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Compensating deforestation with forest surplus: Key regulatory issues within Brazil's atlantic forest
Ecological Economics 167 (2020) 106444
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Analysis
Compensating deforestation with forest surplus: Key regulatory issues within Brazil's atlantic forest Júlio César da Cruz, César Falcão Barella, Alberto Fonseca
T
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Environmental Engineering Graduate Program, Federal University of Ouro Preto (UFOP), Campus Morro do Cruzeiro s/n, Ouro Preto, Minas Gerais 35400-000, Brazil
A R T I C LE I N FO
A B S T R A C T
Keywords: Environmental Reserve Quota (CRA) Legal reserves Environmental compensation Environmental policy Atlantic forest Brazil
Brazil has created a market mechanism for compensating past deforestation based on the acquisition of forest surplus from different properties. This mechanism, known in Brazil as the ‘CRA market’, could become the world's largest forest compensation program. The success of this market depends on the specifics of regulations that are yet to come. The objective of this article was to explore three relevant issues to the regulation of a future CRA market within the Atlantic Forest of Minas Gerais state: the balance between supply and demand; incentives for trade in priority areas; and potential policy overlaps between different compensation programs. Based on geospatial evaluations and content analysis of government documents, the study revealed a potential oversupply of CRAs in the Minas Gerais Atlantic Forest, as surplus areas were found to be 2.76 greater than deficit areas. Eventual incentives for trade in priority areas could lessen oversupply, but unfold into sensitive territorial tradeoffs. The potential overlap between the CRA market and the existing compensation program of the Atlantic Forest Act, while still unclear, is unlikely to be a very relevant one. Future avenues of research are suggested.
1. Introduction The world's growing environmental problems are driving the emergence of policy solutions that go way beyond command-and-control regulations. In the early 2000s, Jordan et al. (2003) had already noted that the European Union and other regions were witnessing a myriad of ‘new’ environmental policies based on market mechanisms, voluntary agreements, certifications and labeling. While market-based policies tend to have similar drivers related to dissatisfaction with regulations and perceived superiority of neoliberal solutions, most of these policies“( …) require some state involvement (that is, ‘government’), and very few are entirely devoid of state involvement (that is, pure ‘governance’)” (Jordan et al., 2005, 477). In this context, policymakers have been increasingly exploring the value of hybrid and mixed-policy arrangements to address environmental problems (Gómez-Baggethun and Muradian, 2015). However, the effectiveness of these new policy instruments is contested, as “(…) their implementation, even when effective locally, often do not add up to overall effectiveness at national or regional scales” (IPBES, 2018, p. 524). Brazil is among those countries who has been increasingly diversifying its biodiversity and forest policies. While the importance of Brazilian forests has been triggering command and control policies since the colonial times (Dean, 1997), it was not until the late 1990s
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when the country started to employ a broad range of different policy approaches to curb deforestation and stimulate sustainable growth (Bandeira, 2015). Besides the National Forest Code, whose 1965 version was revised in 2012 after a controversial legislative process (Sparovek et al., 2012), the country adopts a combination of various types of protected area legislation, marked-based instruments and voluntary certification mechanisms (Rafael et al., 2018), with significant differences and nuances across government levels and biomes. The growing adoption of market-based instruments in Brazil, like in many countries (Goulder and Parry, 2008), is rarely preceded by thorough evaluations of costs and benefits, let alone by comparative assessments of the various instruments' potential environmental protection. Such instrumental choices in environmental politics have long been challenged by numerous political, information, and analytical barriers (Keohane et al., 1998). Moreover, studies have shown that optimum instrumental choices are context-dependent; a successful instrument in a particular biome might prove to be ineffective elsewhere (Nolte et al., 2017). In the Brazilian context of limited information and enforcement capacity, there remains substantial uncertainties with respect to market mechanisms' potential effectiveness. Despite growing efforts, the conservation of forest and non-forest ecosystems (Overbeck et al., 2015) is still a strong challenge in Brazil. While there have been significant reductions in the rates of
Corresponding author. E-mail address: [email protected] (A. Fonseca).
https://doi.org/10.1016/j.ecolecon.2019.106444 Received 12 April 2019; Received in revised form 18 July 2019; Accepted 20 August 2019 0921-8009/ © 2019 Elsevier B.V. All rights reserved.
Ecological Economics 167 (2020) 106444
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Fig. 1. – Trade of Environmental Reserve Quotas (CRAs) between properties with surplus and deficit of legal reserves. Source: Designed by the authors.
This article proceeds in four sections. The next section explains the CRA and forest compensation markets in Minas Gerais, highlighting its main challenges and opportunities for improvement. Section three presents the methodology, study area, GIS-assisted evaluations, premises and criteria. Section four presents and discusses the main findings. And, finally, section five draws concluding remarks.
deforestation in the Amazon region in the past 15 years (Boucher et al., 2013), new data show that this trend has been reverted since 2015, particularly within ecosystems vulnerable to agricultural and industrial expansion (Dupin et al., 2018; Escobar, 2018). To avoid retreats and ensure conservation, governments and stakeholders need to pay special attention to the implementation of the 2012 Native Vegetation Protection Law (NVPL) (Brazil, 2012). This law has a number of potentially powerful tools to stimulate forest conservation, such as the ‘Environmental Reserve Quotas’, known in Portuguese as ‘Cotas de Reserva Ambiental’ (CRA thereof). A CRA is a market mechanism that can help rural landowners comply with the minimum areas of Legal Reserves (LR) under the NVPL, which requires a land portion of every rural property or holding to function as a LR, and therefore ensure the sustainable economic use of natural resources, contribute to conservation and rehabilitation of ecological processes, support the conservation of biodiversity, wildlife and native vegetation (Brazil, 2012). The minimum property portion of LR required by the NVPL can range from 80% in the Amazon region to 20% in most of the country. In general, landowners who do not comply with these minimum LR areas are in deficit and have to either: 1) restore deforested areas, or 2) compensate the LR deficit. The trade of CRAs has the potential to become a multiple-billiondollar market (May et al., 2015b; Soares-Filho et al., 2016). Although there are many institutions and authors optimistic about the CRA market - after all it was introduced within the statutes of the NVPL studies have identified a number of potential market, technical and legal barriers to its implementation (e.g. Gasparinetti and Vilela, 2018; May et al., 2015a; Rajão and Soares-Filho, 2015; Seehusen et al., 2017; Soares-Filho et al., 2016). The viability of the CRA market depends, to a large extent, on the specifics of upcoming regulations, particularly at the state levels. While a new federal-level regulation was enacted in December 2018 (Brazil, 2018), a number of questions await responses. For example: should states create priority areas for trading CRAs? Should CRAs be traded between watersheds, biomes, and/or states? What would be the potential consequences of mixing CRA trade with other existing forest compensation mechanisms, such as the one under the Atlantic Forest Act, which already mandates the compensation of proposed development areas? Empirically-based studies are important to answer such questions. The main objective of this article was to explore relevant issues to the regulation of a future CRA market, using the empirical context of the Atlantic Forest of Minas Gerais state. More specifically, this article had a threefold objective: 1) map and evaluate the potential deficit and surplus of LRs; 2) map and evaluate what portions of LR surplus areas should be prioritized for the purpose of optimizing forest conservation gains; and, 3) explore the potential overlap of the CRA market with the ongoing compensation program of the Atlantic Forest Act. Findings, while based on the Brazilian empirical context, are likely to be relevant to global scholars, policy-makers and practitioners, as the environmental policies addressed here are similar to many market-base mechanisms applied worldwide (Credit Suisse Group, 2016).
