- With the Bolsonaro government largely indifferent to participating in a carbon credit market, and amid intensifying pressure from clients and investors, a voluntary carbon credit market is booming in Brazil. The country, however, still doesn’t have any regulation about how and by whom credits can be issued.
- REDD+ projects that issue carbon credits for reforesting or avoiding deforestation have caught the attention of financial market players. Amid the new carbon credit trading firms, such as financial technology company Moss, and other initiatives, Brazilian projects offer both examples of success and failure in forest preservation.
- REDD+ supporters argue Brazil’s voluntary carbon credit market is allowing small-scale farmers and Indigenous and traditional people to get in the game, benefiting them financially, and helping conserve forests and protect the Earth’s climate.
- But critics say it’s difficult to ensure that forest conservation promises made today can be kept in the future, especially in a nation notorious for illegal deforestation and record forest fires. Also, protecting one area can simply drive the deforestation to another area.
Lábrea, in southern Amazonas state, is one of the Brazilian Amazon’s most deforested municipalities, with almost all of its large swath of privately held rural properties having been denuded of forest to raise cattle. But at the Fortaleza do Ituxi farm, the landowner has taken a different path, aggressively conserving the rainforest on his land.
“In the beginning, all the neighbors said he was crazy, that he was losing money. [But] after he started to sell the first [REDD+] carbon credits, some people in the area were convinced to do the same,” says Janaína Dallan, founder of Carbonext, the private company responsible for modeling and transacting the Fortaleza do Ituxi carbon-offset project.
In Apuí, also in Amazonas state, carbon credits have become a primary financial pillar for Café Apuí Agroflorestal, a project that stimulates small farmers to grow coffee using an agroforestry system, while also preserving forest. “We have to start to think about financial sustainability in the Amazon, otherwise the bill doesn’t add up,” says Pedro Soares from IDESAM, the Institute of Conservation and Sustainable Development of the Amazon, the NGO behind the project.
Café Apuí and Fortaleza do Ituxi are very different initiatives, both in scale and nature. Fortaleza do Ituxi covers 48,000 hectares (119,000 acres), almost four times the size of California’s San Francisco, and it issues its carbon credits to willing buyers based on the amount of deforestation avoided inside the property, as compared to the deforestation rate in the surrounding area.
In 2019, for example, when Lábrea had the fourth-highest Amazon deforestation rate of any Brazilian municipality, Fortaleza do Ituxi said it avoided cutting down 241 hectares (595 acres) of forest. However, before those carbon credits could be claimed by large Brazilian clients, or by those abroad, they had to be certified under the Verified Carbon Standard (VCS), the world’s most respected carbon credit certification program, an accreditation that can cost producers hundreds of thousands of dollars.
But that’s an investment far beyond the abilities of Apuí’s small coffee farmers, whose individual land allotments are a mere 40 hectares (99 acres). For them, carbon credits are generated not based on deforestation avoided, but on reforestation of degraded areas on their land with native Amazon tree species, such as highly valued ipê, copaíba and massaranduba trees.
Periodically, IDESAM technicians come into the field to measure the growth of those trees and to calculate the amount of carbon sequestered within them. The small coffee grower projects, not requiring expensive certification, are supported by Natura, the fourth-largest beauty products company in the world. Some of the project’s carbon credits have already been sold to companies like Farm, a retail clothing store from Rio de Janeiro with outlets across Brazil and abroad.
“We couldn’t even afford the plane ticket for the auditor! But that is OK, because the Farm is not worried about certification,” says IDESAM’s Soares. “They [simply] want to show to their clients that they are helping 40 families in the Amazon to recuperate their [forested] areas, creating a developing model that preserves the forest and reduces [carbon] emissions. For them, this result is worth more than a stamp.”
Voluntary carbon credits fill government void
Despite these significant differences, both Fortaleza do Ituxi and Café Apuí are similar in one crucial way: they’re part of Brazil’s booming voluntary carbon market, organized under the umbrella of the United Nations REDD+ initiative, an acronym for reducing emissions from deforestation and forest degradation.
