Brazil's Proposal for Compensated Reduction of

UNCLAS BRASILIA 002661

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SIPDIS

STATE FOR OES/CMCMURRAY; OES/PCI/LPOULTON, LSPERLING; OES/EGC
TTALLEY, HWATSON; OES/ETC SCASWELL; WHA/BPOPP

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E.O. 12958: N/A
TAGS: SENV TBIO KSCA BAIO BR
SUBJECT: Brazil's Proposal for Compensated Reduction of
Deforestation to Address Climate Change

Sensitive But Unclassified; not for internet distribution


1. (SBU) Summary. On December 19, 2006, USAID's Embassy Brasilia
office and Emboffs hosted Paulo Moutinho of the Amazon Institute of
Environmental Research (IPAM). Moutinho presented details of the
Government of Brazil's proposal for compensated reduction of
deforestation as a means to combat global climate change. The GOB
proposal was tabled at the United Nations Climate Change Conference
meeting in Nairobi November 15-16 and was also briefly presented at
the most recent Common Agenda for the Environment meeting in
Brasilia (reported septel). It builds upon an earlier - and in some
ways superior - proposal tabled by IPAM itself. Although
deforestation reduction is not specifically addressed under the
Kyoto Protocol's Clean Development Mechanism (CDM),the GOB seeks to
capture the spirit of the CDM, while providing an alternative for
developing countries with tropical forests to address climate change
via fiscal incentives for voluntary reductions in deforestation.
Moutinho's informative presentation described the mechanics of the
proposal, but also illustrated several substantive faults, as well
as internal Brazilian political obstacles, that may hinder its
actual acceptance. End of Summary.

The Basics - Put Your Money Where Your Mouth Is
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2. (SBU) The GOB introduced its proposal for compensated reductions
in deforestation at the United Nations Framework Convention on
Climate Change (UNFCCC) meeting in Nairobi, citing, in part, a lack
of a mechanism under the Kyoto Protocol to address contributions to
global climate change by deforestation. By some accounts,
deforestation accounts for as much as 25% of global greenhouse gas
emissions - though the Government of Brazil (GOB) generally believes
that deforestation represents less than 9% of global emissions.
Moutinho explained the operational objectives of the proposal: (1)
to achieve a demonstrated reduction of tropical deforestation by
developing countries; and (2) to allow developing countries to
better contribute to the goals of the Kyoto Protocol through a
decrease in net greenhouse gas emissions caused by deforestation.
The centerpiece of the proposal is compensation for demonstrated
deforestation reductions to be paid by donor (developed) countries
and only following proof of actual reduction. This is, therefore, a
results-based program. All efforts under this proposal would be
voluntary and, according to Moutinho, would not act as an offset for
other countries' emissions.

In a Nutshell - How Would the Proposal Work?
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3. (SBU) According to Moutinho, the proposal contemplates that
participating countries would measure their national rate of
deforestation each year during a particular reference period, e.g.,
five years. That yearly rate of deforestation would then be
measured against an agreed upon baseline, established in accordance
with historical deforestation rates and agreed to by donor and
forest countries (and updated periodically). Moutinho indicated
that IPAM and the Brazilian Ministry of Environment (MMA) are
currently working on a scientific model to establish historical
baselines.


4. (SBU) A net decrease in deforestation following the reference
period would entitle the country to credit from an as yet to be
established international fund, while a net increase would mandate a
debit from that fund. Credits would be assigned a monetary value
based upon the current value of carbon credits on the international
commodities market. Simply put, if the rate of deforestation during
the reference period was lower than the historical baseline, then
the country would be entitled to receive credit for that reference
period. On the other hand, should the country's deforestation rate
be higher than the historical rate, the country would be debited for
that period. Moreover, Moutinho explained, should a net increase in
deforestation result, the forest country would theoretically be
required to reduce its deforestation rate during the subsequent
reference period sufficient to achieve a zero sum deforestation
rate.


5. (SBU) The GOB proposal builds upon an earlier - and in many ways
superior idea - originally floated by IPAM itself. Under the IPAM
proposal, instead of receiving disbursements from an international
fund developing countries would receive carbon credits which could
be negotiated on any of the carbon credit exchanges currently
existing throughout the world. In formulating its proposal, the GOB

eschewed this approach in favor of the fund idea.

Next Steps
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6. (SBU) Comment: While the GOB's proposal has potential to be a
basis for future discussions and its overall environmental goals are
positive, on its face the proposal appears to lack answers to
several technical and political considerations that would require
resolution prior to it gaining any traction. Technically speaking,
the issue of quantification of deforestation reduction has not been
substantively addressed. Without an internationally accepted basis
for determining increases and decreases in deforestation it could be
difficult for the proposal to move forward. Moreover, there are no
guarantees that a country, after receiving compensation for
decreasing deforestation during a particular reference period, would
not pull out of the program in order to allow for future full-scale
development of forest lands. Thus, the program, as it stands, might
only be a short-term solution. Additionally, the GOB has not
provided any details on the overall administrative structure of the
fund, nor has it indicated how the compensation fund would be
managed. While the current idea is that funds received would be
under the control of the MMA for use in deforestation enforcement
and conservation management projects, no guarantees or plans have
been presented by the GOB for transparent use of the money.


7. (SBU) On the political front, the proposal lacks serious
consideration of the fundamental question of sovereignty as it
relates to deforestation monitoring within the borders of
participating countries. Given Brazil's recently stated stance on
the Amazon Basin Conservation Initiative, for example, that a
country such as the U.S. (a country from outside the region) should
not be directly involved in the management of Brazil's natural
resources, and reported disputes among involved Ministries (i.e.,
Environment Ministry for, MFA against),the proposal may lack full
political support within the GOB. In a related show of the
political gamesmanship underlying the proposal, the GOB will not
refer to any net reduction in deforestation as an "avoidance" or
"conservation" measure, which may be an attempt to protect itself
from future deforestation obligations or targets for developing
countries. End Comment.

SOBEL