2. Forest compensation in Brazil 2.1. The promising CRA market A recent report about the implementation of the Sustainable Development Goals has shown that the world's ‘forest area as a percentage of total land areas’ has been steadily decreasing since 1990; some countries have been able to stop or even reverse deforestation, but others, like Brazil, still portray a worrisome trend (UN, 2017). Between 1985 and 2017, Brazil has lost roughly 63 million ha of forests (MapBiomas, 2019), an area larger than the territory of Germany and the United Kingdom combined. Among the most important forest laws in Brazil is the 2012 NVPL, which was the result of a controversial legislative process (Sparovek et al., 2012; Brancalion et al., 2016). Despite the controversy, as pointed out by Soares-Filho et al. (2014), the NVPL introduced “new mechanisms to address fire management, forest carbon, and payments for ecosystem services, which could reduce deforestation and bring environmental benefits” (p. 364). Perhaps the most promising of these mechanisms is the aforementioned CRA. One CRA corresponds to 1 ha of legal title of area with native vegetation that exceeds the minimum Legal Reserve requirements (Brazil, 2012). As illustrated in Fig. 1, rural landowners who have LR deficits can acquire CRAs from landowners with LR surplus. Many specialists believe that the trade of CRAs could be a more cost-effective way to comply with the LR requirements than restoration or other forms of compensation. The CRA market is conceptually similar to the Transferable of Tradable Development Rights (TDS), which has long been used in global conservation policies (Panayotou, 1994). However, as noted by May et al. (2015b, p. vii) “a chief distinction of CRA compared to generic TDR programs is the fact that CRA is only an instrument to assist with compliance of historical (rather than future) deficits”. Nonetheless, studies are finding a number of potential barriers to the effectiveness of CRA trade. Rajão and Soares-Filho (2015) highlighted that too narrow or too wide scopes of transactions could negatively affect the feasibility of the market and that the costs of transactions could be proportionally high for small players. May et al. (2015b) raised concerns about the duration of CRA contracts, the imbalance between supply and demand of CRAs, the inexistence of an official CRA registry system that could enable transactions between geographical regions and Brazilian states, and lack of state enforcement and effective sanctioning. Scholars are becoming increasingly interested in the CRA market. 2
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mechanism is further regulated by Portaria IEF 30/2015 (Minas Gerais, 2015), which specifies the documental and technical aspects of the compensation. Rural properties located in the Minas Gerais Atlantic Forest biome that are currently eligible to sell their surplus LR areas under the Atlantic Forest Act, after the regulation of the CRA market, will have a potentially competing option: transform their surplus areas into CRAs. How competing these two compensation schemes will be is largely unknown. The Atlantic Forest Act has triggered a compensation program which has two main differences from the CRA market. First, the Atlantic Forest compensation targets new developments, particularly in the context of Environmental Impact Assessments and licensing conditions. The focus is not on LR deficits, but on yet-to-be-deforest areas. Second, under the Atlantic Forest Act, compensation is not carried out through formal markets and ‘middle actors’; it is up to developers to negotiate potential compensation areas directly with potential sellers. Very few, if any, academic studies have explored the potential interactions between the CRA market and the Atlantic Forest Act compensation program, which could occur in different ways. For example, if CRA prices are relatively high, rural landowners who have surpluses of LR Atlantic Forest in Minas Gerais, instead of selling their surpluses to developers in need of compensation areas, could opt for turning them into tradeable CRAs, unless developers pay a higher price. Alternatively, developers could decide to build elsewhere. That is, high CRA prices could make new developments more costly in the Atlantic Forest and/or incentivize development in different biomes. In the opposite direction, relatively low CRA prices could incentivize the status quo, where eligible areas for Atlantic Forest compensation are sought after by new development projects. In-depth econometric evaluations of eventual policy overlaps are, nonetheless, hampered by lack of data. Up to the point of writing this study, there was not much published in academic databases. The only exception was the study by Souza and Sánchez (2018), which reported that some mining developers were having difficulties in finding suitable compensation areas. Grey literature and white reports were also scarce. The state government of Minas Gerais does not publish evaluation reports of its compensation programs and not even maintain a public registry of compensation areas. Therefore, a fundamental step toward a better understanding of the potential interactions between the existing compensation program and the CRA market is to shed light on some basic information about the implementation of Atlantic Forest Act.
Nunes et al. (2016) shed light on the extension of imbalances between LR deficits and surpluses Pará State. Their study found that LR surplus was five times larger than LR deficit, and also revealed details as to the locations and extension of such areas. Brito (2017) explored scenarios of market access eligibility criteria that could be used in CRA regulations. Pacheco et al. (2017) interviewed 77 rural landowners in the states of Para and Mato Grosso to understand their perception about the CRA market. More recently, Seehusen et al. (2017) found that the CRA market in Bahia state can reduce the total cost of LR compliance significantly, being potentially more advantageous in the restricted context of biomes and priority areas, such as the Atlantic Forest. Such findings are aligned with the study of Young and Junior (2017), which found that the market for CRA trade within specific biomes would have the highest environmental benefit per unit of cost. 2.2. The unexplored interaction between CRA trade and atlantic forest compensation While forest conservation attention in Brazil is often devoted to the Amazon region, the reviewed studies have shown a number of opportunities for CRA trade in the Atlantic Forest biome. May et al. (2015a) have estimated that the CRA market value in this biome could be the highest in Brazil, given that it has been profoundly devastated and, as a result, has a very strict legislation on land use. In their evaluation of LR balances across biomes, Rajão and Soares-Filho (2015) found chances of oversupply of CRAs in every biome, with the exception of the Atlantic Forest (at the national scale), a fact that could result in comparatively higher CRA values. The prices of CRAs in Brazil will depend on many variables. In the pioneering online market of CRAs (www.bvrio.org), which was launched to ‘test’ the future market, CRAs are already showing great variations. During the writing of this article, while there were proportionally more CRAs being offered in the Atlantic Forest biome, the highest prices were found in the Cerrado biome. In March 2019, asking prices for Atlantic Forest CRAs registered in BVRio varied from US$16 to US$2391 per hectare per year. The national-wide civil society initiative ‘The Atlantic Forest Restoration Pact’ (Pinto et al., 2014) also sees an opportunity for CRA trade in the Atlantic Forest as long as the State ensures “good landscape planning”, addressing fragmentation and priority areas (Padovezi et al., 2018, p. 40). For this purpose, as recently pointed out by Gasparinetti and Vilela (2018), there is an urgent need for more maps of priority areas (from an ecological standpoint) for trading CRAs, as existing maps are not able to capture states' specific conditions and environmental attributes. The Brazilian state of Minas Gerais has as a vast area of devastated Atlantic Forest, and as such is arguably one of the ‘low-hanging fruits’ for CRA trade. A 2011 study estimated that Minas Gerais was the Brazilian state with the greatest potential for LR restoration, having roughly 5.6 million hectares of potentially recoverable Atlantic Forest (Pacto Mata Atlãntica, 2011). One thing to consider, however, is that Brazil has already a market mechanism for the compensation of deforestation of Atlantic Forest, which is regulated and in progress in many states, including Minas Gerais. According to Federal Law 11,428/2006, known as the Atlantic Forest Act, the suppression of primary or secondary Atlantic Forest vegetation in medium to advanced stage of regeneration can only be authorized by the State conditioned to the compensation of an equivalent area, with similar ecological traits, in the same watershed or, whenever possible, in the same micro watershed (Brazil, 2006). Alternatively, in the event environmental authority deems impossible to find compensation areas in desirable locations, project proponents are allowed to restore an equivalent area. In Minas Gerais, this compensation 1
3. Methodology 3.1. Study site: the Minas Gerais atlantic forest This article was based on a mixed-method approach informed by quantitative geospatial analyses and documental content analysis, which have long been methodological choices in forest conservation policy studies. Given that CRA regulations are expected to be developed at the state level and taking into account the characteristics of biomes, this study addressed the specific context of the Minas Gerais Atlantic Forest. Minas Gerais is an industrialized Brazilian southeastern state that, in 2019, housed > 20 million people in a territory (586,522 km2) that is slightly larger than Spain. Its evolving environmental laws and institutions, which date back to the 1970s, provides an appropriate framework for developing the CRA market. The state also houses important biomes, including a relevant portion of the Atlantic Forest, which, because of its exceptional concentration of endemic species and habitat loss, has been considered one of the world's biodiversity hotspots (Myers et al., 2000). While a combination of promising efforts has been turning the Atlantic Forest into some sort of ‘hope spot’ (Scarano and Ceotto, 2015; Rezende et al., 2018) as deforestation rates have been decreasing at the national scale, in some regions, like Minas Gerais, deforestation is still worrisome. In the latest Atlantic Forest monitoring report (SOS Mata Atlântica and INPE, 2019), Minas Gerais was the
Based on a conversion rate of 3.8 R$ / US$ on March 29th, 2019. 3
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leading state in the rank of Atlantic Forest deforestation. Therefore, one can expect that the Minas Gerais Atlantic Forest will be one of the priority areas for testing new policy instruments like the CRA.
Table 1 – Factors and respective weights and scales used in the AHP to map Priority Ecological Areas. Objective factors
3.2. LR surplus and deficits To map the LR balance in the Minas Gerais Atlantic Forest, this study evaluated the official ‘shapefiles’ of the National Environmental Registry of Rural Properties (known as SiCAR in Brazil) available in May 29th, 2018. At that time, the registry included a total of 701,246 rural properties covering 42 million hectares of the state territory. The study then identified all properties that had more (LR surplus) and less (LR deficit) than 20% of its area covered by legal reserves. The evaluation of LR deficit, however, was carried out for rural properties larger than four (4) Brazilian Fiscal Modules (a ‘fiscal module’ is a Brazilian agrarian unit that represents the minimum area of what is supposed to be an economically feasible property, varying across municipalities from a few to several-dozen hectares), as the 2012 NVPL exempts properties smaller than 4 fiscal modules to compensate LR deficits. During the spatial analysis many properties were found to have overlaps, which are likely due to errors in data input. To minimize errors, following the same procedure adopted by Nunes et al. (2016), this study, only included in the analysis properties with < 5% of area overlap. According to L'Roe et al. (2016), overlapping areas larger than 5% “are not easily explainable by small mapping errors” (p. 199).
