Playing musical chairs with land use obligations: Market-based instruments and environmental public policies in Brazil

Land Use Policy 63 (2017) 20–29

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Playing musical chairs with land use obligations: Market-based instruments and environmental public policies in Brazil Geoffroy Filoche ∗,1 Senior Research Fellow, Institut de Recherche pour le Développement (IRD), France

a r t i c l e

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Article history: Received 4 July 2016 Received in revised form 9 January 2017 Accepted 14 January 2017 Keywords: Nature conservation Forest management Environmental law Payment for ecosystem services Economic incentives Biodiversity offsets

a b s t r a c t In Brazil, market-based instruments focusing on land use dimensions are increasingly promoted as a means to make public environmental policies effective. Landowners and farmers call for more flexible regulations and economic incentives to adopt ecologically sound practices, while public agencies and conservation NGOs seek new ways of financing and legitimising legal standards. Market-based instruments are considered by these actors as having the potential to both achieve their own goals and conciliate all interests. As a result, legal frameworks (including cap-and-trade systems, biodiversity offsetting and payments for ecosystem services) are being designed which allow to exchange land use rights and obligations. Under a sociolegal approach, this article provides an overview of such instruments. It shows to what extent they may entail a reconfiguration of the burden sharing and the priority setting of nature conservation. Depending on how actors use legal standards, their responsibilities may be eased and the level of conservation may be lowered, both facts that raise significant controversy. © 2017 Elsevier Ltd. All rights reserved.

1. Introduction Environmental conservation is a recurrent subject of intense political controversy in Brazil. As evidenced by the debates surrounding the recently adopted Forest Code (Schwartzman et al., 2012; Soares-Filho et al., 2014), most rural landowners (both large and small) consider that the land use obligations they must abide by are too important or too rigid, and ignore them more often than not (Rajão and Georgiadou, 2014; Arima et al., 2014; Alarcon et al., 2015). Meanwhile, environmental policies are confronted by problems originating in public institutions themselves. State agencies lack manpower and/or political will to address law violations, while protected areas are dramatically underfunded, a fact that more often than not jeopardizes their enforcement (Medeiros et al., 2012). As a result, environmental standards are far from effective (Börner et al., 2014; Pinho et al., 2014; Aubertin, 2015). Such a crisis in the command-and-control approach appears to go hand in hand with growing interest in market-based instruments. A large array of putative virtues is often assigned to these instruments, when compared to the logic of command-and-

∗ Present address: UMR GRED, IRD/Université Paul-Valéry Montpellier 3, Site Saint-Charles, Route de Mende, 34 199 Montpellier Cedex 5, France. E-mail address: geoffroy.fi[email protected] 1 Past address: Universidade Federal de Goiás (UFG), IESA − Campus II, Conjunto Itatiaia, Goiânia 74691-300, Brazil. http://dx.doi.org/10.1016/j.landusepol.2017.01.012 0264-8377/© 2017 Elsevier Ltd. All rights reserved.

control: it is believed that the changing of behaviour is more likely to occur through economic incentive than by force, and it is argued that such instruments allow for flexible implementation that can adapt regulations to the actual situation of each actor (Muradian et al., 2013; Lockie, 2013). Market-based instruments may be defined as regulations that encourage appropriate environmental behaviour through price signals rather than through explicit instructions (Hahn and Stavins, 1991). They are supposed to provide incentives for private agents to act in ways that further not only environmental aims but also their own financial goals (Stavins and Whitehead, 1997). Not a new idea, these instruments have been epitomized by cap-and-trade systems, which work in the following way: the public institution sets a global limit to the amount of pollution that can be emitted, creates permits that allow the holders to emit some predetermined percentage of that total limit, distributes the permits, and then allows firms to trade these. In theory, if properly designed and implemented, market-based instruments allow any desired level of pollution cleanup to be achieved at the lowest overall cost to society, by providing incentives for the greatest reductions in pollution by those firms that can realize these reductions at the lowest cost (Strahilevitz, 2000). The notion of market-based instrument has evolved in the last decade to include a new approach which is driven by the concept of ecosystem services (Pirard, 2012; May, 2011). Firstly, this approach aims to acknowledge that environmental obligations – both actions (carrying out land management activities) and abstentions (not

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using the land in a productive way) – have a cost. Secondly, it aims to take into account the fact that environmental obligations produce ecosystem services which benefit society. Ecosytem services may be economically evaluated, and turned into a commodity which may be purchased by actors (who previously benefited freely from them) through institutional settings known as payment for ecosystem services (PES) (Corbera et al., 2007; Wunder et al., 2008). Even if there is debate as to what PES actually has to do with markets (Muradian and Rival, 2012), the virtues of efficiency and effectiveness that standard economic analysis attributes to the market are commonly projected onto such instruments (Boisvert et al., 2013). Market-based instruments are nowadays much debated in Brazil. They are considered by a significant number of Brazilian actors as an innovative way of implementing environmental policies, and are increasingly taken into account by national regulations (Pokorny et al., 2012). A first approximation of the political scene may read as follows. Some large and small landowners (including farmers and cattle breeders) seek to expand what they are allowed to do within the environment (Sparovek et al., 2010; Reydon et al., 2015). They justify their claims by arguing that existing standards are illegitimate or that their role has been misconstrued, and call for more flexibility in the implementation of the law (Paulino, 2012). Some environmental NGOs such as The Nature Conservancy and Conservation International have come to privilege market-based instruments as a means to attract donors (Pieck and Moog, 2009). Some political leaders and public institutions whose role is to design policies and manage the national natural heritage may also welcome market-based instruments as an opportunity to obtain the financial means needed to implement protected areas, and as an argument to convince private actors to accept their environmental responsibilities (Hall, 2008). At the same time, such instruments are seen by some NGOs as a way to commoditize nature or favour the interests of the dominant class (e.g. large landowners or big industries). For example, the Grupo Carta de Belém2 denounces that the federal state does not take its responsibilities in environmental issues while easing the burden of politically influent actors (Grupo Carta de Belém, 2011). However, one key element in the debate over market-based instruments is that the positions of some actors are not clear-cut nor easily summarized. For example, political representatives in the Brazilian Congress and heads of environmental public agencies may promote or oppose market-based instruments, depending on the origin of the funds or on who can benefit from them (Comissão de Meio Ambiente e Desenvolvimento Sustentável, 2009). Marketbased instruments have the potential to redefine to some extent the political field, as some traditionaly-opposed actors may share some views on the issue. Payments for ecosytem services are thus considered useful by both the Confederation of Agriculture and Livestock (Confederac¸ão da Agricultura e Pecuária do Brasil, CNA) – an institution representing large-scale farmers and cattle breeders – and the National Confederation of Agricultural Workers (Confederac¸ão Nacional dos Trabalhadores na Agricultura, Contag) which represents rural workers.3 While considerable literature has been produced focusing on the relations between market-based instruments and environmental policies (e.g. Grabosky, 1995; Gunningham and Sinclair, 1999; Salzman and Ruhl, 2000; Di Leva, 2002; Ruhl and Salzman, 2007;

