BRAZIL: CONFERENCE ON FINANCE FOR REDUCING DEFORESTATION -

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SUBJECT: BRAZIL: CONFERENCE ON FINANCE FOR REDUCING DEFORESTATION -
MOVING FROM THE DRAWING BOARD TOWARD REALITY

REF: A) 2008 BRASILIA 1462, B) 2008 BRASILIA 1159,
C) BRASILIA 270, D) PARTO 6

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(U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND NOT FOR INTERNET
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1. (SBU) SUMMARY. An international conference, April 1-4, hosted
by the Governor of Mato Grosso Blairo Maggi and the NGO Forest
Trends, and co-funded by USAID, highlighted how far Brazil has come
in recognizing its problem with massive, ongoing deforestation of
the Amazon Forest. The conference explored an emerging category of
market-oriented methods to finance conservation of the standing
forest, known as Payments for Ecosystem Services (PES),which many
expect will include Reducing Emission from Deforestation and Forest
Degradation (REDD) from forest carbon offsets (such as under
California's new cap-and-trade program),as well as payments for
watershed management and biodiversity conservation. The conference
emphasized roles for indigenous communities, farmers, and ranchers
in such market-oriented systems. It also referred to new sources of
donor funding, including contributions from Norway and prospects
coming out of the immediately preceding meeting hosted by Prince
Charles. END SUMMARY.

KATOOMBA CONFERENCE


2. (SBU) Brazil is entering a new phase where standing trees could
have more value than felled ones, according to the 1400-plus
representatives of the national government, state governments, and
the scientific and NGO communities at a conference held in Cuiaba,
the capital of the State of Mato Grosso, April 1-4. The conference
hosted by the Governor of Mato Grosso, Blairo Maggi, and Forest
Trends (an NGO) received financial support from USAID's Standing
Forests Conservation Markets Initiative, of the global TRANSLINKS
program. The theme of "Avoiding Deforestation in the Amazon:
[Reducing Emissions from Deforestation and Forest Degradation] REDD
& [Payment for Environmental Services] PES" attracted tremendous
interest. Environment Minister Carlos Minc, Governor Maggi, and the
governors of four other states, whose territory in aggregate include
the vast majority of the Amazon Forest in Brazil, plus the Governor
of the Province of Santa Cruz of Bolivia, and the Governor of the
Department of Loreta in Peru, enthusiastically endorsed REDD and PES
ideas and initiatives.

ENVIRONMENT MINISTER AND STATES EAGER TO MOVE FORWARD


3. (SBU) Minister Minc gave an arm-waving, very enthusiastic,
upbeat assessment of Brazil's efforts to control deforestation. He
claimed that for the ten months he has been in office the rate of
deforestation has plummeted 45% compared with the same period the
year before. He noted the national government had cracked down on
deforestation through more aggressive enforcement actions, seizing
of cattle illegally grazing on government land, and denying cheap
credit for those who are not complying with environmental laws.
Further, the government had policies to promote the "Green Arc" in
response to the "Arc of Fire," which consists of the areas currently
being deforested. Minc said that enforcement alone can't solve the
problem, and the government needed to create alternative,
sustainable jobs for the 20 million Brazilian living in the Amazon
region. The government has promoted certification programs where
soy farmers and loggers can demonstrate their good stewardship and
so improve market access abroad. He expected to expand the
certification plan to include cattle - one of the primary threats -
in the Amazon. He emphasized how he had convinced President Luiz
Inacio Lula da Silva to include in the National Plan on Climate
Change a target to reduce the rate of deforestation from nearly
20,000 square kilometers per year (during the period 1996-2005) to
about 6,000 square kilometers per year by 2017. (REFTEL A)


4. (SBU) The government is seeking to reorganize agriculture in the
Amazon, not stamp it out. Thus, the government was preparing to
release Environmental and Economic Zoning (ZEE) Plans for the
region, which would indicate where agriculture activity is
prohibited and where it is allowed. The goal is to increase the
productivity of the already cleared land, which with cattle is
extraordinary low (about one head per hectare). Minc highlighted
the Amazonia Fund (REFTEL B),which should provide funding to
support efforts to control deforestation. For the representatives
from Bolivia and Peru, Minc pointed out that up to 20 percent of the
Amazonia Fund can be used in neighboring countries to support
efforts against deforestation of the Amazon.


5. (SBU) Governor Maggi, commonly known as the "King of Soy,"

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demonstrated how far some Brazilian attitudes have come in the last
twenty years. Previously, he said Mato Grosso and the rest of
Brazil based economic growth on clearing the forests and making the
land productive through cattle or crops. Maggi's own vast soybean
farms were carved out of the forest and savannah lands. Today, he
says that the thinking in Mato Grosso has to change and that the old
model for economic growth cannot continue. The environmentalists
and those seeking economic growth have to come to an understanding,
he said. He added that he was no longer confronting
environmentalists and now is working with them. In recent years, he
has supported programs to promote compliance with environmental laws
- such as The Nature Conservancy's USAID/Brazil-supported program in
Lucas do Rio Verde - and to address the problem of the lack of land
titles in many cases. Moreover, he was hosting (and co-funding)
this conference. [The State Government covered about half of the
conference cost, and Maggi's family company also contributed a small
amount. USAID was the second largest contributor, at about 25%,
followed by the Moore Foundation and others.] Minister Minc, who
previously had tangled with Maggi on deforestation issues, now gave
him a bear hug and applauded his efforts. Minc and Maggi jointly
announced a plan called "MT Legal" (Mato Grosso legal) with the goal
to help 140,000 farmers and ranchers in the State of Mato Grosso to
obtain legal title to the land and to bring their land into
compliance with environmental rules.