Protected caves
Weights used in the AHP (0 to 1)
2018
0,06
Land declivity
Image LANDSAT / USGS
2005
0,03
Distances to urban centers
GEOINFO/ EMBRAPA
2015
0,04
SiCAR
2017
0,23
SiCAR
2017
0,27
IDE-Sisema (MG)
2018
0,26
IDE-Sisema (MG)
2018
0,10
Distances to highly restrictive conservation units (Proteção Integral) Distance to less restrictive conservation units (Uso Sustentável)
This study also tried to identify the LR surplus areas that are more likely to unfold into ecological and forest conservation gains. To judge the suitability of those areas the study considered several variables through the Analytic Hierarchy Process (AHP). AHP is a general theory of measurement created by Saaty (1977) to analyze complex decision problems that can deal with both qualitative and quantitative attributes. As explained by Saaty (1987) himself, AHP provides a “framework for carrying out both deductive and inductive thinking without use of the syllogism by taking several factors into consideration simultaneously and allowing for dependence and for feedback, and making numerical tradeoffs to arrive at a synthesis or conclusion” (p. 161). The past decades have seen a proliferation of geographic information system (GIS)-based AHP studies, particularly in the field of land suitability analysis, where researches identify and collect spatial data, weight and integrate this information through GIS analysis, and generate tables and graphs for final evaluation and learning (Chandio et al., 2013). Based on the AHP and its respective pairwise comparison, with the support of ArcGIS software, this study weighed the scores for each factor and then used spatial analysis function of GIS to produce a composite map of the most suitable areas for forest conservation. The factors and respective weights, shown in Table 1, are based on typical land use requirements and limitations imposed by environmental legislation in Brazil. Specific scales and values were arbitrarily selected by the authors in an internal focus group. The purpose was to explore a pioneering application of the AHP to the problem of finding suitable areas for CRA trade; however, it is expected that in a ‘real-life-situation’ the state government will develop a consensus-reaching process, so that AHP factors, scales and weights are perceived as legitimate by various constituencies. The rationale behind the AHP was mainly to identify those areas that would be less susceptible to edge effects and to forest fragmentation, which are desirable situations in conservation policies. Selected criteria mirror both the size of surplus areas and their distances to existing forest areas, urban centers, and protected areas (the latter are also known in Brazil as ‘Conservation Units’). Distances to protected caves were also considered, as forests can play an important role in preserving
Spatial information year
CANIE / ICMBio
Distances to existing Legal Reserves (LR) Areas of Legal Reserve deficit and surplus
3.3. Analytical hierarchy process to identify priority areas
Spatial information source
Scales of attribute values
0–20; 20,1–100; > 100 (km) 0°-17°; 17°- 25°; 25° - 45°; > 45° 0–30; 30,1–100; > 100 (km) 0–10; 10,1–50; > 50 (km) 0–5; 5–100; 100–500; > 500 (ha) 0–3; 3,1–50; > 50 (km)
0–10; 10,1–50; > 50 (km)
the many caves that exist in Minas Gerais. GIS analyses were based on Datum SIRGAS 2000 and South America Alberts Equal Area Conic. 3.4. Implementation records and geospatialization of atlantic forest compensations To explore the potential overlap of the future CRA market with the Atlantic Forest compensation, this study undertook a content analysis of the official state government documents in connection with the implementation of those compensations. This study had access to all compensation decisions made by the state government available in the State Forest Institute (whose acronym is IEF in Portuguese) between May 2014 and June 2018. A total of 222 projects required compensation in that time period, however, 205 had complete information about the location of compensations. The project types, compensation areas, and locations were organized in spreadsheet software and later plotted in QGIS software. 4. Results and discussions 4.1. Within-biome balance of LR The geospatial analysis of LRs deficits and surpluses within Minas Gerais' Atlantic Forest corroborates a worrisome fact: several years after its creation, the Rural Environmental Registry (CAR) is still plagued with data problems (Oliveira and Oliveria, 2019). This mandatory, selfdeclaratory geospatial electronic registry of rural properties, which is often regarded as an important underpinning system for conservation policies (Jung et al., 2017; Roitman et al., 2018), is being fed with imprecise data. A recent report of the Brazilian Forest Service shows that rural landowners are overestimating their properties' boundaries. Although the Brazilian potential for rural property registration is 397 4
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which was found to be of 283,159 ha. The financial size of an eventual CRA market within the Minas Gerais Atlantic Forest biome will, of course, depend on the specifics of future regulations. But considering the average price of US$100.00 (based on the Atlantic Forest CRAs available in the BVRio platform in March 2019), the potential annual trade would be at best of around US$ 283 million dollars or about 1 billion Brazilian Reais. Of course, this reflects the highly unlikely scenario of having 100% of the properties with LR deficits choosing CRAs instead of other alternative means to address their historical deforestation. But even if 10% of these properties opt for CRAs, there would still exist a potential trade of multiple million dollars per year. The calculations and geospacialization of LR surplus and deficits (Fig. 2) are important insofar as it helps to show that balances of LR can vary significantly not only across biomes, but also across states, and within states. The potential ratios of CRA trade imbalance found in two previous studies that compared LR surplus and deficit for the whole Brazilian Atlantic Forest were smaller than the one found here. For example, Sparovek et al. (2010) found a ratio of 1.15 (9.4 Mha / 8.2Mha) and Soares-Filho et al. (2014), who worked with data after the Forest Code revision, found a ratio of 0.7 (3.4 Mha / 4.8Mha). And the 2.76 ratio reflects the opposite situation found in the state of Bahia by Seehusen et al. (2017), which was of 0.29 (176,825 ha of surplus versus 610,943 ha of deficit). One needs to careful consider mere LR ‘numbers’, as they do not reveal territorial characteristics. When analyzing the spatial distribution of LRs in Fig. 2, it become clear that the western portion of Minas Gerais has a concentration of LR deficits. This is very likely because that portion of Minas Gerais, known in Portuguese as the ‘Triângulo Mineiro’, has very intensive agricultural activities. In that region, there is a more obvious potential for CRA trade. However, regardless of the
million ha, in 2018 the CAR system had already 448 million ha of registered properties (SFB, 2019). In Minas Gerais state, the situation is worse: there were 42.5 million ha of registered rural properties, almost 30% more than the potential area for registration, which is 33.1 million (SFB, 2019). The rural properties and respective LRs ‘shapefiles’ downloaded from SiCAR (official database of LR) had profound overlaps between properties, particularly among small properties. Such overlaps, as noted by Brito (2017) is due to several factors, such as: “differences in scale between the databases, the level of imprecision of the geo-referencing method, issues related to conflict and land disputes, false ownership declaration, including false declarations over nonexistent properties” (p. 9). To minimize errors in the identification of LR deficits and surplus, this study, as explained in the methodology section, adopted a threshold of 5%. The degree of overlaps across properties with LR surplus and LR deficits were very different. The application of the threshold filter of 5% led to the exclusion of about 20% of the registered properties with LR surplus and to about 5% of the properties with LR deficits. This situation is very likely a result of the fact that the properties with LR deficits, as mandated by law (Brazil, 2012), include only properties larger than 4 Fiscal Modules, and thus are likely to be owned by more wealthy organizations or individuals who can afford better geo-referencing services. In contrast, a substantial fraction of the LR surplus areas are owned by thousands of small and very small property holders who are likely to lack the capacity to hire quality CAR services. Despite the inaccuracy of data, particularly of LR surpluses, this study found an imbalance in LR deficit and LR surplus areas in terms of properties and total area (Fig. 2). The potential offer of CRAs in an eventual Atlantic Forest market was found here to be - at best - of 781,545 ha, which is 2.76 greater than the potential demand for it,
Fig. 2. – Legal reserve surplus and deficit areas within Minas Gerais atlantic forest. 5
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Findings presented in Fig. 3 show that the priority areas are located mainly in the eastern portion of the Minas Gerais Atlantic Forest, in several patches from north to south. Just a very small fraction is located in the western ‘Triângulo Mineiro’, which, as previously mentioned, was found to have a high concentration of LR deficits. This raises all sorts of questions about trading rules: could rural landowners from western Minas Gerais be restricted to buying, or pay a higher price for, CRAs located in eastern Minas Gerais? If so, this could result as an incentive for maintaining the ‘deforestation status quo’ in that region. But what would be the reaction of the people that live in western Minas Gerais? Would they be willing to accept this trade-off? Such questions reveal that the definition of priority areas for CRA trade is likely to unfold into territorial trade-offs that have social and political consequences. Therefore, it is important that upcoming regulations, in the event of creating incentives for trade in priority areas, anticipate some way to deal with eventual social reactions. For this purpose, it is fundamental that priority areas are perceived as legitimate by a wide range of stakeholders. Depending on the criteria used in the mapping process, priority areas can change in both size and location. For example, recent studies addressing priority areas for conservation in the Brazilian Atlantic Forest resulted in maps that contrast with the outcomes of the AHP presented here (Rezende et al., 2018; Strassburg et al., 2019). After all, the map of priority areas presented here is intentionally biased toward lessening fragmentation. There is no standard method for evaluating ecological priority or suitability. Available techniques depend on the use of arbitrary and value-laden criteria, which are reflected in the factors, scales and weights used in the AHP presented here. Policy-makers, however, could consider other factors, scales and weights in the prioritization process that could result in different maps. In any case, more important than creating the ‘right’
future equilibrium prices, in an eventual CRA market within most of the Minas Gerais Atlantic Forest biome, there is a reasonable chance to occur oversupply of CRAs, which could, in turn, drive CRA prices down compared to other states, like Bahia. That, however, will depend on a number of factors, including eventual incentives for CRA trade in priority areas. 4.2. Suitability for ecological conservation of LR surplus areas The LR surpluses identified here are fragmentally dispersed across the Atlantic Forest legal area, a situation that could result in a dispersed trade of CRAs. However, it would be more beneficial to the environment if CRA trade helped, for example, to lessen the degree of fragmentation at both the patch and landscape scales (Fahrig, 2003). Moreover, as noted by Brito (2017), the concentration of CRA trade in particular areas could be a way to address CRA oversupply and control CRA prices. Yet rural landowners are unlikely to make their CRA choices based on factors other than costs, without state or market incentives. For example, state regulation could limit CRA to particular areas of interest, or set up a CRA pricing policy that values CRAs located in ecologically relevant areas. However, whatever is done depends, first, on the mapping of ecologically relevant areas. This study generated a pioneering map (Fig. 3) that gives a sense of the proportions and locations of potential priority areas for CRA supply. To facilitate the interpretation of the raster images generated in the AHP, the resulted indices of ecological priority were divided into three main categories: high, medium and low. As shown in Fig. 3, only 16% of the LR surpluses were located in areas that the AHP deemed as highly appropriate for ecological conservation. Most areas were evaluated as medium (43%) or low (42%) priority.