These projects are designated as voluntary because their clients are companies or individuals who are buying carbon credits not because they have to, but because they want to. This is the opposite of what happens in industrialized nations such as the U.S., Canada, Australia, and countries in the European Union, where companies that fail to meet specified carbon emission limits are required to buy carbon credits to offset their greenhouse gas releases, creating what is called a cap-and-trade regulated market.
However, the Brazilian government under President Jair Bolsonaro, with its anti-environmental policies, has done little to promote a regulated market in the country.
That doesn’t mean there isn’t a demand for credits there, though. On the contrary: pressured by eco-minded investors and consumers, many private companies have been prompted to find ways to compensate for their emissions. In fact, some of the country’s best-known businesses, including Renner (the leader in the fashion retail sector in Brazil), Itaú (a bank) Natura (the beauty products company), Vale (the huge Brazilian mining company) and Nubank (a fintech firm) are already doing it, as are others.
Brazil being the country with the largest tropical rainforest in the world, it’s natural for REDD+ projects to become a driver for a vigorous voluntary carbon credits market.
“In the voluntary market the buyers usually don’t look just for the cheapest credits, but also for the most beautiful ones, as their goal is green marketing,” says Gustavo Pinheiro, from Clima e Sociedade, an NGO that is working toward a low-carbon economy. “So, projects of reforestation and that evolve local communities are more attractive.”
Voluntary market downsides
However, the same regulatory and certification flexibility that allows for diverse, freewheeling projects such as Fortaleza do Ituxi and Café Apuí is viewed critically by Pinheiro.
“Even with very serious certifiers, these projects can’t assure their environmental integrity, because it works on a project basis,” he says. “By protecting one area, it may just be driving the deforestation to the area [next door]. In Brazil, for example, it was very clear that when the government managed to reduce deforestation in the Amazon [rainforest biome], it increased a lot in the Cerrado, [the neighboring savanna biome].”
This problem, known as leakage, is just one of several criticisms leveled at voluntary REDD+ projects, which defenders have tried to address. “The leakage is totally monitored. If there is leakage in your area, you have to discount it from the carbon credits of your project,” says Dallan from Carbonext.
Another REDD+ criticism arises from the uncertainty surrounding promises made in the present about forested lands that may see intense deforestation in the future. In Brazil, for example, with its horrific record of annual wildfires and illegal clear-cutting, how can anyone ensure that the native trees that generate carbon credits this week will be there the following month? “You are mortgaging the forest for the next five or 10 years,” says Maureen Santos, a coordinator with FASE, a Brazilian NGO.
Dallan counters that argument by noting that carbon credits can only be claimed after a land audit, which certifies deforestation that has already been avoided. She acknowledges, nevertheless, that some clients may pay for credits in advance. “In some cases you can do a future purchase. Then, the buyer usually gets a lower price [for the credits] but also assumes the risk to not have these credits later, in case the project has some problem. Before the audit, he can’t compensate or even sell these credits.”
Equally controversial is how to calculate the deforestation avoided by a REDD+ project, as that all depends on estimates of future deforestation in the surrounding area. A recent study questioned whether overestimated baseline deforestation forecasts could be artificially boosting REDD+ positive results in Brazil, though Carbonext vigorously contests that study.
The Moss example
While the debate over REDD+ pros and cons rolls on, Brazil’s voluntary carbon market continues thriving. Today, companies that rely on respectable certifying agencies, but no public regulation, are mixing carbon credits with the financial market to make high profits.
The main exponent of this market niche is Moss, a Brazilian company that describes itself as an environmental fintech (a financial technology company) working as a broker: it buys credits from REDD+ projects and resells them to companies and individuals.
Moss is barely a year old, founded in March 2020 by Luís Adaime, an executive with lots of finance experience but little knowledge of the Amazon. “My previous works had nothing to do with the environmental area, but one thing that I learnt in all these years in the financial market was to identify an opportunity in a dis-arbitrated market, which lacks information,” he told Mongabay.
Moss calls itself the biggest carbon platform in the world, accounting for 20% of the voluntary market. It claims to have sold more than 800,000 tons of carbon credits in six months, valued at $10 million.
The company’s first major innovation came when it transformed carbon credits into easily traded tokens — digital coins negotiable via cryptocurrencies stocks. “It added security to a market that always lacked transparency,” Adaime says.