2 This organization is formed among many others by the Brazilian branch of Friends of the Earth (Amigos da Terra Brasil) and by Via Campesina Brasil. 3 These converging positions were for example stated during a public hearing which took place at the Senate in Brasilia on 24/06/2015. See http://www12. senado.leg.br/noticias/materias/2015/06/24/debatedores-apoiam-pagamento(page accessed por-servicos-ambientais-sem-aumento-de-impostos-e-taxas 29/06/2016).

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Lavratti and Tejeiro, 2013; Penca, 2013), little attention has been paid to the land use dimension of such relations. This article has two objectives. Firstly, it seeks to understand the ongoing processes of inception of market-based instruments in Brazilian environmental law, focusing on the consequences on land use standards, i.e. what one is allowed to do, compelled to do, and entitled to impose on others, within a given area. Secondly, it aims to show why actors (both private and public) have come to privilege market-based instruments, and what are the implications regarding the logic underlying the formation of environmental obligations. As such, the purpose is to show that such instruments not only concern (practical) modalities as to how to implement the law, but also in some cases the (political) determination of the articulation of private and collective interests vis-à-vis the environment. As the inception of marketbased instruments in Brazilian environmental policies is quite new and not fully achieved, this article shows more what may happen than what actually happens. However, some experiments have taken place, and these may provide useful grounds for discussion. The concept of legal (or juridical) field (Bourdieu, 1987) may prove useful in analyzing this situation. A field is a setting in which actors and their respective social positions are located. In the environmental legal field, each actor has a position determined by rights (to use the environment) and obligations (to do so according to given limits or modality, which reflects the fact that the land he owns is not strictly his). At the same time, the legal field theory posits that law is produced through the relations between actors and institutions in competition with each other for the control of the right to determine the law. In other words, environmental law is constructed by the set of actors who, while being determined by interests and constraints associated with their position, elaborate private revendications and confer on them a ‘social problem’ status. As such, the legal field theory acknowledges that law depends to a large extent on how problems are framed. In our case, an important number of actors struggle to make society recognize the need for flexibility in enforcing the rules and pragmatism in financing the costs of implementing the rules. The Brazilian situation may be portrayed as a game of musical chairs, a metaphor acknowledging that three types of actors participate in a new setting in which environmental responsibilities are redistributed by virtue of market-based instruments. There are those who are given responsibilities, whereas they were not obliged to anything in the first place. There are those who still have the same level of obligations, only they may either be remunerated for accepting more obligations or pay for not complying. Finally, there are those who manage to decrease the intensity of their responsibility. More broadly, the metaphor depicts a situation in which many changes in the distribution of land use obligations happen in a confusing way. In effect, it may prove difficult knowing at the end of the day who must protect what. This may have important implications in terms of control, the protection level (is it as much as before?) and targets (are the protected ecosystems comparable?). This is even more the case when considering that Brazil has always had severe problems in formalizing a reliable land registry (Reydon et al., 2015). The data conveyed encompasses an analysis of both legal standards and specialized literature, and semi-directed interviews with key actors. More precisely, representatives or technical staff from the following institutions were met in Brasilia in April 2010 and October 2015: the Brazilian Forest Service (Servic¸o Florestal Brasileiro), a federal institution; the Secretariat of Biodiversity and Forests of the Federal Ministry of Environment (Secretaria de Biodiversidade e Florestas); the Confederation of Agriculture and Livestock (Confederac¸ão da Agricultura e Pecuária do Brasil, CNA); and Instituto CNA, an NGO funded by the CNA. In Rio de Janeiro (May and June 2014), interviews were conducted with the Secretariat of Environment of the state of Rio de Janeiro (Secretaria Estad-

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ual do Ambiente); Conservac¸ão Internacional (the Brazilian branch of Conservation International, a global NGO); Funbio, a Brazilian NGO; Instituto Terra de Preservac¸ão Ambiental, a local NGO; and Instituto BVRio, a civil non-profit institution specialized in “environmental assets”. In the state of Goiás, representatives of the Agriculture and Livestock Federation of Goiás (Federac¸ão da Agricultura e Pecuária de Goiás) in Goiânia and São João d’Alianc¸a were interviewed (September 2012), as well as representatives of the Secretariat of Environment and Hydric Resources of the state (April 2010). During these interviews, the author was provided with documents, either public or destined for internal use. The article is divided as follows. The first part focuses on the exchange of environmental obligations concerning private lands, the result of two claims that have been acknowledged by the law: a more flexible implementation of standards; and economic incentives in order to promote environment-friendly pratices. It shows that, depending on the nature of the market-based instrument which is used, radically different consequences regarding the reallocation of environmental responsibilities may happen. The second part approaches the processes which enable public institutions in charge of environmental policies to enrol private (landowners and industries) and public actors (investing in economic development) in order to fulfill their own role. It shows how the strategies of actors may converge, while potentially resulting in a change in the conservation level, and how perceptions of stakes vary according to the scale (national or international).

2. Exchanging environmental obligations in private lands: a zero-sum game? Depending on how they are conceived and articulated with existing standards, market-based instruments focusing on private lands may have different outcomes. A cap-and-trade system seems to configure a zero-sum game, i.e. a situation in which each participant’s gain of utility is counterbalanced by the losses of the utility of other participants. Conversely, emerging PES institutions may reconfigure the overall balance of environmental responsibilities, as they create new obligations for some, while easing the burden on others, which raises equity concerns within Brazilian society.

