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Brazil on the Edge

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Brazil Caught Between Oil, Politics, and Carbon Growth

November 30th 2009

Environment Topics - Sao Paolo Pollution
Sao Poalo

"This is the second independence of Brazil," declared an enthusiastic President Luiz Inacio Lula da Silva as he raised the first barrel of oil extracted from the Tupi Basin, a vast reserve of crude recently discovered under the salt layer of the Atlantic Ocean some three miles deep and 200 miles off the São Paulo coast.

That was on May 1, the Labor Day holiday in Brazil. Months before, in the same place, Lula had soaked his hands in oil and stamped them on the backs of jumpsuits worn by his aides.

Brazil lives a paradox. On the one hand, it is the tenth largest economy in the world and an emerging regional leader with a highly popular president. On the other, it ranks 75 in human development based on measures of literacy, education, and life expectancy. It is home to the biggest chunk of the Amazon rain forest, once called the "lungs of the world," but it is also responsible for mass deforestation, an environmental, social, and economic scourge that is blamed as a factor in global warming. The country's continued economic development requires more and more construction—growth that will only increase demand for energy and thus carbon emissions. This puts Brazil under pressure from all sides in relation to global climate change: from political opponents and supporters, businesses and NGOs, the federal capital Brasília and the states.

It is estimated that the finds from Tupi and other recently discovered subsalt oil fields will double Brazil's production of oil over the next decade. They represent approximately 40 to 100 billion barrels of oil and gas at a time when the world is trying to decrease, not increase, its reliance on fossil fuels. Petrobras, the state-owned oil giant, is the single biggest carbon emitter in Brazil. In 2008, it emitted 51 million tons of CO2 into theatmosphere, according to the Getúlio Vargas Foundation, a research center that conducted the first greenhouse gas inventory in Brazil. Tests show that extraction of subsalt oil, because it is so much deeper than ordinary oil, produced five times as much CO2 as extraction of ordinary oil.

President Lula's position has been that Brazil is not among the countries that most need to make changes to remedy climate change; he has insisted that other developed countries, which have been polluting "since the industrial revolution," should bear a heavier burden than their emerging counterparts. In October, the president criticized these countries in his weekly radio address. "If they are emitting too much greenhouse gas, they'll have to diminish. This means to reduce their consumption patterns, or change something in production," he said. "If they don't want to, they'll have to pay countries which still have forests to preserve them."

Last week, the Lula administration put even greater pressure on developed nations when it announced that Brazil aims to reduce its greenhouse emissions at least 36 percent by 2020. Much of the proposed reduction is expected to be achieved by protection of the Amazon, where the government just announced deforestation is at its lowest level in two decades. Brazil aims to reduce deforestation of the Amazon by 80 percent by 2020.

These targets are ambitious but voluntary, and are at odds with entrenched agribusiness interests in the Amazon and the government's own pledge for continued economic growth and infrastructure expansion.

In interviews, officials and experts are hard-pressed to name companies actively lobbying on climate change in Brazil. A former top government advisor on energy, who asked to remain unnamed, said that climate change lobbying in Brazil is under the radar because everything favors polluting industries. "In Copenhagen, you'll see groups from the U.S. coal industry, for example, openly distributing leaflets in favor of their interests," he said. "You won't see Brazilian industries doing the same because they don't need to. Everything is in their favor in Brazil."

That is partly because of Brazil's Program to Accelerate Growth (PAC), an ambitious government infrastructure expansion that will only demand more energy and construction. Many cities in the countryside still have no electricity, and the government has a program to remedy that problem, as well. With a general election coming up in October 2010, politicians are also feeling pressure to announce even more construction programs and cut more ribbons. To offset the effects of the world financial crisis, Brazil granted loans to carmakers to keep sales up—and followed that with a tax cut for the auto industry. As a result, after two months of losses, the Brazilian auto industry boasted record sales: in September, 308,713 new cars were registered.

But, unlike in the United States, the government did not ask for concessions in exchange, other than a pledge by the industry to save jobs. "[President Barack Obama] demanded environmental compensations from the auto industry when he conceded aid; why wouldn't Brazil?" asked Fábio Feldman, a consultant who runs the São Paulo State Forum on Global Climate Change, an organization created by the state's governor to discuss the impact of climate change on industries in Brazil's richest state. After all, says Feldman, climate change is not likely to go away any time soon. Says Feldman, "Decision makers act as if this issue is a theme for the next 50 years."

