Brazil Sees Promise, but Need For New Funding Source for REDD

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By Gloria Gonzalez

Cosmetics giant Natura and a few other forward-thinking companies in Brazil have taken the leap into the voluntary carbon market to offset their greenhouse gas emissions, but the number and size of transactions is still small compared to the overall emissions reported by the country’s top companies. There is plenty of room for more voluntary transactions in Brazil, experts say, particularly if a finance mechanism currently being developed can sustain REDD initiatives until a new international climate agreement takes hold in 2020.

Brazilian company Natura caused quite a stir in the global carbon markets in 2013 when it engaged in a first-of-its-kind deal to purchase 120,000 tons of carbon offsets from a project developed by the Paiter-Suruí indigenous community in the Amazon under the Verified Carbon Standard’s Reduced Emissions from Deforestation and forest Degradation (REDD) methodology.

In 2007, the cosmetics giant launched its corporate carbon neutral program, which now supports 15 carbon offset projects in Brazil and one in Colombia, Mariama Vendramini told attendees of the Navigating the American Carbon World conference in San Francisco. Vendramini is the commercial and financial director for Biofilica, which provides environmental services and develops REDD offsets for Brazilian companies. She estimated the total number of offsets voluntarily purchased by the company at 1.5 million tonnes of carbon dioxide equivalent (MtCO2e).

It turns out that Natura is not alone in terms of Brazilian companies looking to voluntarily offset their greenhouse gas (GHG) emissions. In October 2013, Ticket Car launched a pilot program to allow its clients to manage and offset their vehicle emissions at about 1,500 tonnes of carbon dioxide equivalent (tCO2e) per year. Brazilian banking giant Santander also launched a pilot project to allow its clients who purchased cars to offset their emissions, with the pilot project leading to demand of about 70, 000 tCO2e in six months.

“We have those initiatives, we have a market, but we don’t have enough demand to meet the supply that we’re generating with REDD,” she said. “How do we scale it up? I think the solution is a compliance market or a compliance mechanism.”

In 2012, 130 companies in Brazil reported 360 MtCO2e in GHG emissions, according to the Brazilian Public Register. But only about 200,000 tonnes of offsets were voluntarily transacted in 2012, according to Forest Trends’ Ecosystem Marketplace’s State of the Voluntary Carbon Markets 2013 report.

“If you think of the inventories as the first step toward carbon management, we see there’s a lot of room for improvement,” Vendramini said. “All these companies that are reporting can take a step forward and go towards offsetting.”

Acre the Pioneer

The state of Acre, Brazil has earned plenty of attention and admiration for its work on environmental protection and sustainable development, efforts that have driven its monitoring and measuring work for REDD projects as well as its partnership with the US state of California, which could become the first compliance market to welcome REDD offsets.
In October 2010, Acre’s state legislature passed the System of Incentives for Environmental Services (SISA), which establishes incentives for a range of environmental services, including forest carbon, water resources, climate regulation, among others, according to an Environmental Defense Fund paper. The SISA explicitly created flexibility for harmonization and linkages with other systems of incentives for environmental services on a national, subnational or international level.

“Acre is one of the pioneers in South America and I think in the world to start an environmental services incentives policy,” said Alberto Tavares, Director and President of CDSA.

That same year, Acre signed a memorandum of understanding with the states of California and Chiapas, Mexico to work toward together to support forest conservation efforts, with an eye toward building a sector-based program that would allow REDD offsets to flow between the jurisdictions.

Acre will generate an estimated supply of about 118 MtCO2e emissions reductions between 2012 and 2020, assuming a linear reduction and that all emissions reductions are compensated for, according to an unpublished report produced by the International Institute for Sustainability, Brazil on behalf of the World Wildlife Fund and the Global Canopy Programme (GCP).

But here lies the challenge, according to a report called Stimulating Interim Demand for REDD+ Emissions Reductions: the Need for Strategic Intervention from 2015 to 2020 by the GCP, the Amazon Environmental Research Institute, Fauna & Flora International, and UNEP Finance Initiative. Even if California eventually gets to the point of accepting REDD offsets into its system, the entire potential demand for international REDD+ offsets from the US state program would only pay for about 68% of these emissions reductions, according to the report. If the Forest Carbon Partnership Facility Carbon Fund bought the rest of the offsets, it would also exhaust its entire funding just on purchasing emissions reductions from Acre, the report found.

A New Way to Pay

Brazil has a target of reducing its deforestation rate 80% below its average rate from 1996- 2005 through the end of the decade and had succeeded in slashing deforestation rates six years in a row before relapsing in 2013. But much of this work has been funded out-of-pocket, with the exception of some emission reductions funded by agreements with entities such as the government of Norway and German development bank KfW.

REDD proponents hope that mandatory emission reduction pledges will be implemented in 2020 under the United Nations Framework Convention on Climate Change, assuming international climate negotiators reach a deal in Paris next year, and that the agreement will include financial support for these projects. But such a mechanism does not currently exist, placing current REDD+ activities at risk if not properly financed, Vendramini said.

A proposed solution revolves around the use of public sector capital to increase demand for REDD+ emissions reductions by creating a facility – the Interim Forest Finance project – that can manage and deploy public sector capital for activities in countries such as Brazil, providing billions of US dollars for these projects.

Biofilica has been consulting on the Brazilian version of the facility, which would be capitalized by the Brazilian government and the funds redirected to finance REDD+ initiatives. Covered entities under compliance requirements would pay for emissions reductions at a fixed price indexed by inflation from 2020 on. As these corporations purchase the offsets, the government recovers its initial investment.

“By doing this, the government gets its return on investment, companies can get emissions reductions at a very competitive price from 2020 on and the REDD initiatives can continue existing,” Vendramini said. “We think this is a win-win-win situation where companies will win, government will win and the REDD initiatives also win.”