2.1. Cap-and-trade system: adapting policies to stakeholders’ situations and strategies One of the struggles in the legal field relates to the ending of uniformity in abiding by law: in other words, the possibility for private landowners to choose how and where their obligations must be implemented. This claim has been acknowledged by law and embodied in a cap-and-trade system which applies to the right to clear forested land. Brazil’s 1965 many times amended Forest Code imposes a “legal reserve” (Reserva Legal − RL): the preservation of 80% of original vegetation for private property in the Amazonian rainforest, 35% in Savannah land located within Amazônia Legal and 20% elsewhere (Alston and Mueller, 2007). Since 2002, some actors have sought to challenge this obligation (Paulino, 2012). The reform of the Forest Code, which was eventually adopted in 2012 (Law 12.651 and Law 12.727), was carried out in a politically tense climate (Stickler et al., 2013). The ruralist lobby (bancada ruralista), which is extremely influent in the National Congress, has struggled for a decrease in the proportion of RL on properties. Their main argument is that Brazil needs to increase the surface area of its farmland because of the

vital importance of agribusiness4 in the national economy, when in fact the economic weight of agriculture per se is not that important (Abbey et al., 2006). The large landowner class identifies itself with the agribusiness sector in order to legitimise its socio-political position and secure access to public funds (Sauer, 2008; Heredia et al., 2010). It also helps them to minimize the fact that a great proportion of rural land is unproductive (Sauer and Leite, 2012). Indeed, extensive cattle breeding takes up roughly 200 millions of hectares of land – a large proportion of which is consequently degraded (Costa and Rehman, 1999) – and is a significant cause of deforestation, especially in Amazonia (Cattaneo, 2008). At the same time, a dramatic increase in the production of cash crops such as soybean (especially in the Cerrado biome) implies either the conversion of old pastures or the clearing of the few remaining forests (Brannstrom et al., 2008; Wolford, 2008). Meanwhile, the environmentalists have pushed for the proportion of RL to be maintained, and also demanded that effective sanctions be imposed on those who have unlawfully cleared land, thereby failing to respect their obligations in terms of RL. After ten years of negotiations, members of the Brazilian parliament (Congresso Nacional) and the executive have achieved a compromise (Paulino, 2014). RL proportions are to be maintained, and landowners acting unlawfully are to be assisted in their return to legality, i.e. in reforesting land that should not have been converted to farmland or pasture. In its new Forest Code, Brazil has therefore opted for a predominantly realistic line, preferring regularisation to prosecution (Soares-Filho, 2013). Article 59 states that landowners who cleared their RL before July 22, 2008 may resolve this state of affairs by reforesting it. The environmental liabilities of landowners can be cancelled, provided that the property is registered with the Rural Environmental Land Registry (Cadastro Ambiental Rural), which is run by the federal state, and that they sign up to the Environmental Regularisation Programme managed by the federal state, but which is not yet operational. RL restoration may take the form of the natural regeneration of vegetation or tree planting (with up to 50% non-native species). Alternatively, landowners may offset their failure to abide by their environmental obligations. They may establish larger RLs on other plots of land they own. They mays also buy RL quotas from other landowners located within the same biome. Indeed, the new Forest Code allows owners whose RL area exceeds the specified percentage to use the surplus area to constitute an “environmental reserve quota”. Other landowners (who have not fulfilled their obligations in terms of RL) may then offset their obligation by purchasing the formers’ quota (Sparovek et al., 2012). The area transferred in offsetting must be located within the same biome, and must be noted on the Rural Environmental Land Registry. The area remains the property of the original owner, while its management becomes his responsibility. This cap-and-trade system is supposed to enable landowners to choose between two possibilities, depending on their situation and strategies. Whatever the case, the RL proportion will remain the same in terms of the whole national territory, but will enable landowners to choose what is deemed to be more profitable for them. Firstly, they may clear more land than they are allowed to, provided that they remunerate other actors for not using the right to clear theirs. Secondly, they may protect more land than they are compelled to, in order to implement the obligations of those who do not conserve a sufficient proportion of land. In each case, an economic effort is made, either by implementing the RL in one’s

4 Agribusiness is much larger than agriculture, as it includes inter alia agrichemicals, breeding, crop production, distribution, farm machinery, as well as marketing and retail sales.

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land (and therefore losing the productive benefit of a portion of land) or by paying another landowner to assume one’s obligation. Nevertheless, the effort may, in fact, prove to be more or less an economic burden. Effectively, in some cases it will be more interesting for a farmer to grow soybeans or sugar cane all over his land (given the high level of profitability of these cash crops) than to implement an RL, even if the RL of another landowner has to be paid for.5 In other words, the expense of buying another person’s RL may be lower than the gain resulting from the productive use of the most of one’s land surface. Conversely, in some cases (e.g., when the land is not suited for mechanized agriculture), some portions of land will be more profitable if sold to another party as an RL.6 Even more, while it could be profitable for large landowners to pay for an RL in locations where land is cheap because it is difficult to access or very remote, a cap-and-trade system could also make this land more expensive by giving to it a new exchange value.7 From an ecological perspective, points of view are mixed. The possibility of exchanging RL may enable the constitution of less fragmented conservation areas (i.e. larger contiguous portions of land favouring ecosystemic complexity) (Silva and Ranieri, 2014). But as a consequence some places will be deprived of ecosystem services, which may be detrimental to the interests of the population living nearby.8 2.2. Payment for ecosystem services (PES): towards new burden sharing This cap-and-trade system might well be outmoded by the irruption of PES in the legal field. Whereas in a cap-and-trade system the transaction involves a cost for the party that needs to become legally compliant, the latter may on the contrary be financially aided by PES to cover the costs. PES is commonly understood as being based on voluntary commitment. According to the definition by Wunder (2005), “a PES is: (1) a voluntary transaction where, (2) a well-defined environmental service (or a land-use likely to secure that service), (3) is being ‘bought’ by a (minimum one) environmental service buyer, (4) from a (minimum one) environmental service provider, (5) if and only if the provider secures environmental service provision (conditionality)”. In theory, PES are supposed to enable better adjustment of the rules and more effective distribution of obligations, by means of a transaction between the beneficiary of an environmental service (the buyer) and the provider of such service (the recipient of the payment). However, specifying the voluntary nature of the transaction does not fully explain the relationships between providers and buyers. Indeed, the transaction may be envisaged in different ways, sometimes with directly opposing consequences. From the beneficiaries’ point of view, transactions may have either a cumulative or a substitutive effect as regards their environmental obligations. When transactions between providers and beneficiaries are supposed to have a cumulative effect, PES entails additional responsibilities for beneficiaries, who must bear the cost of providers’ obligations. The fact that an environmental service is provided by someone in a particular place does not allow beneficiaries to withdraw from their own existing obligations. Nevertheless, some institutional frameworks may allow for a substitutive effect of the transaction. In this case, the transaction does not create any new

