BRAZIL: CALIFORNIA'S AND OTHERS' INITIATIVES TO REDUCE

UNCLAS SECTION 01 OF 03 BRASILIA 000872 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: SENV KGHG ECON KSCA EAID ENRG BR SUBJECT: BRAZIL: CALIFORNIA'S AND OTHERS' INITIATIVES TO REDUCE TROPICAL FOREST CLEARING TO MITIGATE CLIMATE CHANGE REF: A) BRASILIA 618, B) 2008 BRASILIA 1159, C) BRASILIA 809, D) PARTO 006 BRASILIA 00000872 001.2 OF 003 (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND NOT FOR INTERNET DISTRIBUTION. ¶1. (SBU) SUMMARY. California is leading a group of states in the United States, Brazil and Indonesia, which are parties to a November 2008 Memorandum of Understanding (MOU),in developing the specifications for credit grade international offsets for avoiding deforestation under California's cap-and-trade system. A June 18-19 meeting in Belem, Brazil, advanced these efforts by establishing the Governors' Climate and Forests Task Force (GCF) as the executive body for implementation of the MOU's forest sector provisions and also by creating key working groups. After that meeting, William Boyd, a legal advisor for the MOU participants, briefed and won the support of Brazil's national government for the MOU group's work. At the same time, there are signs of substantial flows of international financing and technical assistance coming to Brazil to help it address its serious deforestation problem. These include Norway's pledge to the Amazon Fund, a major loan from the World Bank, and possible funding from Prince Charles' Rainforest Project. END SUMMARY. CALIFORNIA-LED SUB-NATIONAL FOREST INITIATIVE ADVANCES ¶2. (SBU) The tropical forest conservation initiative launched in November 2008 by California, Illinois and Wisconsin and four Amazon forest states in Brazil plus two provinces of Indonesia is moving into a new phase. (REFTEL A) This initiative embodied in a Memorandum of Understanding (MOU) crossed into new territory at a meeting of the participants June 18-19 in Belem, Brazil. While the prospects of a national cap-and-trade greenhouse gas (GHG) emissions regime have improved with the passage on June 26 in the House of Representatives of the Waxman-Markey legislation, California has already enacted Assembly Bill 32, which creates a state-wide cap-and-trade system that is scheduled to enter into force in 2012. Californian officials are seeking to establish the protocol, rules and reliable measures for including international forest offsets into that system. The MOU has a focus on Reducing Emission from Deforestation and Degradation (REDD) activities. The MOU provides a process to develop rules for credit grade offsets. Initially these rules might just apply to California, however, over time they could be subsumed into a national regime should Congress adopt a cap-and-trade GHG emissions regime. ¶3. (SBU) At the Belem meeting, the MOU parties formally established the Governors' Climate and Forests Task Force (GCF) as the key executive body for implementation of the MOU's forest sector provisions. California is chairing the GCF for 2009 and one of the Brazilian states will likely serve as chair in 2010. The group divided the task of developing the rules for credit grade forest offsets into three parts and established a key working group for each part: (1) development of standards and criteria for acceptable projects, which will led by the Brazilian State of Amapa; (2) development of forest carbon coordination mechanisms and accounting frameworks, which will be led by the Brazilian State of Mato Grosso; and (3) conduct a needs assessment (technical, legal, institutional and financial) for designing compliance grade REDD projects, which will be led by the Brazilian State of Acre. This work should feed into the ongoing work of California officials in developing rules and protocols to implement Assembly Bill 32. California seeks to have rules out for comment in 2010. A critical product of the MOU will be the development of a reliable compliance credit from avoided deforestation. This type of credit has been discussed for years, but never brought to life. It differs greatly from the credit under the Clean Development Mechanism, which deals with actual reductions in GHG emissions. The REDD credit entails giving a value to theoretically avoided GHG emissions from not clearing the forests. ¶4. (SBU) The next steps for the parties include meeting in September in California and developing a Joint Action Plan through the end of 2010. The Moore Foundation and the Packard Foundation have supported the work under the MOU to date, though additional support will be needed after 2009. The MOU parties are - beyond the U.S. and Brazilian states mentioned above - the Brazilian State of Para and the Indonesian Provinces of Aceh and Papua. Further, the group expects to expand soon to include one or more states from Mexico (such as Chiapas) and one or more Canadian province (such as British Columbia). Other U.S. states (such as Florida) are interested in joining too. BRASILIA 00000872 002.2 OF 003 ¶5. (SBU) William Boyd, a legal advisor for the MOU parties, briefed officials from Brazil's Ministry of Exterior Relations (MRE), Ministry of the Environment (MMA),and the Presidency about the MOU and the ongoing work by the parties. Boyd emphasized that the sub-national level work on forest credits is "not intended to be disruptive" of national level activities. In fact, the MOU group is trying to be sure these different levels are coordinated. At the MRE, Andre Odenbreit Carvalho, the Director of the Environment Policy Division, and Fernando Coimbra, the Director of the Environment Division, expressed their appreciation for the briefing on the MOU group's work and then, as discussed below, shifted the conversation to the ongoing climate change negotiations under the UN Framework Convention on Climate Change (UNFCCC). The MMA's representative from the International Affairs Office, Gustavo Costa, and a representative from the MMA's Climate Change Secretariat, Mariana Egler, stated that the MMA welcomes this type of initiative because it helps their efforts to reduce deforestation, even though they couldn't give an official stamp of approval to the initiative. In addition, there was agreement to establish a follow up coordinating meeting between the MMA and the MOU group. The MMA officials pointed out that the preferred tool at the national level is the Amazon Fund (REFTEL B) is premised on the concept of voluntary contributions to avoid deforestation without creating any offsets or credits. Carlos Alfredo Teixeira, a senior international advisor at the Presidency, welcomed the briefing, but like the MRE he preferred to discuss the UNFCCC