Carbon Trading in Brazilian State: Potential Illusions for Others

It’s a fiercely contested question: Do carbon offsets provide a solution to curbing greenhouse gas emissions? For many experts, the answer is a resounding no. But that hasn’t stopped the carbon trade from booming as more countries and companies look for ways to meet international targets for global carbon reductions.

The Brazilian state of Tocantins is the latest to venture into the carbon market with a recent deal with Swiss oil-trading giant Mercuria. The 10-year forest carbon credit purchase agreement means that Tocantins can sell credits to Mercuria once they’ve been verified by the U.N.’s jurisdictional REDD+ framework (reducing emissions from deforestation and forest degradation).

Tocantins, a state the size of the United Kingdom, is made up of Cerrado savanna (87%) and Amazon Rainforest (13%). A combination of environmental policies and reinforcement efforts allowed the state to slash deforestation and reduce its carbon emissions by 65 million metric tons between 2016 and 2020, a figure officially recognized by the federal government through the National Commission for REDD+, according to Marcello Lelis, the state secretary for the environment and water resources. Lelis told Mongabay by phone that Tocantins has already sold 40 million metric tons of these past credits to Mercuria as well as credits the state could produce by 2030. Credits generated between 2016 and 2032 could be worth up to $2 billion, state environmental official Marli Santos told Reuters.

That’s good news for Tocantins. Deforestation rates across the state are lower than pre-2016 levels despite slight increases in the past two years, and the cash flow generated from the agreement with Mercuria will bolster the state’s conservation efforts.

“The main benefit [of the agreement] will be to obtain financial resources for the implementation of environmental public policies,” Lelis and Aleandro Lacerda, the president of Tocantins Parceiros, involved in the execution of the state’s carbon strategy, wrote in a joint statement to Mongabay.

The Earth Innovation Institute, the main technical partner to Tocantins, expressed the same enthusiasm, saying in a press release that the scale of high-integrity credits from jurisdictional REDD+ programs could “increase funding for Amazon Forest and Cerrado savanna conservation more than ten-fold.”

Yet not everyone agrees. Experts warn the hype of the carbon market is little more than hot air. “Those of us who [were] around for the beginning of this whole crazy idea of carbon offsets in the mid-1990s, we didn’t believe that it could last more than a couple of years because it was so obviously damaging to the climate,” Larry Lohmann, a scholar and activist who has studied carbon credits for more than two decades, told Mongabay by phone. “But here we are, 25 years later.”

Brazil and second only to the Atlantic Forest in terms of the proportion that’s been deforested. Deforestation here is driven largely by agricultural expansion, especially for soy cultivation. Image © Victor Moriyama/Greenpeace.” width=”768″ height=”512″ />

The ‘new ‘gold rush’
Carbon projects have become all the rage since the 2015 Paris Agreement came into force, Winnie Overbeek, the international coordinator at the World Movement for Tropical Forests, told Mongabay in an email.

“Basically, all industrial sectors now want to be ‘carbon neutral’ by 2030 or at a maximum 2050,” he wrote. “I was in the Amazon [twice] this year and it is crazy, a sort of new ‘gold rush.’”

Tocantins will be the first Brazilian state to sell carbon credits on the international market, once it has the certification from the REDD+ framework. But different types of carbon projects have existed in Brazil for years. The Amazonian state of Acre, for example, has a results-based payment contract where emissions are registered but not sold as carbon credits. There was also an attempt to sell carbon offsets in the state of Rondônia, from a project that began in 2009.

Critics say neither project worked. Overbeek said the significant reduction of deforestation in Acre was mainly linked to reinforcement of environmental regulations, and the REDD investments “appeared not to make a difference.” The attempt in Rondônia was “catastrophic,” Michael Schmidlehner, a professor at the department of philosophy at the Federal Institute of Education, Science and Technology of Acre, told Mongabay by phone. The cash flows generated from the project divided the Indigenous Suruí community, causing “very severe conflicts” that led to the Federal Public Ministry having to intervene. Eventually, the project was stopped.