Fig. 3. –Ecological priority of legal reserve surplus areas (based on AHP calculations). 6
Ecological Economics 167 (2020) 106444
priority map is to create a map that is largely perceived as ‘legitimate’, so that CRA trade is not negatively affected by eventual disputes and ligations. 5.5 km
4.3. Potential overlaps of the atlantic forest compensation with a CRA market
323
4077.4
8704.9 ha
2.1
42.5 ha
This study also explored the potential policy overlaps that might occur in an eventual within-biome CRA market. Such overlaps have been largely overlooked in the burgeoning CRA literature. The Atlantic Forest, while previously identified as particularly promising for CRA trade (Gasparinetti and Vilela, 2018; May et al., 2015b; Padovezi et al., 2018; Soares-Filho et al., 2016), has already a compensation mechanism in place under the Atlantic Forest Act. The reach of the existing compensation program is obscured by the lack of database and information systems, and previous empirical studies. To overcome this information gap, this study collected and analyzed state documents regarding the implementation of Atlantic Forest compensation in Minas Gerais between 2014 and 2018. Key findings are presented in Table 2. Between 2014 and 2018, a total of 205 development projects proposed the deforestation of a total of 4077.4 ha of Atlantic Forest, thus triggering the compensation program. On an average ration of 2:1, the state approved the deforestation of those areas conditioned to the acquisition of 8704.9 ha of Atlantic Forest in 323 different locations. The locations (project coordinates) of deforestation areas and compensation areas are illustrated in Fig. 4, with red and green dots, respectively. Unfortunately, the actual polygons or perimeters of compensations are not publicly available in the state archives, a situation that limits the geospatial depth of what is presented in Fig. 4. The Atlantic Forest Act in Minas Gerais triggered a compensation system that is profoundly different from the burgeoning CRA market, both in size and territorial effects. As shown in Fig. 4, under the Atlantic Forest Act, compensation is a more localized phenomenon. The average distance of compensation areas from deforestation areas was found to be of 5.5 km. This was expected, because the law and regulations require compensations to be carried out in the same watershed or, whenever possible, sub-watershed. Also, the compensations have not been restricted to the legal boundaries of the Atlantic Forest. They have been occurring in any forest area whose phytophysiogmy actual reflects Atlantic Forests. This explains why many compensation areas were found to be located on the central and northern portions of Minas Gerais. Moreover, the demand for compensation between 2014 and 2018 was found to be of about 2.2 thousand hectares per year. These are ‘numbers’ profoundly smaller than the potential CRA market. As previously shown here, the potential maximum offer of CRAs in an eventual Atlantic Forest market in Minas Gerais was found to be of around 782 thousand hectares. And the potential demand (LR deficits) could reach 283 thousand hectares. The accumulated Atlantic Forest compensation between 2014 and 2018 (8704.9 ha) corresponds to only about 3.1% of the LR deficit areas found in this study. In addition, hypothetically, if rural landowners decided to convert their surplus areas into CRAs instead of selling them to new development projects, considering the aforementioned average CRA prices in the BVRio platform (US$ 100.00) and the average compensation area found in the content analysis (42.5 ha), they would receive around US $4250.00 per year. Whether this would be a competing option in the rural real estate market is an open question that needs further market analysis and econometric evaluations. Despite the exploratory nature of the content analysis, data presented in Table 2 and Fig. 4 helps to understand that, unless economic development patterns change dramatically in future years thus driving development projects to Atlantic Forest areas, the potential overlap between CRA trade and the compensation program under the Atlantic Forest Act is unlikely to be a large one. However, this does not necessarily means that policy-makers should not worry about potential overlaps, particularly in watersheds where Atlantic Forests are
205
Average ratio of compensation Accumulated area of atlantic forest compensation Accumulated area of atlantic forest deforestation Quantity of approved atlantic forest compensation areas Development projects that triggered atlantic forest compensation
Table 2 – Key indicators of atlantic forest compensations approved under the Atlantic Forest Act in the State of Minas Gerais (2014–2018).
Average area of atlantic forest compensation per project
Average distance from development projects to compensation areas
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Fig. 4. – Locations of proposed deforestation and approved compensation of atlantic forest (2014–2018).
reach than the existing compensation program under the Atlantic Forest Act. While policy competition could become a problem in specific watersheds, further studies are needed. Findings presented here are important in two key ways. First they highlight the urgent need for reliable information systems for both rural property registry and CRA trade. The evaluations carried out here were based on a number of arbitrary decisions as to how to deal with property overlaps in the National Environmental Registry of Rural Properties. Such overlaps, if left unresolved, could undermine the entire CRA market. Second, findings presented here help to anticipate what could happen in an eventual biome-specific CRA market underpinned by priority areas. Oversupply, territorial trade-offs, and eventual policy competition within particular watersheds emerged as important issues that should be carefully considered by regulators. However, this study has addressed just a small fraction of the various issues that might emerge in a real-life situation. The trade of CRAs touches on intricate political and economic matters. Unintended consequences are very likely to emerge. In this context, the principles of adaptive management (Walker et al., 2004) should embed whatever regulatory option is taken, so that eventual flaws can be more quickly and easily addressed.
particularly scarce. For example, Souza and Sánchez (2018) recently found that new mining developments in Minas Gerais were having difficulty in finding compensation areas under the Atlantic Forest Act. Once CRAs are available in the market, this difficulty could be reduced, as CRAs are, by definition, the locations of potential areas for Atlantic Forest compensation. Mining and other developers could, therefore, be attracted to buy the properties offering CRAs. But depending on the actual CRA prices, the policy competition could go in the opposite direction. Landowners who have been willing to sell their properties for the Atlantic Forest compensations of new development projects could be attracted to rent their areas under the CRA market and thus create further difficulty to finding affordable compensation areas under the Atlantic Forest Act. So, it is important that future studies undertake a more stringent analysis of interaction of the two policies, considering real estate market data, in specific watersheds where demand for Atlantic Forest compensation is potentially high. 5. Final remarks Brazilian policymakers have been increasingly adopting market mechanism as a means to address forest conservation, despite uncertainties about how such instruments can be effective in the context of limited information and enforcement capacity. This article has explored a number of issues that is likely to be relevant in the regulatory design of one of the most recent and potentially powerful of such mechanisms: the CRA market under the 2012 NVPL. Based on geospatial evaluations and content analysis related to the Minas Gerais Atlantic Forest, this study revealed that there could be an oversupply of CRAs and that eventual incentives for trade in priority areas, while lessening oversupply, could unfold into territorial trade-offs. This study also found that the CRA market is likely to have a much broader territorial
Acknowledgements Júlio César da Cruz was supported by a scholarship from the Brazilian Coordination for the Improvement of Higher Education Personnel (Capes) [code 001]. Alberto Fonseca was supported by Brazilian National Council for Scientific and Technological Development (CNPq) [grant 310758/2015-7].
