layer soared from approximately 41,000 barrels per day in 2010, to 1 million barrels per day in mid-2016, a nearly 24-fold increase, with more rapid expansion expected if PM 795 is approved and more oil and gas blocks are opened for exploration. The pre-salt area encompasses 149,000 square kilometers (57,529 square miles) of ocean, an area nearly three and a half times the size of Rio de Janeiro state. Photo by puliarf on Visualhunt / CC BY

The climate change “question is hardly [ever] brought to the public [attention]. What predominates is the economy speech, the generation of jobs, but this operating mode can no longer be [tolerated] in the 21st century,” said Alexandre Araújo Costa, professor of applied climatology at the State University of Ceará.

Our governments “are doing exactly the opposite of what should be done if we want to have a chance of a future. We must keep the reserves of oil, gas and coal under the ground,” he said. “The big problem, in fact, is that national governments are puppets that kneel to [the fossil fuel] corporations, or worse, are direct agents of their interests. And if we depend on the fossil fuel industry, they will burn [without pause] to the last drop of oil on Earth.”

UPDATE: Late Wednesday, 13 December, the Brazilian Chamber of Deputies approved the original PM 795 without amendment 206 to 193. The legislation now goes to President Temer for signature. The bill, as passed, ignored Senate legal concerns that PM 795 disregarded a Brazilian law that limits incentives to five years (which would have ended oil company tax breaks in 2022), and instead extends the incentives to 2040. Opponents say there are now grounds for an appeal to the courts. According to Observatório do Clima (Climate Observatory), there is sufficient oil in the pre-salt layer to release enough carbon to exceed Paris Agreement targets.

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UK Minister of the Department for International Trade Greg Hands in March, 2017: “About to open our Oil & Gas showcase in Rio, with key players from Shell, BP and Premier Oil. There’s 40bn barrels just off the coast here!” Photo by Greg Hands on flickr,
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