Marina Silva, Brazil's former environment minister, blames the government's failure to take a clear stance on climate change on the fact that Brazilian legislation is usually vaguely written, and there is a national tradition of ignoring regulations with no consequences. "That makes people think there will always be a shortcut." she said. Silva is likely to run for the presidency in 2010 against Lula's hand-picked candidate, and environmental concerns will be high on her campaign agenda.

Blackouts, Politics, and Apathy

Silva left the government in 2008 because of pressure from Lula's government to speed environmental approval of big construction projects under PAC. Contractors were—and still are—complaining loudly about delays in the construction of power plants. They have been quick to remind the public about the nationwide blackouts in 1999 and 2001 that resulted from excessive demand and outdated equipment at a time when the economy was growing briskly. And just last week another massive blackout left close to 70 million people in the dark in 18 states. The forecast that Brazil's GDP will grow four percent or more in 2010 only increases pressure to expand power capacity. Because PAC falls under the responsibility of Dilma Rousseff, Lula's chief of staff and his chosen candidate for succession, the issue is considered particularly sensitive.

Brazil's vague stance on climate change also results from the country's growing leadership role among developing countries. Environmental considerations get subordinated to other matters of regional interest. "There are many issues, not only climate, which influence that [vagueness]: trade, technology, UN regulations," said Carlos Minc, Brazil's environment minister. He explains that Brazil tries to bridge the interests of rich and poor countries. The government uses its climate policy as a bargaining chip in geopolitical negotiations, including its bid for a permanent seat in the United Nations Security Council. To build support, Lula takes a friendly approach to China and other emerging nations when it comes to establishing tighter controls on carbon emissions.

The Institute for Studies of Religion, a human-rights advocacy group, has studied what different sectors of Brazilian society think about climate change. Until 2008, the studies show, legislators were the group least aware of climate change issues. "Members of parliament believe that this [apathy about climate change] is because the Executive has not yet taken a stance," says the report. "They consider that 'without society and [the Executive branch of] government, parliament can do very little'."

Brazil's business sector is also split, and it has taken no official position on climate change. A group of 22 companies, led by the Ethos Institute (a group that advocates corporate social responsibility) and including mining company Vale, paper and pulp producer Aracruz, cement maker Votorantim, and contractor OAS, have released an "Open Letter to Brazil on Climate Change." In the letter, the businesses offer to cut emissions, and they demand more leadership from the government, asking officials to define targets before the Copenhagen conference. The business group is not simply interested in a cleaner environment; its members fear lost profits if Brazil doesn't get greener.

On the other side of the table is FIESP, the Federation of Industries of São Paulo State. The most powerful business association in Brazil, FIESP includes 132 industry associations representing some 150,000 companies, and its officials routinely advise the Brazilian government on a wide range of business matters. FIESP has held a series of debates on the climate change issue, and in publications and events, including one which honored former U.S. Vice President Al Gore, the group argues that Brazil should not rush to take a climate change position before wealthier countries present theirs. "We can't leave our recovery behind and assume commitments that hinder our growth," said FIESP chairman Paulo Skaf during a recent energy meeting.

Money That Opens Doors

Big business in Brazil also makes its voice heard through political contributions. Big carbon emitters that belong to trade associations funded the campaigns of at least 719 Brazilian politicians—including 20 of the country's 27 governors and 183 of its 594 congressmen—in the last general election in 2006, according to an ICIJ review of campaign finance disclosure records. The contributions totaled $28.3 million or three percent of total contributions to candidates that year.

The ICIJ analyzed contributions made by the 38 biggest donors, who are members of 12 national trade associations representing carbon-intensive industries: agribusiness, energy, beef, paper and pulp, cement, big energy consumers, mining, vegetable oils, cereal exporting, fertilizer, steel, and petrol. Some companies, including two local divisions of the global conglomerate Bunge, are part of more than one association.

Partly because Brazil has no lobbying regulations, it cannot be determined whether campaign contributions are linked to climate change regulations. But contributions do open doors. Financing from carbon-intensive industries helped elect half the House committee that is considering changes to the Forest Code—a bill proposed by the Lula Administration that aims to preserve the country's forests by changing the rules of land ownership. Currently, it is the most controversial of four environmental bills under discussion in Congress, because it directly affects the business interests of politicians and their strongest supporters.

On October 14, after an intense dispute, the "ruralists"—legislators with financial interests and constituencies in agribusiness—managed to elect Congressman Moacir Micheletto as the head of the Forest Code Committee. His proposal is to leave environmental legislation up to each state. Among Micheletto's funders were Bunge Foods (R$70,000, or $32,558 at the 2006 exchange rate) and Marfrig beef producers (R$30,000, or $13,953 at the 2006 rate).