negotiations. ¶6. (SBU) A senior representative of the Brazilian State of Mato Grosso, Jefferson Castro, participated at the Belem meeting and accompanied Boyd on his meetings in Brasilia.. Castro underscored in these meetings the importance that Governor Blairo Maggi of the State of Mato Grosso placed on the MOU initiative and eventually launching REDD projects. Governor Maggi is an influential voice for the agriculture sector and has excellent connections to President Luis Inacio "Lula" da Silva and his head of the Presidency, Minister Dilma Rousseff. Castro said that Maggi in several weeks would be meeting at the highest levels of the MRE, the MMA, and with Min. Rousseff to provide additional support for the MOU's work. INTERESTING BRAZILIAN COMMENTS ON UNFCCC NEGOTIATIONS ¶7. (SBU) At the Presidency, Carlos Alfredo Teixeira underscored Min. Rousseff's message of June 18 to Deputy National Security Advisor for International Economic Affairs Michael Froman, namely, that Brazil would give positive signs in the international negotiations. (REFTEL C) When asked about the lack of movement at the MRE (REFTEL C),Teixeira stepped back and rephrased their position. He said that Brazil "will not make dramatic moves," but it also "will not block positive efforts." ¶8. (SBU) Over at the MRE, Odenbreit (who is a senior advisor on the climate change negotiations team) stated that the USG was key to the UNFCCC negotiations. In particular, he saw a question of comparability of efforts between the United States and the other Annex I countries. Boyd, a former U.S. Senate staff assistant, explained how the Waxman-Markey legislation's worked. Odenbreit expressed concern over the supplemental credits reductions, which he feared might be "shabbier," i.e., not of the same high quality as domestic or international offsets. He said that the world would be focused on the quality of the credits the U.S. legislation required. Odenbreit was surprised to learn that for many in the U.S. Congress the Clean Development Mechanism (CDM) had a bad image. ¶9. (SBU) The governors of the nine states containing the Amazon Forest sent a letter to President Lula dated June 26 urging the national government to change its international policy and support including forests in international carbon trading and offset regimes. They wrote, "it is surprising to everyone, within the country and abroad, that the Government of Brazil is opposing the inclusion of forests in this promising market! This position should be revised with urgency!" The governors called on President Lula to create a national-state Task Force with the goal of developing recommendation to the President for positions that Brazil should pursue in Copenhagen. To date, the national government has not responded to this remarkable letter. OTHER TROPICAL FOREST INITIATIVES ¶10. (SBU) While in Brasilia, Boyd met on June 24 with representatives of other countries and organizations that had BRASILIA 00000872 003.2 OF 003 initiatives to reduce deforestation in Brazil. The Economic Counselor from the Norwegian Embassy, Inge Nordang, deflated some of the hype about the Amazon Fund (REFTEL D). He said that despite reports saying that Norway had transferred the first US$ 100 million installment of a US$ 1 billion pledge, no money had actually been sent. Norway was waiting for the Amazon Fund's administrator, BNDES (the Brazilian national development bank) to submit REDD projects to be financed. Nordang said that Norway wants the Amazon Fund to support a broad range of entities, not just a few large non-governmental organizations (NGOs) skilled at drafting proposals. He added that they were concerned about double counting, where donors were paying twice for the same credits or activities, such as once on a sub-national level with California and a second time at the national level through the Amazon Fund. Further, Nordang said that the projects needed to have a development aspect to them, since Norway wanted its contributions to count as Official Development Assistance (ODA). He expected that the first projects would likely include a large project - possibly 50% of the first year's contribution - to Brazil's National Institute for Space Research (INPE),which handles satellites and remote sensing. Norway was supportive of Brazil using a radar they had developed that sees through clouds and had been used to track Russian fishing trawlers fishing in Norwegian waters. Norway is separately providing technical assistance to Amazon Forest states preparing their own anti-deforestation plans. The Norwegians join the Brazilians in encouraging others to contribute to the Amazon Fund, but so far nobody has, though Germany has offered some grants for capacity building to help the Amazon Fund take off. ¶11. (SBU) Other highlights from the meeting with representatives from the World Bank and developed countries include: -The World Bank has a US$ 2 billion loan for rural development and sustainable development at the state level. Underlying this loan is the concept that improved agriculture productivity on existing farm land will reduce pressure to clear forests for new arable land. -The United Kingdom is supporting capacity building at BNDES with environmental loans, as well as addressing the complex land title issue. The UK is thinking beyond Copenhagen. The UK expects to release in the next few months a cost-benefit analysis, a "Stern" report for Brazil, on acting now on climate change. -Japan is providing Brazil access to two of its remote sensing satellites, including one that can see through the clouds. -Tasso Azevedo, the MMA's representative working with Prince Charles' Rainforest Project (REFTEL D),said that Brazil is working on interim financing for the 5-10 year horizon with a goal of about US$ 10 billion per year. He added that Brazil may be working on a cap-and-trade system for its forest sector. ¶12. (SBU) COMMENT. Significant new financing for efforts to reduce deforestation in Brazil are coming. The Amazon Fund should soon have its first batch of projects approved and funded. REDD activities that are California (or maybe even U.S.) offset quality are much closer to a reality, possibly as soon as 2012. In addition, the World Bank, Prince Charles' Rainforest Project and other donors are or may soon bring serious amounts of funding or technical assistance to Brazil to help address the ongoing deforestation problem. The work the California-led MOU group is performing will be useful in establishing tools for measuring and evaluating - and avoiding double counting - of REDD activities. Brazil may be soon faced with an absorption problem, i.e., a lack of enough good, vetted proposals. END COMMENT. SOBEL