5 Secretariat of Environment and Hydric Resources of Goiás, personal communication. 6 Agriculture and Livestock Federation of Goiás, personal communication. 7 Secretariat of Biodiversity and Forests, Federal Ministry of Environment, personal communication. 8 Secretariat of Biodiversity and Forests, Federal Ministry of Environment, personal communication.

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obligation. The buyers are released from their existing duty: this becomes incumbent on the recipients, who must implement it. The fact that someone provides an environmental service somewhere else justifies that the beneficiary does not have to comply with his own obligations anymore. From the providers’ point of view, transactions may have either a burdensome or facilitating effect with regard to their obligations. A burdensome effect means that the transaction defines new obligations in addition to existing obligations of the environmental service provider. On the other hand, the transaction may concern an obligation that is already specified in environmental law. In this case, the transaction has a facilitating effect: the obligation is no longer solely justified on the grounds of public interest, but also with respect to the particular interests of the beneficiary of the environmental service, who will supply the provider with the means to implement it. While PES is still in its infancy in Brazil (Santos et al., 2012; Eloy et al., 2013), several processes may be analyzed in line with the abovementioned framework. A large number of existing draft bills dealing with PES only rewards landowners when they protect an area which is larger than the area they must protect by force of law (Peixoto, 2011). In this case, the payment compensates a limitation of property rights greater than the limitation already prescribed by law (Altmann, 2014). In contrast, the new Forest Code introduces the possibility of landowners using PES to honour their RL obligations. Indeed, article 41 of the Forest Code authorises the federal executive authorities to establish a PES programme to implement it. Article 41-I-h considers that preservation of an RL is considered an environmental service, and is therefore eligible for compensation through direct payment. As a result, payments may be made in order to protect areas in private lands that are already supposed to be preserved. The ruralist lobby has strongly advocated the principle of article 41 during the negotiation of the Forest Code.9 Its leader at the time, Kátia Abreu, has relentlessly promoted this change of perception of landowners, from beneficiaries to providers of environmental services, and managed to help landowners gain a more powerful position in the legal field. From the state’s view, the advantage of this is to enhance law implementation, and not alienate the ruralist lobby.10 The Forest Code identifies a transition from an absolutist to a relativistic approach to environmental obligations. The first approach requires landowners to stay in line with existing legal obligations in all circumstances, and therefore bear the cost of offsetting any failure to do so. In the second approach, the system must provide financial assistance to them to fulfill their obligations. This new situation gives rise to significant controversies as regards various issues. The first issue is to identify who will bear the costs: the actual beneficiaries of environmental services, each citizen through income taxes, rich and/or polluting companies, or the international community.11 The ruralist lobby has an ambiguous position with respect to this issue: it denounces the principle of creating new taxes, while promoting economic inventive over legal repression; and it criticizes the “robbing Peter to pay Paul”, while conceding that landowners could receive the money arising from the environmental compensation of polluting companies, which is currently used to implement public protected areas.12 Another concern is that payments may be appropriated by landowners who undermine other environmental services (e.g. by using large amounts of pesticide, especially in the case of cash crops); whereas

9

Confederation of Agriculture and Livestock, personal communication. Secretariat of Biodiversity and Forests, Federal Ministry of Environment, personal communication. 11 Instituto CNA, personal communication. 12 Confederation of Agriculture and Livestock, personal communication. 10

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a more equitable system would firstly put in place a mechanism to distinguish between harmful and beneficial activities, and then allocate the fines paid by landowners responsible for the former to fund the latter (Sauer and Franc¸a, 2012). The second issue is a temporal one: a critical difference can be established between applying PES in a transitory situation (payment stops once law is eventually applied) and applying it in a long-term situation (compensation becomes the norm) (Salzman, 2005). The third issue deals with who is entitled to payment. A number of parties (e.g. human rights-based NGO Terra de Direitos) have protested that far from enshrining the “polluter pays” principle, article 41 establishes a “polluter benefits” principle, as parties receive aid to remedy their failure to comply (Terra de Direitos, 2011; Mauerhofer et al., 2013). This NGO claims that large landowners should be rewarded only insofar as they protect more than existing standards compel them to: the legal additionality principle. The argument reads as follows: it would be unfair to pay a person who has economically benefitted from not complying with the law, while not paying the person who has already borne the costs for implementing his obligations (Hupffer et al., 2011). Nevertheless, an exception could be made for poor landowners who do not have a sufficient amount of land and as a result do not earn enough money to implement the RL requirement (Terra de Direitos, 2011). In contrast, legal additionality is considered irrelevant by large landowners, who claim that they do not abide by the law either because they cannot afford it or because the rules are illegitimate.13 Indeed, they point to the fact that mandatory RLs have no precedent anywhere else in the world: Brazil is said to be the only country that imposes such a huge obligation on its citizens, which both hinders the economic potential of Brazil as a nation and undermines the role of agriculture as a growth engine for the country. Farmers furthermore argue that they are obliged to pass on the cost entailed by environmental obligations to their customers, and that relaxing such obligations would be beneficial to Brazilian food security.14 This argument is reinforced by the perception of both lack of legitimacy and failure of the state.15 Firstly, landowners cannot bear the whole weight of obligations undertaken by the state internationally − the cost of which it passes onto its citizens. Secondly, their rights cannot be called into question so easily by a public institution which does not itself fulfill its domestic obligations in terms of infrastructures (such as roads) and town and country planning. This last state of affairs, it is argued, only increases costs borne by private actors, and adds to costs entailed by environmental obligations. As such, environmental law is considered a liability that disproportionately and illegitimately reduces their land capital.16 Interestingly enough, the arguments provided by the ruralist lobby seem to converge to a certain extent with the conceptions developed by some representatives of environmental NGOs, according to whom legal standards are too much disconnected from reality. Environmental law is not considered ab initio and per se as a definitive standard for behaviour: it has to fight its way through society in order to be applied. Under this pragmatic approach, any human action or abstention which conserves the environment should be rewarded: the only justification for payment to landowners is that they appear to own an ecologically vital place irrespective of any other condition, be it legal (pre-existent obligations) or social (wealth level).17 This line of reasoning gives preference to restoration activities over conservation activities: the former are justified