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Analysis
Compensating deforestation with forest surplus: Key regulatory issues within Brazil's atlantic forest Júlio César da Cruz, César Falcão Barella, Alberto Fonseca
T
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Environmental Engineering Graduate Program, Federal University of Ouro Preto (UFOP), Campus Morro do Cruzeiro s/n, Ouro Preto, Minas Gerais 35400-000, Brazil
A R T I C LE I N FO
A B S T R A C T
Keywords: Environmental Reserve Quota (CRA) Legal reserves Environmental compensation Environmental policy Atlantic forest Brazil
Brazil has created a market mechanism for compensating past deforestation based on the acquisition of forest surplus from different properties. This mechanism, known in Brazil as the ‘CRA market’, could become the world's largest forest compensation program. The success of this market depends on the specifics of regulations that are yet to come. The objective of this article was to explore three relevant issues to the regulation of a future CRA market within the Atlantic Forest of Minas Gerais state: the balance between supply and demand; incentives for trade in priority areas; and potential policy overlaps between different compensation programs. Based on geospatial evaluations and content analysis of government documents, the study revealed a potential oversupply of CRAs in the Minas Gerais Atlantic Forest, as surplus areas were found to be 2.76 greater than deficit areas. Eventual incentives for trade in priority areas could lessen oversupply, but unfold into sensitive territorial tradeoffs. The potential overlap between the CRA market and the existing compensation program of the Atlantic Forest Act, while still unclear, is unlikely to be a very relevant one. Future avenues of research are suggested.
1. Introduction The world's growing environmental problems are driving the emergence of policy solutions that go way beyond command-and-control regulations. In the early 2000s, Jordan et al. (2003) had already noted that the European Union and other regions were witnessing a myriad of ‘new’ environmental policies based on market mechanisms, voluntary agreements, certifications and labeling. While market-based policies tend to have similar drivers related to dissatisfaction with regulations and perceived superiority of neoliberal solutions, most of these policies“( …) require some state involvement (that is, ‘government’), and very few are entirely devoid of state involvement (that is, pure ‘governance’)” (Jordan et al., 2005, 477). In this context, policymakers have been increasingly exploring the value of hybrid and mixed-policy arrangements to address environmental problems (Gómez-Baggethun and Muradian, 2015). However, the effectiveness of these new policy instruments is contested, as “(…) their implementation, even when effective locally, often do not add up to overall effectiveness at national or regional scales” (IPBES, 2018, p. 524). Brazil is among those countries who has been increasingly diversifying its biodiversity and forest policies. While the importance of Brazilian forests has been triggering command and control policies since the colonial times (Dean, 1997), it was not until the late 1990s
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when the country started to employ a broad range of different policy approaches to curb deforestation and stimulate sustainable growth (Bandeira, 2015). Besides the National Forest Code, whose 1965 version was revised in 2012 after a controversial legislative process (Sparovek et al., 2012), the country adopts a combination of various types of protected area legislation, marked-based instruments and voluntary certification mechanisms (Rafael et al., 2018), with significant differences and nuances across government levels and biomes. The growing adoption of market-based instruments in Brazil, like in many countries (Goulder and Parry, 2008), is rarely preceded by thorough evaluations of costs and benefits, let alone by comparative assessments of the various instruments' potential environmental protection. Such instrumental choices in environmental politics have long been challenged by numerous political, information, and analytical barriers (Keohane et al., 1998). Moreover, studies have shown that optimum instrumental choices are context-dependent; a successful instrument in a particular biome might prove to be ineffective elsewhere (Nolte et al., 2017). In the Brazilian context of limited information and enforcement capacity, there remains substantial uncertainties with respect to market mechanisms' potential effectiveness. Despite growing efforts, the conservation of forest and non-forest ecosystems (Overbeck et al., 2015) is still a strong challenge in Brazil. While there have been significant reductions in the rates of
Corresponding author. E-mail address: [email protected] (A. Fonseca).
https://doi.org/10.1016/j.ecolecon.2019.106444 Received 12 April 2019; Received in revised form 18 July 2019; Accepted 20 August 2019 0921-8009/ © 2019 Elsevier B.V. All rights reserved.
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Fig. 1. – Trade of Environmental Reserve Quotas (CRAs) between properties with surplus and deficit of legal reserves. Source: Designed by the authors.
This article proceeds in four sections. The next section explains the CRA and forest compensation markets in Minas Gerais, highlighting its main challenges and opportunities for improvement. Section three presents the methodology, study area, GIS-assisted evaluations, premises and criteria. Section four presents and discusses the main findings. And, finally, section five draws concluding remarks.
deforestation in the Amazon region in the past 15 years (Boucher et al., 2013), new data show that this trend has been reverted since 2015, particularly within ecosystems vulnerable to agricultural and industrial expansion (Dupin et al., 2018; Escobar, 2018). To avoid retreats and ensure conservation, governments and stakeholders need to pay special attention to the implementation of the 2012 Native Vegetation Protection Law (NVPL) (Brazil, 2012). This law has a number of potentially powerful tools to stimulate forest conservation, such as the ‘Environmental Reserve Quotas’, known in Portuguese as ‘Cotas de Reserva Ambiental’ (CRA thereof). A CRA is a market mechanism that can help rural landowners comply with the minimum areas of Legal Reserves (LR) under the NVPL, which requires a land portion of every rural property or holding to function as a LR, and therefore ensure the sustainable economic use of natural resources, contribute to conservation and rehabilitation of ecological processes, support the conservation of biodiversity, wildlife and native vegetation (Brazil, 2012). The minimum property portion of LR required by the NVPL can range from 80% in the Amazon region to 20% in most of the country. In general, landowners who do not comply with these minimum LR areas are in deficit and have to either: 1) restore deforested areas, or 2) compensate the LR deficit. The trade of CRAs has the potential to become a multiple-billiondollar market (May et al., 2015b; Soares-Filho et al., 2016). Although there are many institutions and authors optimistic about the CRA market - after all it was introduced within the statutes of the NVPL studies have identified a number of potential market, technical and legal barriers to its implementation (e.g. Gasparinetti and Vilela, 2018; May et al., 2015a; Rajão and Soares-Filho, 2015; Seehusen et al., 2017; Soares-Filho et al., 2016). The viability of the CRA market depends, to a large extent, on the specifics of upcoming regulations, particularly at the state levels. While a new federal-level regulation was enacted in December 2018 (Brazil, 2018), a number of questions await responses. For example: should states create priority areas for trading CRAs? Should CRAs be traded between watersheds, biomes, and/or states? What would be the potential consequences of mixing CRA trade with other existing forest compensation mechanisms, such as the one under the Atlantic Forest Act, which already mandates the compensation of proposed development areas? Empirically-based studies are important to answer such questions. The main objective of this article was to explore relevant issues to the regulation of a future CRA market, using the empirical context of the Atlantic Forest of Minas Gerais state. More specifically, this article had a threefold objective: 1) map and evaluate the potential deficit and surplus of LRs; 2) map and evaluate what portions of LR surplus areas should be prioritized for the purpose of optimizing forest conservation gains; and, 3) explore the potential overlap of the CRA market with the ongoing compensation program of the Atlantic Forest Act. Findings, while based on the Brazilian empirical context, are likely to be relevant to global scholars, policy-makers and practitioners, as the environmental policies addressed here are similar to many market-base mechanisms applied worldwide (Credit Suisse Group, 2016).