The second innovation: transfer the pragmatic thinking of the financial market to the carbon offset market. By buying credits in large amounts, Moss increases its bargaining power and can buy at a lower price, therefore increasing its profit margin. “At retail we are selling a credit for $19. But if a large company asks for one million tons [of carbon credits], for example, it gets a considerable discount,” Adaime says.
Currently, Moss is buying credits from five projects, including Fortaleza do Ituxi. All are certified by VCS and eight other international certifiers.
Carbonext founder Dallan says this approach isn’t the best for the environment, as it sends less money to the forest and more to transaction intermediaries like Moss. “As the project developer, we try our best to do the direct sell of the credits to the final consumer, so the spread is not so big and the credit remains in the forest. But the owner of the area has the final word,” she says.
Lessons learned from the Suruí project
REDD+ projects still face many methodological and regulatory challenges, and their impact continues to be debated. Even more complicated, however, is the human aspect of evaluating carbon credit projects, a variable that’s hard to measure via a mathematical model.
An emblematic example is the Suruí project, the first anywhere in the world by an Indigenous population to sell carbon credits. The Amazon’s Suruí Indigenous group committed to preventing deforestation inside the Seventh of September land, a territory located between the states of Rondônia and Mato Grosso, in an area under intense pressure from soy growers and ranchers. The project started in 2013, received VCS certification, and sold credits to Natura and even to FIFA, which held the 2014 World Cup in Brazil, before collapsing in 2017.
The reason? Deforestation within the reserve took a leap due to an unanticipated invasion by illegal miners, which was influenced by external groups opposed to the REDD+ initiative, and which in turn led to divisiveness between two Indigenous leaders, weakening the community.
“It was the first Indigenous land to generate income in Brazil, but this project caused a generalized insanity,” says Soares from IDESAM, which modeled the project. “It was very attacked. The critics empowered the deforestation agents and the project had to be discontinued.”
Natura, known as a corporate benchmark of environmental responsibility, took some lessons from that experience. “It was one of the first REDD+ projects we bought … and [it] brought much learning [with it],” says João Teixeira, Natura’s sustainability manager. “One [lesson learned] is that it is really important to have social cohesion in the community that is implementing the project.”
For FASE’s Santos, the Suruí project failure highlights the hazard of putting Amazon forests at the heart of a carbon credit market. “When a project enters the [traditional] communities, it brings political destabilization,” she says. “Sometimes, it benefits just one leadership in detriment of the others, which generates suspicion and breakups.”
The Suruí debacle resulted in a 2017 letter opposing forest offsets, issued by 60 NGOs. They wrote that the carbon market unfairly transfers responsibility for curbing carbon emissions from the fossil fuel industry to traditional forest peoples.
REDD+ problems on the Purus River
Santos recalls another controversial project, this time in Acre state. The Purus REDD+ project was implemented in an area covering 35,000 hectares (86,500 acres) on the Purus River, between the municipalities of Sena Madureira and Manoel Urbano. The project proponents — the former mayor of Sena Madureira and current Rio Branco Secretary of Environment Normando Sales, and lawyer Wanderley Rosa — claimed to be the owners of lands occupied by some 20 families.
In 2013, a team from DHESCA, a network of civil society organizations, visited the Purus area and denounced the project’s authorization document, arguing that many signers had no idea what was contained in it, as most were illiterate. Extractivists — the traditional communities who make a living from the sustainable harvest of forest resources — also complained of being threatened with eviction if they didn’t adhere to REDD+ project rules. Despite these controversies, the Purus project received VCS certification and was approved for the Climate, Community, Biodiversity Standard (CCBS), another renowned carbon projects certificate.
Sales told Mongabay that he felt the negative DHESCA report was false and that the Purus REDD+ initiative is one of the “world’s most respected projects … The people there just want to deforest, and our platform is to work with the standing forest, to sell environmental services.” Mongabay was unable to investigate further or speak with the families impacted by the project, as the region lacks phone and internet, and is locked down due to the pandemic.
IDESAM’S Soares says such miscommunication problems could easily be avoided by including traditional and Indigenous communities in every step of a REDD+ project, following the rules of free, prior and informed consultation. To prove his point, he offers Café Apuí and RECA as successful examples of REDD+ projects that benefit communities.