13 14 15 16 17

Agriculture and Livestock Federation of Goiás, personal communication. Confederation of Agriculture and Livestock, personal communication. Funbio, personal communication. Agriculture and Livestock Federation of Goiás, personal communication. Instituto Terra de Preservac¸ão Ambiental, personal communication.

both by the urgency of the matter and by the fact that the impact of the money that is invested will be far more visible.18 2.3. The Produtores de Água e Floresta programme in the Guandú River watershed Even if a few PES experiments are being implemented in the country (Pagiola et al., 2012), PES are not, as of today, a common policy in Brazil. Nevertheless, they are politically relevant, as they provoke controversies and add new ways of legitimising legal rules. Therefore, the principles underlying the Produtores de Água e Floresta (Water and Forest Producers) programme are worth discussion. Launched in November 2008 in the municipality of Rio Claro in the Guandú River watershed, PAF is a programme designed to help protect the freshwater supply for Rio de Janeiro, Brazil’s second largest city. It is an initiative of The Nature Conservancy, Instituto Terra de Preservac¸ão Ambiental, the Secretariat of the Environment of Rio de Janeiro state, the committee of the Guandú River Watershed and the municipal government of Rio Claro. Conservac¸ão Internacional was also involved to a lesser extent.19 The rivers of the Guandú watershed provide about 80 percent of the fresh water, and generate 25 percent of the electricity used by residents of the Rio de Janeiro metropolitan area, benefiting almost eight million people. Forests hold water and help minimize erosion, keeping sediment and nutrients on the land and out of the rivers. Deforestation by landowners has reduced water quality and quantity. Yet, this deforestation has occurred in areas which are supposed to be protected by law. According to the Forest Code, any private land must implement a Permanent Protection Area (Área de Preservac¸ão Permanente). Permanent Protection Areas are strictly protected areas whether or not covered with native vegetation, with the environmental functions of preserving water resources, landscapes, geological stability, biodiversity, and genetic fluxes of flora and fauna (Volpato, 2011). In our case, Permanent Protection Areas are to be implemented along rivers or any flowing water, around lagoons, lakes and springs (even seasonal), with the consequence of impeding any economic activity. The objective of the Produtores de Água e Floresta programme is to remunerate rural landowners for land management efforts that protect riparian forests and allow the production of hydrological services. More precisely, landowners are remunerated either to maintain forests (where they still exist) or to restore these (where they have been cleared). These two situations entail different processes. When it comes to conserving remaining forest, payment amounts vary depending on the location of the land, the quality of existing forests, and the opportunity cost − the amount of revenue the landowners would have received had they used their land for economic activities such as cattle ranching or dairy production. Part of the funding for the payments comes from fees levied by the local watershed committee on water-dependent industries and other users (such as water supply companies) in the Guandú River watershed. Currently, the watershed committee allocates 3,5% of the total amount of water taxes for PES, which can be used, for example, for fencing off areas from cattle. When it comes to forest restoration, which occasions substantially more important costs to the landowner, payments are divided into two components. The first is in the same case as PES for protecting existing forests: landowners receive a certain amount of money (which comes from water taxes as well) designated to compensate their opportunity costs for not using their land. The second com-

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Conservac¸ão Internacional, personal communication. This part draws on interviews and documents collected from a dozen staff members of these institutions. 19

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ponent is a larger amount of money which is destined to partially compensate the economic effort of planting trees. In that case, the money is provided by actors who are compelled by law to compensate activities which are harmful to the environment. As a matter of fact, two legal norms may be invoked within the framework of the programme. Indeed, funding the reforestation of degraded lands owned by participants may be seen as a condition for the granting of an environmental licence.20 Additionally, article 17 of the Atlantic Forest Law (Law 11.428 of 2006) requires an entrepreneur who clears native vegetation to reforest an equivalent surface area with native species in the same watershed. Neither case fully matches the common definition of PES which emphasizes its voluntary nature. While providers of environmental services (the landowners) are indeed free to enter into the process, water users are compelled to do so. And even if companies can choose whether or not to enter into the process, their role is linked to an existing legal obligation (obtaining an environmental licence). Furthermore, two very different logics underly the processes at work. In the case of the conservation of remaining forests, the transaction involves a cumulative effect for water users. Their own obligations are not implemented through the transaction: for example, they still have to maintain their own Permanent Protection Area. However, in the case of the restoration of degraded areas, the transaction involves a substitutive effect for companies: their environmental responsibilities are implemented – in part or in whole – by offsetting the environmental harm they cause. As a consequence, there is certainly no net conservation gain in the case of restoration; and there even might be net conservation loss, depending on the decision of actors regarding what type and intensity of restoration is needed to compensate the impact of the environmental harm. In both cases (conservation and restoration), the transaction has a facilitating effect for landowners, as it aims to compensate the costs implied by activities or abstentions already prescribed by law (the implementation of a Permanent Protection Area). In other words, the payment is made in order to fulfill an obligation which ought to be fulfilled. As such, the consequences of PES differ depending on the perception of the value of specific rules in the legal field. If one considers that existing legal obligations have no value on their own, there appears to be net conservation gain: what matters is what is actually achieved. If one considers that such obligations are to be applied as they represent the will of the Nation, there appears to be no net conservation gain at all: what matters is what is supposed to be achieved, given the arbitration of interests which was decided by the institutionalized political power. 3. Making public land conservation effective by use of market-based instruments: a win–win situation? Environmental conservation does not only take place on private land. Indeed, a significant part of the Brazilian conservation policy relies on protected areas (Aubertin and Rodary, 2011) which are owned and implemented by public institutions. Even in this case, market-based instruments allow for the articulation of private and public obligations, which allegedly creates a win–win situation, i.e. easing the creation and management of protected areas, while taking into account the situation and strategies of landowners, and taking advantage of economic development. Questions arise that

20

Following several resolutions issued by the National Environmental Council (Conselho Nacional do Meio Ambiente, CONAMA), the environmental licence is an administrative act by which a public environmental agency establishes the conditions, restrictions and measures to be followed by companies to locate, install, upgrade and operate facilities that use natural resources or have the potential to pollute the environment.