2. Forest compensation in Brazil 2.1. The promising CRA market A recent report about the implementation of the Sustainable Development Goals has shown that the world's ‘forest area as a percentage of total land areas’ has been steadily decreasing since 1990; some countries have been able to stop or even reverse deforestation, but others, like Brazil, still portray a worrisome trend (UN, 2017). Between 1985 and 2017, Brazil has lost roughly 63 million ha of forests (MapBiomas, 2019), an area larger than the territory of Germany and the United Kingdom combined. Among the most important forest laws in Brazil is the 2012 NVPL, which was the result of a controversial legislative process (Sparovek et al., 2012; Brancalion et al., 2016). Despite the controversy, as pointed out by Soares-Filho et al. (2014), the NVPL introduced “new mechanisms to address fire management, forest carbon, and payments for ecosystem services, which could reduce deforestation and bring environmental benefits” (p. 364). Perhaps the most promising of these mechanisms is the aforementioned CRA. One CRA corresponds to 1 ha of legal title of area with native vegetation that exceeds the minimum Legal Reserve requirements (Brazil, 2012). As illustrated in Fig. 1, rural landowners who have LR deficits can acquire CRAs from landowners with LR surplus. Many specialists believe that the trade of CRAs could be a more cost-effective way to comply with the LR requirements than restoration or other forms of compensation. The CRA market is conceptually similar to the Transferable of Tradable Development Rights (TDS), which has long been used in global conservation policies (Panayotou, 1994). However, as noted by May et al. (2015b, p. vii) “a chief distinction of CRA compared to generic TDR programs is the fact that CRA is only an instrument to assist with compliance of historical (rather than future) deficits”. Nonetheless, studies are finding a number of potential barriers to the effectiveness of CRA trade. Rajão and Soares-Filho (2015) highlighted that too narrow or too wide scopes of transactions could negatively affect the feasibility of the market and that the costs of transactions could be proportionally high for small players. May et al. (2015b) raised concerns about the duration of CRA contracts, the imbalance between supply and demand of CRAs, the inexistence of an official CRA registry system that could enable transactions between geographical regions and Brazilian states, and lack of state enforcement and effective sanctioning. Scholars are becoming increasingly interested in the CRA market. 2
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mechanism is further regulated by Portaria IEF 30/2015 (Minas Gerais, 2015), which specifies the documental and technical aspects of the compensation. Rural properties located in the Minas Gerais Atlantic Forest biome that are currently eligible to sell their surplus LR areas under the Atlantic Forest Act, after the regulation of the CRA market, will have a potentially competing option: transform their surplus areas into CRAs. How competing these two compensation schemes will be is largely unknown. The Atlantic Forest Act has triggered a compensation program which has two main differences from the CRA market. First, the Atlantic Forest compensation targets new developments, particularly in the context of Environmental Impact Assessments and licensing conditions. The focus is not on LR deficits, but on yet-to-be-deforest areas. Second, under the Atlantic Forest Act, compensation is not carried out through formal markets and ‘middle actors’; it is up to developers to negotiate potential compensation areas directly with potential sellers. Very few, if any, academic studies have explored the potential interactions between the CRA market and the Atlantic Forest Act compensation program, which could occur in different ways. For example, if CRA prices are relatively high, rural landowners who have surpluses of LR Atlantic Forest in Minas Gerais, instead of selling their surpluses to developers in need of compensation areas, could opt for turning them into tradeable CRAs, unless developers pay a higher price. Alternatively, developers could decide to build elsewhere. That is, high CRA prices could make new developments more costly in the Atlantic Forest and/or incentivize development in different biomes. In the opposite direction, relatively low CRA prices could incentivize the status quo, where eligible areas for Atlantic Forest compensation are sought after by new development projects. In-depth econometric evaluations of eventual policy overlaps are, nonetheless, hampered by lack of data. Up to the point of writing this study, there was not much published in academic databases. The only exception was the study by Souza and Sánchez (2018), which reported that some mining developers were having difficulties in finding suitable compensation areas. Grey literature and white reports were also scarce. The state government of Minas Gerais does not publish evaluation reports of its compensation programs and not even maintain a public registry of compensation areas. Therefore, a fundamental step toward a better understanding of the potential interactions between the existing compensation program and the CRA market is to shed light on some basic information about the implementation of Atlantic Forest Act.
Nunes et al. (2016) shed light on the extension of imbalances between LR deficits and surpluses Pará State. Their study found that LR surplus was five times larger than LR deficit, and also revealed details as to the locations and extension of such areas. Brito (2017) explored scenarios of market access eligibility criteria that could be used in CRA regulations. Pacheco et al. (2017) interviewed 77 rural landowners in the states of Para and Mato Grosso to understand their perception about the CRA market. More recently, Seehusen et al. (2017) found that the CRA market in Bahia state can reduce the total cost of LR compliance significantly, being potentially more advantageous in the restricted context of biomes and priority areas, such as the Atlantic Forest. Such findings are aligned with the study of Young and Junior (2017), which found that the market for CRA trade within specific biomes would have the highest environmental benefit per unit of cost. 2.2. The unexplored interaction between CRA trade and atlantic forest compensation While forest conservation attention in Brazil is often devoted to the Amazon region, the reviewed studies have shown a number of opportunities for CRA trade in the Atlantic Forest biome. May et al. (2015a) have estimated that the CRA market value in this biome could be the highest in Brazil, given that it has been profoundly devastated and, as a result, has a very strict legislation on land use. In their evaluation of LR balances across biomes, Rajão and Soares-Filho (2015) found chances of oversupply of CRAs in every biome, with the exception of the Atlantic Forest (at the national scale), a fact that could result in comparatively higher CRA values. The prices of CRAs in Brazil will depend on many variables. In the pioneering online market of CRAs (www.bvrio.org), which was launched to ‘test’ the future market, CRAs are already showing great variations. During the writing of this article, while there were proportionally more CRAs being offered in the Atlantic Forest biome, the highest prices were found in the Cerrado biome. In March 2019, asking prices for Atlantic Forest CRAs registered in BVRio varied from US$16 to US$2391 per hectare per year. The national-wide civil society initiative ‘The Atlantic Forest Restoration Pact’ (Pinto et al., 2014) also sees an opportunity for CRA trade in the Atlantic Forest as long as the State ensures “good landscape planning”, addressing fragmentation and priority areas (Padovezi et al., 2018, p. 40). For this purpose, as recently pointed out by Gasparinetti and Vilela (2018), there is an urgent need for more maps of priority areas (from an ecological standpoint) for trading CRAs, as existing maps are not able to capture states' specific conditions and environmental attributes. The Brazilian state of Minas Gerais has as a vast area of devastated Atlantic Forest, and as such is arguably one of the ‘low-hanging fruits’ for CRA trade. A 2011 study estimated that Minas Gerais was the Brazilian state with the greatest potential for LR restoration, having roughly 5.6 million hectares of potentially recoverable Atlantic Forest (Pacto Mata Atlãntica, 2011). One thing to consider, however, is that Brazil has already a market mechanism for the compensation of deforestation of Atlantic Forest, which is regulated and in progress in many states, including Minas Gerais. According to Federal Law 11,428/2006, known as the Atlantic Forest Act, the suppression of primary or secondary Atlantic Forest vegetation in medium to advanced stage of regeneration can only be authorized by the State conditioned to the compensation of an equivalent area, with similar ecological traits, in the same watershed or, whenever possible, in the same micro watershed (Brazil, 2006). Alternatively, in the event environmental authority deems impossible to find compensation areas in desirable locations, project proponents are allowed to restore an equivalent area. In Minas Gerais, this compensation 1
3. Methodology 3.1. Study site: the Minas Gerais atlantic forest This article was based on a mixed-method approach informed by quantitative geospatial analyses and documental content analysis, which have long been methodological choices in forest conservation policy studies. Given that CRA regulations are expected to be developed at the state level and taking into account the characteristics of biomes, this study addressed the specific context of the Minas Gerais Atlantic Forest. Minas Gerais is an industrialized Brazilian southeastern state that, in 2019, housed > 20 million people in a territory (586,522 km2) that is slightly larger than Spain. Its evolving environmental laws and institutions, which date back to the 1970s, provides an appropriate framework for developing the CRA market. The state also houses important biomes, including a relevant portion of the Atlantic Forest, which, because of its exceptional concentration of endemic species and habitat loss, has been considered one of the world's biodiversity hotspots (Myers et al., 2000). While a combination of promising efforts has been turning the Atlantic Forest into some sort of ‘hope spot’ (Scarano and Ceotto, 2015; Rezende et al., 2018) as deforestation rates have been decreasing at the national scale, in some regions, like Minas Gerais, deforestation is still worrisome. In the latest Atlantic Forest monitoring report (SOS Mata Atlântica and INPE, 2019), Minas Gerais was the
Based on a conversion rate of 3.8 R$ / US$ on March 29th, 2019. 3
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leading state in the rank of Atlantic Forest deforestation. Therefore, one can expect that the Minas Gerais Atlantic Forest will be one of the priority areas for testing new policy instruments like the CRA.
Table 1 – Factors and respective weights and scales used in the AHP to map Priority Ecological Areas. Objective factors
3.2. LR surplus and deficits To map the LR balance in the Minas Gerais Atlantic Forest, this study evaluated the official ‘shapefiles’ of the National Environmental Registry of Rural Properties (known as SiCAR in Brazil) available in May 29th, 2018. At that time, the registry included a total of 701,246 rural properties covering 42 million hectares of the state territory. The study then identified all properties that had more (LR surplus) and less (LR deficit) than 20% of its area covered by legal reserves. The evaluation of LR deficit, however, was carried out for rural properties larger than four (4) Brazilian Fiscal Modules (a ‘fiscal module’ is a Brazilian agrarian unit that represents the minimum area of what is supposed to be an economically feasible property, varying across municipalities from a few to several-dozen hectares), as the 2012 NVPL exempts properties smaller than 4 fiscal modules to compensate LR deficits. During the spatial analysis many properties were found to have overlaps, which are likely due to errors in data input. To minimize errors, following the same procedure adopted by Nunes et al. (2016), this study, only included in the analysis properties with < 5% of area overlap. According to L'Roe et al. (2016), overlapping areas larger than 5% “are not easily explainable by small mapping errors” (p. 199).