6. (SBU) The other governors endorsed the need for positive
incentives such as REDD, pointing out that the problem can't be
solved by tougher enforcement alone. All were in a hurry to
implement programs to create sustainable jobs in the Amazon region.
Some endorsed the use of reforestation to bring farms and ranches in
the region into compliance with the requirement to maintain 80%
forest coverage. The State of Para, where much of the recent
deforestation has taken place, plans to plant one billion trees by

2013.

EXPERT SPEAKERS DISCUSS REDD, ONGOING PROJECTS, AND RISKS


7. (SBU) Much of the conference discussed the theory of REDD -
providing payments to maintain a standing forest. An expert from
McKinsey projected significant opportunities for REDD projects in
Brazil. Other experts described ongoing activities to reduce
deforestation. Virgilio Vianna, the Director General of the
Sustainable Amazonas Foundation discussed a project in Amazonas
State (which includes about half of the Amazon forest in Brazil) to
provide payments to forest residents in return for conserving the
forest. (See REFTEL C.) The Nature Conservancy highlighted a
project to encourage soy farmers to comply with environmental
regulations. John Carter, the Director of the Alianca da Terra
(Alliance of the Land) focused on the lawlessness in the Amazon
region and the effort of his organization to help interested farmers
and ranchers to become legitimate.


8. (SBU) A discussion of the voluntary carbon market suggested that
this market could provide some assistance, but that it may not
provide the scale of funding needed to support large REDD projects
in the Amazon without the stimulation of new regulatory market
[Climate Convention] requirements (which do seem increasingly likely
to emerge). The conference organizers brought in speakers on other
potential streams of funding to support forest conservation,
particularly payments for environmental services beyond carbon, such
as conserving water resources, soil, and biodiversity, which may
show special promise when integrated or "bundled" together with
community development/poverty reduction objectives and "living
carbon" into premium-priced PES instruments

NORWAY AND PRINCE CHARLES AND CALIFORNIA


9. (SBU) The dramatic difference between this conference and the
many others on deforestation in the years before is the palpable
sense that finally significant sums of funding for deforestation
could be flowing into the Amazon. Minc announced that the Norwegian
government has contributed its first USD 120 million of a one
billion dollar pledge to the Amazonia Fund. The outgoing head of
the Brazilian Forest Service, Tasso Azevedo, briefed the conference
on the recent meeting in London of Prince Charles' Rainforest
Initiative (REFTEL D),which signaled likely new flows of resources
to Brazil and other countries with tropical forests.


10. (SBU) The appearance of a team from the State of California
headed by Tony Brunello, the Deputy Secretary for Energy and Climate
Change, was a striking contribution to the conference. The team
came to identify possible forest carbon offset projects that could

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qualify under the State cap-and-trade system that goes into effect
in 2012 under Assembly Bill 32. Since the conference, each of the
states in the Amazon region has been requested to submit two
proposals to the Californians. It appears REDD and/or forest carbon
offset projects on a large scale will likely becoming a reality in
Brazil in the near future. This is apart from any arrangement
coming out of the ongoing negotiations under the UN Framework
Convention on Climate Change


11. (SBU) COMMENT. Brazil is entering a new phase in the battle
against deforestation, moving from identifying the problem and
thinking about possible responses, to receiving funding and actually
implementing projects. In particular, the nascent Amazonia Fund,
with projected funding of over a billion dollars, will likely become
the first mechanism in the world to implement REDD projects on a
large scale. These new developments do not mean that Brazil has the
deforestation problem under control. The country still faces the
challenges of dealing with large numbers of farmers and ranchers and
loggers operating outside the law, as well as finding employment in
a sustainable environmental manner for the twenty million residents
of the region. Nonetheless, Brazil seems to be moving from the
talking phase toward real activities on a major scale.


12. (SBU) COMMENT. Unfortunately, the progress seen in addressing
the deforestation issue domestically has not had a noticeable impact
on the Brazilian government's position in the ongoing international
negotiations on a new climate change agreement. The Brazilian
delegation is led by the Ministry of External Relations, not the
Ministry of Environment. Brazil is one of the most vocal defenders
of the principle of "common, but differentiated responsibilities"
with respect to climate change. They insist that Brazil and other
developing countries will not accept targets for reducing greenhouse
gas emissions. For Brazil, the vast majority of its emissions come
from deforestation. Further, the Brazilian delegation continues to
oppose including forest conservation within the scope of the new
agreement. END COMMENT.

SOBEL