25

deal with the notion of equivalence (related to the impact of activities and the formation of responsibilities) implied by the financial transaction. 3.1. RL compensation in protected areas: making private obligations work for public commitments Following international pressure and obligations provided by the Convention on Biological Diversity (adopted in 1992), Brazil substantially expanded its protected areas network from the mid1990s to the mid-2000s. Even if the creation of protected areas has stagnated since 2009, the country now has the largest protected areas system in the world, with nearly 220 million ha or 12.4% of the global total (WDPA, 2012). Excluding indigenous lands, quilombola territories (areas owned by descendants of slaves), and military areas, protected areas are known as Unidades de Conservac¸ão (Conservation Units). Conservation Units, which may be for full protection or sustainable use, are managed administratively at federal, state and municipal levels. Currently, there are 886 federal, 729 state and 147 municipal Conservation Units that cover nearly 150 million ha (Bernard et al., 2014). This represents almost 18% of the Brazilian territory. Public institutions in charge of Conservation Units must comply with two types of obligation. They must implement protected areas on the ground, by hiring staff, building facilities, and elaborating management plans. They also must clarify the land status of each protected area and acquire private lands (through expropriation) located within its boundaries.21 These obligations are to be fulfilled in a tense context, as protected areas must function amid competing governmental institutions and broader policy environment in a time of economic constraints (Young and Roncisvalle, 2002; Rylands and Brandon, 2005). Furthermore, expropriation procedures may last for extensive periods and may be challenged by landowners, leading to costly and lengthy litigations (Rocha et al., 2010). In this particular field, the stake is to bring together the interests of three types of actors. While public institutions seek to fulfill their obligations at the lowest cost, private actors whose land is located in a protected area want to be paid as quickly as possible, which may provide a privileged means for private actors – whose land is not located in the protected area – to regularize their RL deficit. In its article 66 §5, the new Forest Code establishes a flexibility mechanism, which works as follows: landowner A (who does not comply with his obligations and must regularize its situation) pays landowner B (who is awaiting expropriation) for his area, and consequently donates this land to the institution in charge of the protected area.22 Obligations of private actors are thus considered parts of publicly managed tools. The situation is portrayed as win-win: landowner A offsets his environmental obligation, instead of reforesting his own RL; landowner B receives quick payment; and UC managers do not have to spend any public money, which is quite popular in the eyes of some sectors of Brazilian society.23 The mechanism is also seen as a way to avoid the invalidation of protected areas: if the expropriation has not occurred 5 years after the creation of the protected area, the landowner is entitled to file a lawsuit and clear the land, which may ultimately jeopardize the very reason

21 According to different sources, between 5 and 16 million hectares of private land which are located in protected areas are not yet expropriated. 22 It should be noted that the mechanism is to be used only when a landowner must regularize its situation, and cannot be used by a landowner who complies with RL obligations but wants to clear his RL. 23 Secretariat of Biodiversity and Forests, Federal Ministry of Environment, personal communication.

26

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of giving the area a special status.24 Nevertheless, the position of environmental public agencies regarding this issue is not clear-cut, for if landowner A agrees to pay landowner B a price which is higher than the prices usually practised in the region, other landowners awaiting their expropriation may ask the protected area institution for a higher price as well.25 This flexibility mechanism furthermore implies a subtle − yet fundamental − shift when compared to the previous situation. Even if the surface area protected seems to be equivalent, it may in fact lower the conservation level. Indeed, the mechanism entails both a substitutive effect in relation to environmental obligations for landowner A and a facilitating effect for public institutions. In other words, a same area represents an offset RL as well as a public protected area, whereas only one of the parties has made an economic effort. As a result, protected areas do not necessarily represent an additional contribution to conservation (though they will be often portrayed this way) since they “absorb” areas which should have been protected in the first place, according to law.26 This is one of the main arguments brought forward by the Procuradoria-Geral da União (General Prosecutor of the Union) in the Ac¸ão Direta de Inconstitucionalidade no 4901, which challenges the constitutionality of the Forest Code, and is currently pending before the Supremo Tribunal Federal (the Brazilian Supreme Court).27 3.2. Environmental compensation: offsetting polluting activities or taking advantage of economic development? Another mechanism makes it possible to transform environmental degradation caused by economic development activities (conducted by either private or public institutions) into a means to generate funding, allowing public institutions to fulfill their environmental duties. In this specific field, the stake is to allow polluting activities which generate incomes, on condition that they meet determined requirements, while taking advantage of the creation of wealth in order to counterbalance the harmful effects. Transportation and energy infrastructures are among the most affected by regulations, since they often have fundamental ecological impacts. Any planned activity that uses natural resources or has the potential to pollute the environment must obtain an environmental licence. Environmental licensing involves completing an environmental impact assessment and an environmental impact report, according to CONAMA Resolution 001/86. Contrary to the case of land clearing which is ex ante regulated by the Forest Code, obligations emerging in the case of environmental licensing are not pre-established by law: they are defined on a case-by-case basis, depending on the specific context. However, some authors (Reid and Sousa, 2005) find environmental impact assessments and environmental impact reports a collection of generally qualitative information that is often of poor quality and questionable thoroughness, with no clear mechanism for influencing decisions. The process is often considered a failure to pinpoint important mitigating actions, leading to political, rather than technical, decisions (Villarroya et al., 2014). As such, the mitigation hierarchy (Maron et al., 2012) may not be respected. According to the mitigation hierarchy, which is mandatory according to Brazilian law, compensation should only be a last resort for developers considering a potentially environmentally destructive project. They must first as far as possible try to avoid any impact on sensitive ecosystems (e.g.,