Protected caves
Weights used in the AHP (0 to 1)
2018
0,06
Land declivity
Image LANDSAT / USGS
2005
0,03
Distances to urban centers
GEOINFO/ EMBRAPA
2015
0,04
SiCAR
2017
0,23
SiCAR
2017
0,27
IDE-Sisema (MG)
2018
0,26
IDE-Sisema (MG)
2018
0,10
Distances to highly restrictive conservation units (Proteção Integral) Distance to less restrictive conservation units (Uso Sustentável)
This study also tried to identify the LR surplus areas that are more likely to unfold into ecological and forest conservation gains. To judge the suitability of those areas the study considered several variables through the Analytic Hierarchy Process (AHP). AHP is a general theory of measurement created by Saaty (1977) to analyze complex decision problems that can deal with both qualitative and quantitative attributes. As explained by Saaty (1987) himself, AHP provides a “framework for carrying out both deductive and inductive thinking without use of the syllogism by taking several factors into consideration simultaneously and allowing for dependence and for feedback, and making numerical tradeoffs to arrive at a synthesis or conclusion” (p. 161). The past decades have seen a proliferation of geographic information system (GIS)-based AHP studies, particularly in the field of land suitability analysis, where researches identify and collect spatial data, weight and integrate this information through GIS analysis, and generate tables and graphs for final evaluation and learning (Chandio et al., 2013). Based on the AHP and its respective pairwise comparison, with the support of ArcGIS software, this study weighed the scores for each factor and then used spatial analysis function of GIS to produce a composite map of the most suitable areas for forest conservation. The factors and respective weights, shown in Table 1, are based on typical land use requirements and limitations imposed by environmental legislation in Brazil. Specific scales and values were arbitrarily selected by the authors in an internal focus group. The purpose was to explore a pioneering application of the AHP to the problem of finding suitable areas for CRA trade; however, it is expected that in a ‘real-life-situation’ the state government will develop a consensus-reaching process, so that AHP factors, scales and weights are perceived as legitimate by various constituencies. The rationale behind the AHP was mainly to identify those areas that would be less susceptible to edge effects and to forest fragmentation, which are desirable situations in conservation policies. Selected criteria mirror both the size of surplus areas and their distances to existing forest areas, urban centers, and protected areas (the latter are also known in Brazil as ‘Conservation Units’). Distances to protected caves were also considered, as forests can play an important role in preserving
Spatial information year
CANIE / ICMBio
Distances to existing Legal Reserves (LR) Areas of Legal Reserve deficit and surplus
3.3. Analytical hierarchy process to identify priority areas
Spatial information source
Scales of attribute values
0–20; 20,1–100; > 100 (km) 0°-17°; 17°- 25°; 25° - 45°; > 45° 0–30; 30,1–100; > 100 (km) 0–10; 10,1–50; > 50 (km) 0–5; 5–100; 100–500; > 500 (ha) 0–3; 3,1–50; > 50 (km)
0–10; 10,1–50; > 50 (km)
the many caves that exist in Minas Gerais. GIS analyses were based on Datum SIRGAS 2000 and South America Alberts Equal Area Conic. 3.4. Implementation records and geospatialization of atlantic forest compensations To explore the potential overlap of the future CRA market with the Atlantic Forest compensation, this study undertook a content analysis of the official state government documents in connection with the implementation of those compensations. This study had access to all compensation decisions made by the state government available in the State Forest Institute (whose acronym is IEF in Portuguese) between May 2014 and June 2018. A total of 222 projects required compensation in that time period, however, 205 had complete information about the location of compensations. The project types, compensation areas, and locations were organized in spreadsheet software and later plotted in QGIS software. 4. Results and discussions 4.1. Within-biome balance of LR The geospatial analysis of LRs deficits and surpluses within Minas Gerais' Atlantic Forest corroborates a worrisome fact: several years after its creation, the Rural Environmental Registry (CAR) is still plagued with data problems (Oliveira and Oliveria, 2019). This mandatory, selfdeclaratory geospatial electronic registry of rural properties, which is often regarded as an important underpinning system for conservation policies (Jung et al., 2017; Roitman et al., 2018), is being fed with imprecise data. A recent report of the Brazilian Forest Service shows that rural landowners are overestimating their properties' boundaries. Although the Brazilian potential for rural property registration is 397 4
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which was found to be of 283,159 ha. The financial size of an eventual CRA market within the Minas Gerais Atlantic Forest biome will, of course, depend on the specifics of future regulations. But considering the average price of US$100.00 (based on the Atlantic Forest CRAs available in the BVRio platform in March 2019), the potential annual trade would be at best of around US$ 283 million dollars or about 1 billion Brazilian Reais. Of course, this reflects the highly unlikely scenario of having 100% of the properties with LR deficits choosing CRAs instead of other alternative means to address their historical deforestation. But even if 10% of these properties opt for CRAs, there would still exist a potential trade of multiple million dollars per year. The calculations and geospacialization of LR surplus and deficits (Fig. 2) are important insofar as it helps to show that balances of LR can vary significantly not only across biomes, but also across states, and within states. The potential ratios of CRA trade imbalance found in two previous studies that compared LR surplus and deficit for the whole Brazilian Atlantic Forest were smaller than the one found here. For example, Sparovek et al. (2010) found a ratio of 1.15 (9.4 Mha / 8.2Mha) and Soares-Filho et al. (2014), who worked with data after the Forest Code revision, found a ratio of 0.7 (3.4 Mha / 4.8Mha). And the 2.76 ratio reflects the opposite situation found in the state of Bahia by Seehusen et al. (2017), which was of 0.29 (176,825 ha of surplus versus 610,943 ha of deficit). One needs to careful consider mere LR ‘numbers’, as they do not reveal territorial characteristics. When analyzing the spatial distribution of LRs in Fig. 2, it become clear that the western portion of Minas Gerais has a concentration of LR deficits. This is very likely because that portion of Minas Gerais, known in Portuguese as the ‘Triângulo Mineiro’, has very intensive agricultural activities. In that region, there is a more obvious potential for CRA trade. However, regardless of the
million ha, in 2018 the CAR system had already 448 million ha of registered properties (SFB, 2019). In Minas Gerais state, the situation is worse: there were 42.5 million ha of registered rural properties, almost 30% more than the potential area for registration, which is 33.1 million (SFB, 2019). The rural properties and respective LRs ‘shapefiles’ downloaded from SiCAR (official database of LR) had profound overlaps between properties, particularly among small properties. Such overlaps, as noted by Brito (2017) is due to several factors, such as: “differences in scale between the databases, the level of imprecision of the geo-referencing method, issues related to conflict and land disputes, false ownership declaration, including false declarations over nonexistent properties” (p. 9). To minimize errors in the identification of LR deficits and surplus, this study, as explained in the methodology section, adopted a threshold of 5%. The degree of overlaps across properties with LR surplus and LR deficits were very different. The application of the threshold filter of 5% led to the exclusion of about 20% of the registered properties with LR surplus and to about 5% of the properties with LR deficits. This situation is very likely a result of the fact that the properties with LR deficits, as mandated by law (Brazil, 2012), include only properties larger than 4 Fiscal Modules, and thus are likely to be owned by more wealthy organizations or individuals who can afford better geo-referencing services. In contrast, a substantial fraction of the LR surplus areas are owned by thousands of small and very small property holders who are likely to lack the capacity to hire quality CAR services. Despite the inaccuracy of data, particularly of LR surpluses, this study found an imbalance in LR deficit and LR surplus areas in terms of properties and total area (Fig. 2). The potential offer of CRAs in an eventual Atlantic Forest market was found here to be - at best - of 781,545 ha, which is 2.76 greater than the potential demand for it,
Fig. 2. – Legal reserve surplus and deficit areas within Minas Gerais atlantic forest. 5
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Findings presented in Fig. 3 show that the priority areas are located mainly in the eastern portion of the Minas Gerais Atlantic Forest, in several patches from north to south. Just a very small fraction is located in the western ‘Triângulo Mineiro’, which, as previously mentioned, was found to have a high concentration of LR deficits. This raises all sorts of questions about trading rules: could rural landowners from western Minas Gerais be restricted to buying, or pay a higher price for, CRAs located in eastern Minas Gerais? If so, this could result as an incentive for maintaining the ‘deforestation status quo’ in that region. But what would be the reaction of the people that live in western Minas Gerais? Would they be willing to accept this trade-off? Such questions reveal that the definition of priority areas for CRA trade is likely to unfold into territorial trade-offs that have social and political consequences. Therefore, it is important that upcoming regulations, in the event of creating incentives for trade in priority areas, anticipate some way to deal with eventual social reactions. For this purpose, it is fundamental that priority areas are perceived as legitimate by a wide range of stakeholders. Depending on the criteria used in the mapping process, priority areas can change in both size and location. For example, recent studies addressing priority areas for conservation in the Brazilian Atlantic Forest resulted in maps that contrast with the outcomes of the AHP presented here (Rezende et al., 2018; Strassburg et al., 2019). After all, the map of priority areas presented here is intentionally biased toward lessening fragmentation. There is no standard method for evaluating ecological priority or suitability. Available techniques depend on the use of arbitrary and value-laden criteria, which are reflected in the factors, scales and weights used in the AHP presented here. Policy-makers, however, could consider other factors, scales and weights in the prioritization process that could result in different maps. In any case, more important than creating the ‘right’
future equilibrium prices, in an eventual CRA market within most of the Minas Gerais Atlantic Forest biome, there is a reasonable chance to occur oversupply of CRAs, which could, in turn, drive CRA prices down compared to other states, like Bahia. That, however, will depend on a number of factors, including eventual incentives for CRA trade in priority areas. 4.2. Suitability for ecological conservation of LR surplus areas The LR surpluses identified here are fragmentally dispersed across the Atlantic Forest legal area, a situation that could result in a dispersed trade of CRAs. However, it would be more beneficial to the environment if CRA trade helped, for example, to lessen the degree of fragmentation at both the patch and landscape scales (Fahrig, 2003). Moreover, as noted by Brito (2017), the concentration of CRA trade in particular areas could be a way to address CRA oversupply and control CRA prices. Yet rural landowners are unlikely to make their CRA choices based on factors other than costs, without state or market incentives. For example, state regulation could limit CRA to particular areas of interest, or set up a CRA pricing policy that values CRAs located in ecologically relevant areas. However, whatever is done depends, first, on the mapping of ecologically relevant areas. This study generated a pioneering map (Fig. 3) that gives a sense of the proportions and locations of potential priority areas for CRA supply. To facilitate the interpretation of the raster images generated in the AHP, the resulted indices of ecological priority were divided into three main categories: high, medium and low. As shown in Fig. 3, only 16% of the LR surpluses were located in areas that the AHP deemed as highly appropriate for ecological conservation. Most areas were evaluated as medium (43%) or low (42%) priority.