RECA is a project of Natura, developed by IDESAM in Nova Califórnia, a district of Porto Velho, Rondônia state’s capital, located on Brazil’s border with Bolivia. There, in 1989, migrants coming from southern Brazil created one of the oldest agricultural cooperatives in the Amazon, the Consortium and Densified Economic Reforestation Project, or RECA.
While everyone else seemed to be deforesting, RECA participants joined forces to create an agroforestry system, which allies agriculture with the plants of the forest, like açaí, cupuaçu, pupunha, andiroba, and nuts. “At that time, everybody said they were crazy,” recalls Fábio Vailatti, RECA’s vice president.
When Natura’s carbon credit project started, RECA was already supplying the multinational beauty company with the oils it extracted from the forest. To date, Natura has paid around 1.6 million reais ($282,000) in carbon credits to the producers — money used to pay for a composting plant, water storage, and a microcredit system.
“We could say to our producers, who are engaged with our environmental ideology, that the 30 years they spent preserving the forest were worthy,” Vailatti says.
RECA, however, had its ups and downs. After avoiding cutting 160 hectares (395 acres) of forest from 2012 to 2016, deforestation increased in 2017-18. In response, the association reviewed its participants, maintaining only those who were committed to forest conservation. Out of the 120 producers at the start, around 90 stayed on.
Now, with the price of cattle rising, the association is struggling to keep the remaining participants. “It is a difficult battle. Even if we prove our system is 10 times superior than livestock, I think livestock has an appeal — the dream of becoming a farmer, of having a truck,” Vailatti says.
The government starts to step in
Even as the voluntary carbon offset market grows, Brazil is striving to create its own stable regulated market — this time with government support. At the end of last year, the Economics Ministry, in partnership with the World Bank, completed a comprehensive study determining how a Brazilian regulated carbon market should operate.
The final report, delivered last December, concluded that the adoption of a cap-and-trade market would allow the country to fulfill its climate goals while keeping higher GDP growth, creating jobs and reducing poverty.
The Brazilian Business Council for Sustainable Development (CEBDS), which is also a partner in the World Bank project, defends a cap-and-trade system over a tax on emissions (such a tax is applied in neighboring countries like Chile, Argentina and Colombia).
“The economic sector is asking to be regulated. It has already understood that it is a matter of survival and competitiveness,” says Karen Tanaka, from CEBDS. Like many others in Brazil, she sees the carbon market as a great opportunity for the country. A tool that protects the world’s greatest rainforest, she says, “can be the biggest commodity in the world. Brazil has a lot to gain, we are a potency in green energy power and bioeconomy.”
According to recent data, Tanaka is right. A study by the Taskforce on Scaling Voluntary Carbon Markets found that the amount of credits retired globally in 2020 was more than twice that registered in 2017. By 2030, this world market could be 15 times bigger and worth upward of $50 billion. To keep up with this growth, the market will have to rely on countries with high natural capital, like Brazil.
That logic displeases those seeing the carbon credits market as an illusionary solution to the climate crisis. “We should be discussing a real change in the development model. Instead, we are reducing the carbon emissions in one place in order to keep emitting in the other one,” says FASE’s Santos.
For others, like Dallan, REDD+ represents the only sensible path. “We are in the middle of a transition towards a low carbon economy. In this period, the [carbon] mitigation projects prevent the world [climate] from collapsing,” she says.
One thing is sure. The Amazon biome is clearly Brazil’s most valuable asset, but its rainforest is quickly being converted into pasture and plantation. In 2019, Brazilian Amazon deforestation totaled more than 1.01 million hectares (2.5 million acres), the worst since 2008. In 2020, that total went up to 1.11 million hectares (2.74 million acres), according to preliminary data from INPE, the National Institute for Space Research.
“We have to start to think about financial sustainability in the Amazon, otherwise we will [achieve nothing] and [end up] depending [only] on governments committed to the environment to fight deforestation,” Soares says.
Banner image: The RECA cooperative was formed by migrants coming from southern Brazil in the 1980s. Image courtesy of RECA.
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