by altering the placement of planned infrastructures). The impact must then be reduced by all technically usable means. The residual damage must then be offset. In our case, the fear may then be that the use of offsets could encourage regulators to allow companies to cause significant impact in areas affected by projects as long as they undertake conservation work elsewhere (Bull et al., 2013; Walker et al., 2009). This latter state of affairs is all the more possible because of the procedure established within the Sistema Nacional de Unidades de Conservac¸ão – Conservation Units National System, SNUC, created by Law 9.985 of 2000. SNUC has gained the potential to attract a substantial part of the compensation obligation – supported by companies because of their ecological impact – in order to fund public protected areas. The design of this procedure has been controversial. The SNUC law states that any project with “significant environmental impact” must pay no less than 0.5% of the total value of the project as compensation for the inevitable damages it provokes. The exact sum is to be fixed according to the degree of impact, which is determined through the environmental licensing process. While the law does not clearly define “significant environmental impact” or any aspect of possible methodologies for its assessment, the values have been initially around 2–3.5% of the project value (Young, 2005). However, in December 2004, the Confederac¸ão Nacional da Indústria (National Confederation of Industry) challenged the SNUC law before the Supremo Tribunal Federal, arguing for unconstitutionality of environmental compensation. After several political and legal twists and turns – which involved the President of the Republic himself – two decisions were made. In 2008, the Supremo Tribunal Federal ruled that the minimum rate of 0,5% was unconstitutional: the degree of impact was the only parameter to be taken into account when fixing the amount of compensation (Campolim, 2010). Nevertheless, in 2009, the executive power, through Decree 6.848, established that industries must pay no more than 0,5% of the total value of the project (Almeida and Pinheiro, 2011). A new lawsuit was filed in 2014 by the Procuradoria-Geral da República, and is still waiting to be addressed by the Supremo Tribunal Federal.28 Whatever the outcome of this process, one thing is certain: the money from compensation must be used by environmental protection agencies to create and maintain protected areas. Nevertheless, in practice it is used to maintain such areas rather than create new ones.29 Article 33 of Decree 4.320 (2002) – one of the legal documents that regulate the SNUC law – explicitly states that compensation should firstly be used for land regularisation and demarcation. As such, private companies and public institutions leading economic projects may purchase land from private landowners whose lands are located in a protected area, and donate them to the public institution in charge. Whereas in the abovementioned case of offsetting one’s RL deficit (see 3.1) there is an equivalence in terms of surface area, the equivalence is more dubious in the case of offsetting one’s environmental degradation (which can be caused by air and water pollution, or waste generation) (McKenney and Kiesecker, 2010). It seems then all the more complex to establish how many hectares of protected areas must be paid for by a power station.30 Moreover, the risk is that the compensation turns into a regular source of funding, which becomes structurally indispensable for protected area managers (Geluda and Young, 2004). Interestingly enough, the perceptions of environmental compensation are not monolithic within the environmental protection community (public agencies and NGOs). Some actors

24

Confederation of Agriculture and Livestock, personal communication. Secretariat of Biodiversity and Forests, Federal Ministry of Environment, personal communication. 26 Instituto BVRio, personal communication. 27 See http://www.stf.jus.br/portal/processo/verProcessoAndamento. asp?incidente=4355097 (page accessed 29/06/2016). 25

28 See http://www.stf.jus.br/portal/processo/verProcessoAndamento. asp?incidente=4538085 (page accessed 29/06/2016) 29 Instituto BVRio, personal communication. 30 Instituto BVRio, personal communication.

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highlight the risk that regulators liberally allow projects with major ecological impact, when the objective of the procedure was initially aimed at avoiding environmental degradation.31 Protected areas might not only not represent an additional effort for conservation, but they also might be a mere alibi for substantial business-asusual polluting activities if the level of the company’s responsibility – established within the environmental licensing framework – is poorly evaluated. Other actors argue that it at least enables the promotion of both economic development and environmental conservation.32 3.3. REDD: forging international obligations in relation to brazilian forests? The international REDD (Reducing Emissions from Deforestation and forest Degradation) initiative is an elaborate attempt to link, firstly actors who harm the environment and actors who conserve it, secondly land use activities and economic activities which do not imply land use aspects. Indeed, the REDD initiative seeks to reformulate the forest conservation issue through the lens of climate change policies. Under this new approach, carbon becomes the common denominator between diverse policies, as it can be managed by means of both land use and industrial regulations. Speaking on behalf of the Coalition for Rainforest Nations in 2005, Papua-New Guinea and Costa Rica offered to reward countries that managed to reduce their deforestation rate beneath historic emissions levels.33 The REDD system is still being debated in the forum of the United Nations Framework Convention on Climate Change, adopted in 1992. Its goal is to fund the supply of emission reductions, counted on the basis of a baseline emissions inventory developed at a national level or at the level of each project, expressed in tonnes of emissions avoided or sequestered carbon (Streck and Scholz, 2006; Savaresi, 2011; Nepstad et al., 2013). REDD assigns financial value to carbon stored within forest resources, to make local preservation efforts eligible for foreign financing, including voluntary investment and offset credits generated through foreign carbon markets (Forneri et al., 2006). While some authors point to the potential of Brazilian protected areas in this regard (e.g. Soares-Filho et al., 2010; Fearnside, 2008), REDD may be seen as a practical means to address the lack of intenational agreement over the protection of such fundamental ecosystems (Hope, 2014). In contrast to the proposal by the members of the Coalition for Rainforest Nations, countries such as Bolivia and Brazil refuse to agree to Northern states using REDD to offset their polluting activity by purchasing carbon credits derived from non-deforestation in Southern countries (Carvalho, 2012). Different arguments have been brought into play. First of all, it seems risky to determine the distribution of obligations through this system, because of methodological flaws. Any REDD system must be founded on a baseline deforestation rate, used to determine allocation of carbon credits commensurate with the corresponding fall in this rate. However, deforestation rates have increased and decreased in an unpredictable manner over recent years. This means that establishing a counterfactual situation (i.e. what would have happened in the absence of any system) is impractical (Karsenty and Pirard, 2007). Above all, there is a fundamental difference between the REDD principle and markets for greenhouse gas emission permits such as the European Union Emissions Trading System. In this system,