Fig. 3. –Ecological priority of legal reserve surplus areas (based on AHP calculations). 6
Ecological Economics 167 (2020) 106444
priority map is to create a map that is largely perceived as ‘legitimate’, so that CRA trade is not negatively affected by eventual disputes and ligations. 5.5 km
4.3. Potential overlaps of the atlantic forest compensation with a CRA market
323
4077.4
8704.9 ha
2.1
42.5 ha
This study also explored the potential policy overlaps that might occur in an eventual within-biome CRA market. Such overlaps have been largely overlooked in the burgeoning CRA literature. The Atlantic Forest, while previously identified as particularly promising for CRA trade (Gasparinetti and Vilela, 2018; May et al., 2015b; Padovezi et al., 2018; Soares-Filho et al., 2016), has already a compensation mechanism in place under the Atlantic Forest Act. The reach of the existing compensation program is obscured by the lack of database and information systems, and previous empirical studies. To overcome this information gap, this study collected and analyzed state documents regarding the implementation of Atlantic Forest compensation in Minas Gerais between 2014 and 2018. Key findings are presented in Table 2. Between 2014 and 2018, a total of 205 development projects proposed the deforestation of a total of 4077.4 ha of Atlantic Forest, thus triggering the compensation program. On an average ration of 2:1, the state approved the deforestation of those areas conditioned to the acquisition of 8704.9 ha of Atlantic Forest in 323 different locations. The locations (project coordinates) of deforestation areas and compensation areas are illustrated in Fig. 4, with red and green dots, respectively. Unfortunately, the actual polygons or perimeters of compensations are not publicly available in the state archives, a situation that limits the geospatial depth of what is presented in Fig. 4. The Atlantic Forest Act in Minas Gerais triggered a compensation system that is profoundly different from the burgeoning CRA market, both in size and territorial effects. As shown in Fig. 4, under the Atlantic Forest Act, compensation is a more localized phenomenon. The average distance of compensation areas from deforestation areas was found to be of 5.5 km. This was expected, because the law and regulations require compensations to be carried out in the same watershed or, whenever possible, sub-watershed. Also, the compensations have not been restricted to the legal boundaries of the Atlantic Forest. They have been occurring in any forest area whose phytophysiogmy actual reflects Atlantic Forests. This explains why many compensation areas were found to be located on the central and northern portions of Minas Gerais. Moreover, the demand for compensation between 2014 and 2018 was found to be of about 2.2 thousand hectares per year. These are ‘numbers’ profoundly smaller than the potential CRA market. As previously shown here, the potential maximum offer of CRAs in an eventual Atlantic Forest market in Minas Gerais was found to be of around 782 thousand hectares. And the potential demand (LR deficits) could reach 283 thousand hectares. The accumulated Atlantic Forest compensation between 2014 and 2018 (8704.9 ha) corresponds to only about 3.1% of the LR deficit areas found in this study. In addition, hypothetically, if rural landowners decided to convert their surplus areas into CRAs instead of selling them to new development projects, considering the aforementioned average CRA prices in the BVRio platform (US$ 100.00) and the average compensation area found in the content analysis (42.5 ha), they would receive around US $4250.00 per year. Whether this would be a competing option in the rural real estate market is an open question that needs further market analysis and econometric evaluations. Despite the exploratory nature of the content analysis, data presented in Table 2 and Fig. 4 helps to understand that, unless economic development patterns change dramatically in future years thus driving development projects to Atlantic Forest areas, the potential overlap between CRA trade and the compensation program under the Atlantic Forest Act is unlikely to be a large one. However, this does not necessarily means that policy-makers should not worry about potential overlaps, particularly in watersheds where Atlantic Forests are
205
Average ratio of compensation Accumulated area of atlantic forest compensation Accumulated area of atlantic forest deforestation Quantity of approved atlantic forest compensation areas Development projects that triggered atlantic forest compensation
Table 2 – Key indicators of atlantic forest compensations approved under the Atlantic Forest Act in the State of Minas Gerais (2014–2018).
Average area of atlantic forest compensation per project
Average distance from development projects to compensation areas
J.C. da Cruz, et al.
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Fig. 4. – Locations of proposed deforestation and approved compensation of atlantic forest (2014–2018).
reach than the existing compensation program under the Atlantic Forest Act. While policy competition could become a problem in specific watersheds, further studies are needed. Findings presented here are important in two key ways. First they highlight the urgent need for reliable information systems for both rural property registry and CRA trade. The evaluations carried out here were based on a number of arbitrary decisions as to how to deal with property overlaps in the National Environmental Registry of Rural Properties. Such overlaps, if left unresolved, could undermine the entire CRA market. Second, findings presented here help to anticipate what could happen in an eventual biome-specific CRA market underpinned by priority areas. Oversupply, territorial trade-offs, and eventual policy competition within particular watersheds emerged as important issues that should be carefully considered by regulators. However, this study has addressed just a small fraction of the various issues that might emerge in a real-life situation. The trade of CRAs touches on intricate political and economic matters. Unintended consequences are very likely to emerge. In this context, the principles of adaptive management (Walker et al., 2004) should embed whatever regulatory option is taken, so that eventual flaws can be more quickly and easily addressed.
particularly scarce. For example, Souza and Sánchez (2018) recently found that new mining developments in Minas Gerais were having difficulty in finding compensation areas under the Atlantic Forest Act. Once CRAs are available in the market, this difficulty could be reduced, as CRAs are, by definition, the locations of potential areas for Atlantic Forest compensation. Mining and other developers could, therefore, be attracted to buy the properties offering CRAs. But depending on the actual CRA prices, the policy competition could go in the opposite direction. Landowners who have been willing to sell their properties for the Atlantic Forest compensations of new development projects could be attracted to rent their areas under the CRA market and thus create further difficulty to finding affordable compensation areas under the Atlantic Forest Act. So, it is important that future studies undertake a more stringent analysis of interaction of the two policies, considering real estate market data, in specific watersheds where demand for Atlantic Forest compensation is potentially high. 5. Final remarks Brazilian policymakers have been increasingly adopting market mechanism as a means to address forest conservation, despite uncertainties about how such instruments can be effective in the context of limited information and enforcement capacity. This article has explored a number of issues that is likely to be relevant in the regulatory design of one of the most recent and potentially powerful of such mechanisms: the CRA market under the 2012 NVPL. Based on geospatial evaluations and content analysis related to the Minas Gerais Atlantic Forest, this study revealed that there could be an oversupply of CRAs and that eventual incentives for trade in priority areas, while lessening oversupply, could unfold into territorial trade-offs. This study also found that the CRA market is likely to have a much broader territorial
Acknowledgements Júlio César da Cruz was supported by a scholarship from the Brazilian Coordination for the Improvement of Higher Education Personnel (Capes) [code 001]. Alberto Fonseca was supported by Brazilian National Council for Scientific and Technological Development (CNPq) [grant 310758/2015-7].
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