The U.N. states that “Full, Prior, and Informed Consent [from Indigenous and forest-dependent communities] must be adhered to” for emission reductions to qualify under the REDD+ framework. However, this rarely, if ever, happens.

“I can assure you after having visited so many communities in REDD project areas in the past 15 years, that [the Indigenous communities] still do not know what REDD is,” Overbeek wrote. “They have been mostly told about some benefits and suffered from restrictions on the use of the forest after the project started.”

Carbon credits are effectively “pollution permits,” Schmidlehner said, and this is usually not communicated to Indigenous and local communities.

“They don’t know that maybe they are contributing to pollution in another place and harming another community in another place of the world. These are all things that are somehow hidden from them,” he said.

Fossil fuel pollution
The biggest criticism experts shared of carbon offsets is that they encourage the continued use of fossil fuels.

“[Carbon offsets] are obviously very good for the fossil economy, which is a very powerful force,” Lohmann said. “It’s not confined to the fossil fuel companies, but the entire manufacturing sector, the agribusiness sector, [they] are very much committed to continuing the use of fossil fuels as long as possible. It’s not just one set of bad guys, it’s an entire economic system,” he said.

Proponents of the carbon market say the financial investment in carbon credits can actually encourage companies to urgently invest in sustainable practices to cut down on offset costs, leading to a consequential reduction in fossil fuels.

“It makes sense that a company that’s buying offsets is going to want to eliminate that cost by accelerating its own decarbonization,” Daniel Nepstad, president and executive director of the Earth Innovative Institute, told Mongabay by phone. “Companies are going to invest in their own decarbonization as quickly as they can because they know they can’t carry those costs year on year.”

However, the verification process for carbon credits under the REDD+ framework is highly flawed, experts say, meaning companies continue to pollute without their emissions being fully neutralized by the credits they purchase. For example, carbon dioxide can stay in the atmosphere for about 100 years, meaning forest offsets only work if the tree cover remains intact for that period. But that life span isn’t a guarantee.

“You cannot promise that especially now that we have climate change,” Schmidlehner said. “The basis of REDD logic is very questionable.”

The logic becomes even more dubious when the additionality clause is considered. Additionality means that emissions reductions wouldn’t occur without support from carbon credit sales.

“[It] isn’t even a loophole. It’s a logic that is dangerous,” Schmidlehner said, adding that carbon credit proponents can exaggerate deforestation threats in order to increase the value of carbon sales. “If you threaten the forest, the carbon will be worth more.”

There are some parties that benefit from the REDD framework, such as project developers and carbon brokers, Overbeek wrote — but the environment is not one of them.

“REDD has been a complete failure in terms of its promise to reduce deforestation and mitigate climate change,” he wrote. “I have not seen any study showing that all these about 300 or more projects and programs around the world — now probably many more — with billions of dollars invested in them in supposed ‘forest protection’ have provoked a change. Deforestation worldwide in the past 15 years has only increased.”

An Amazonian trend
The jurisdictional model in Tocantins “will be replicated for the other Amazonian states,” Lelis, the state’s environmental secretary, told Mongabay by phone. However, there are challenges ahead “because the level of demand to meet the requirements of international standards is enormous, which requires investments of pre-investment resources,” he said. In other words, more financial aid is required to slow down deforestation and bring environmental policies up to scratch to turn other states into attractive candidates for potential carbon offset investments.

The project in Tocantins is in the very early stages and it’s too early to determine how successful it will be, Shigueo Watanabe, senior researcher at the Talanoa Institute, a Brazilian public policy think tank, told Mongabay by phone. He said questions remain about how Indigenous communities will be involved, and added the state needs to “be very careful” in this respect to ensure Indigenous and forest communities participate in decision-making processes relating to the carbon projects.

But for critics, any carbon offset project, whether in Brazil or elsewhere, is likely to be futile.

“It’s a big illusion that is created because most of these projects do not really make a difference,” Schmidlehner said.