Brazil's joint commission on climate change, which was created in March 2009 and which unites Senate and House members to discuss the climate change bills, has fewer members funded by carbon-intensive industries. Only 11 out of its 44 members got donations from the industries, according to a review by ICIJ. So far, the most important outcome of the commission's work has been the appointment of the 10 congressmen who will travel to Copenhagen for the climate talks.

Cutting the "Green Tape"

Agribusiness is the biggest source of carbon emissions in Brazil, but the sector breaks down into and overlaps with several industries. A recent report by McKinsey & Co., the management consulting firm, points to deforestation as being responsible for 55 percent of Brazil's emissions and farming for another 25 percent. The two "villains" overlap; in the Amazon, some deforestation opens space for ranchers and farmers to plant crops and raise cattle—enterprises that grew when commodity prices soared in the international markets.

Although Minister Minc sees a lot of room to offset greenhouse gas emissions just by fighting deforestation, resistance to such "green tape" is building within industry, agriculture, and government—much like the pressures faced by his predecessor Marina Silva. "Many of those industries say they support zero deforestation, but when we press them they make speeches declaring me persona non grata," Minc said in an interview. "They all are favorable to zero deforestation, but only if it doesn't affect in their own land."

In Brazil's western states, politicians are tightly connected to agribusiness, especially with producers and processors of crops and beef. Blairo Maggi, governor of the state of Mato Grosso, is known as the "king of soy," and is a member of the family that owns the Amaggi Group, which produces 460,000 tons of soy a year, according to its website. The governors, Maggi included, received one-third of all the campaign contributions made by carbon-intensive industries in 2006, according to records reviewed by the ICIJ.

In an interview with the newspaper Folha de S. Paulo in 2008, when commodity prices were so high that they threatened world food supplies, Maggi said: "There's no way to produce more food without occupying new areas and cutting trees." His very presence, though, has prompted Lula to make such statements, as he did in a June speech, as "no one can say someone is a criminal just because he deforested." In the speech, he announced the legalization of land illegally seized in the Amazon.

Amazonian governors want to sell as many carbon credits on the world market as possible. The rationale is that if laws are passed to further restrict forest-clearing it would be better to profit from the new regulations than to become outlaws by violating them. Brazil already has an Amazon Fund to reward farmers who avoid deforesting the fifth of their farms they are entitled to cut under the current laws. Politicians representing rainforested regions have earned popular support for such promising programs, which take money from abroad to help control deforestation.

Promises, but for a Price

At a recent meeting of beef producers to sign a commitment to restrict cattle-raising in deforested areas, Maggi said the Brazilian government would propose in Copenhagen another way to compensate producers who refrain from clear-cutting legally deforestable areas. That is the trading of carbon credits under REDD, the U.N. program for Reducing Emissions from Deforestation and Forest Degradation in Developing Countries. He said the decision to award compensation was made after a meeting between the federal government and nine governors of the Amazon region. "Lula still wants to talk to other presidents in the South American Amazon to present a joint proposal, but Brazil's position has been taken," Maggi said.

Minc offered a slightly different, less definitive, interpretation of the meeting. "Part of the government thought that richer countries would find a cheap way to avoid [doing] their homework, paying us to [do] it. And governors wanted to get as much as possible," he said. A proposed compromise was to have Brazil accept REDD measures, provided that richer countries could compensate only a small share of their targeted industries with carbon credits.

In the public meeting with beef producers, Maggi continued to pile on pressure. "Imagine if we got to Copenhagen with the federal government saying one thing and the Amazonian governors saying another thing," he said. "The fact that we're practically reaching a common position in these terms, I think, improves and reinforces our ability to speak louder and demand more."

Sometimes, the regional pressure can amount to bullying. Minc, with his flamboyant style, has become a popular target since he took office. In September, he was the subject of a particularly colorful tirade unleashed by André Pucinelli, the governor of the state of Mato Grosso do Sul. Minc's federal environment ministry had just imposed tighter limits on deforestation of the state's Pantanal Forest, where farmers were starting to plant sugar cane in newly cleared fields—a practice the ministry now banned. Pucinelli responded by calling Minc a "dope-smoking faggot" and "threatened" to "rape" him. Following a public backlash, Pucinelli said the threat was just a tasteless joke. But Minc had already given him a new moniker: "Rapist of the Pantanal."

Fernando Rodrigues is a senior reporter for the São Paulo daily Folha de S.Paulo. Marcelo Soares is a freelance reporter based in São Paulo, Brazil. Both contribute to the Center for Public Integrity, from where this article is adapted.


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