government retains a central role in defining the permitted pollution thresholds, and uses law to ensure that each emissions permit created is ecologically viable by definition. Once they have been placed on the market, there is no risk of any such permits representing a reduction that does not in fact exist. REDD-type offsets are different. Governments can only supervise the claims of project developers, and not directly guarantee that offsets are ecologically viable. Offsetting that has been certified by a private-sector regulator may turn out to have been poorly measured, or indeed not even exist (Bumpus and Liverman, 2008). Other, more explicitly political arguments have also been brought to bear.34 It has been argued that the system is unfair if the efforts to reduce greenhouse gases are not distributed (Boyd, 2010; Fearnside 2012). Whereas the North focuses on policy efficiency, arguing for emissions reductions in the South on the basis of supposedly lower marginal costs, Southern countries such as Bolivia and Brazil dispute the concept of a global carbon market that would enable developed nations to offset their emissions more cheaply by calling into question the former countries’ sovereign rights to exploit their own natural resources (Carvalho, 2012). Nevertheless, Brazil objects to REDD-offsets even in the context of areas not intended for productive use.35 It highlights the environmental objectives of the United Nations Framework Convention on Climate Change, which consist in reducing emissions and not in maintaining the status quo. Northern states, it is argued, should not be exonerated from their historic responsibility by reducing deforestation in the South, since the goal is rather to unite all efforts (Nielsen, 2014). What is more, Northern countries are being asked to assume additional responsibility: payment should also offset the prior unsustainable use of natural resources by these countries as well as the resulting restrictions imposed on current and future generations (Okereke and Dooley, 2010). The position of Brazil has remained constant through the REDD negotiation process.36 For example, even if it acknowledges in a submission to the 15th session of the Ad Hoc Working Group on Longterm Cooperative Action under the Convention (May 2012, Bonn) that market-based instruments may be useful, Brazil states that “these appropriate market-based approaches exclude the use of offset mechanisms”.37 Meanwhile, it advocates the creation of funds fed by Northern countries. The financial contribution of the latter would embody their political responsibility. Nevertheless, current political evolutions within Brazil might have an impact vis-à-vis its official position in the international arena (Vieira, 2013). In effect, some governors of Amazonian states explicitly advocate a REDD system allowing developed states to offset their industrial activities. For instance, Acre and California are currently engaged in political negotiations regarding the possibility of including offset credits (resulting from avoided deforestation in Acre) in California’s cap-and-trade programme (Lueders, 2014). 4. Conclusions Brazilian environmental policies are on the verge of permitting numerous exchanges of land use rights and duties. In a situation where players may, as in a game of musical chair, change places and win or lose prerogatives as regards land use, the objective of

34

Brazilian Forest Service, personal communication. Secretariat of Biodiversity and Forests, Federal Ministry of Environment, personal communication. 36 Secretariat of Biodiversity and Forests, Federal Ministry of Environment, personal communication. See also http://redd.mma.gov.br/index.php/pt/redd/ perguntas-frequentes (page accessed 29/06/2016). 37 Views on modalities and procedures for financing results-based actions and considering activities related to decision 1/CP.16, paragraphs 68–70 and 72. 35

31 Secretariat of Environment of the state of Rio de Janeiro, personal communication. 32 Funbio, personal communication. 33 United Nations Framework Convention on Climate Change, 2005. FCCC/CP/2005/MISC.1.

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this article is to ask to what extent the biggest loser could be the environment itself. When designing environmental policies, the notion of marketbased instrument is portrayed either as a chance (Wunder, 2013) or as a risk (McAfee, 2012). Yet, it forms such a heterogeneous category that it is impossible to assess its implications without exploring its diverse facets. Depending on each market-based instrument and on the way it is used within the legal field according to the strategies of actors, opposite consequences may happen. An overview of the changes occurring in Brazilian environmental policies shows that the global trend is to allow for an easier, less painful implementation of environmental obligations by some actors, while asking other actors to provide additional resources. At this point, the problem is twofold. Firstly, it is related to the equity of the burdensharing reconfiguration. Secondly, it is related to the possibility of easing the burden on almost all actors without that being detrimental to the environment. The regulation of private land use allows two different marketbased instruments to take place. The cap-and-trade system, which applies to the right to clear forested land enables a landowner to adapt his obligations according to his own situation and strategy. As such, he may find it more profitable to use a bigger share of his property than is allowed, while compensating this state of affairs by increasing the share of protected natural heritage elsewhere. In contrast, the PES rationale might impose a new justification for environmental responsibilities. As PES is not (yet) uniformly conceived, the financial transaction occurring between a provider and a beneficiary of ecosystem services may entail different consequences. The former may inherit new obligations, or the payments may give it the means to fulfill its existing obligations. The latter may (or may not) see its own obligations offset by the act of payment. Given the political context where environmental standards are constantly criticized and routinely ignored, PES may attenuate any sense of obligation on the part of landowners inciting them to make their responsibility conditional on financial compensation. Public agencies in charge of protected areas seek to use marketbased instruments in order to ease their own environmental obligations. Furthermore, they seek to transform different problems into assets. In other words, their aim is to take advantage of two facts: that private landowners must compensate the fact that they did not comply with their land use obligations; and that polluting industries must offset their environmental impact. Admittedly, debates emerge regarding the impacts of these processes on the global level of environmental conservation, or regarding how to establish rigorous equivalency between the conservation of nature and the mitigation of industrial activities. But unlike the offsetting that could take place in a REDD system, the fact that these transactions occur domestically explains why they are politically accepted: they do not entail any calling into question of countries’ sovereign rights. Nevertheless, further research is needed to help acknowledge whether these transactions between landowners, industries and public agencies are not merely a means to help legitimise business-as-usual development.

Acknowledgements This paper draws on research carried out as part of the RESBIO Cerrado project funded by CNPq (Brazil) and undertaken in cooperation with the Instituto de Estudos Sócio-Ambientais (IESA, Universidade Federal de Goiás, Brazil); and as part of the INVALUABLE project funded the BiodivERsA network (FP7 European Research Area programme − ERA-NET). I would like to thank Maria Geralda de Almeida, Arnaldo Carneiro Filho, Carlos Eduardo Frickmann Young and Peter May for insightful discussions.

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