Climate value for money: 2 GtCO2 storage for U$ 250 million: Forest Legal Reserve Credits in Brazil

The direct acquisition of Forest Reserve Credits as a REDD+ strategy could result in significant emission reductions (over 100 billion tCO2) at very low costs (less than U$ 0.20/t CO2), while promoting the implementation of the Brazilian Forest Code – a new law with potential to transform the rural landscape in Brazil.

International REDD finance efforts have focused on different activities and approaches, ranging from direct sub-national project investments, jurisdictional efforts, investment funds based on forest conservation or sustainable agriculture, carbon neutral supply chains, REDD bonds, etc.

In the case of the Brazilian Amazon, over U$ 1.6 billion were committed by international donors to initiatives such as the Amazon Fund, Acre state’s REDD+ programme, etc., and close to U$ 1 billion were already disbursed, resulting in the storage of ca. 150 million tCO2. A simple division of expected carbon benefits per dollar amount committed suggests that the average cost of CO2 abatement of these interventions is over U$ 5/tCO2. Calculating the Net Present Value of the carbon flows of these projects (see BVRio blog on Time Preference of REDD) may result in higher costs, as many of these interventions only result in climate benefits in the long term.

At the same time, an opportunity exists for the direct payment of farmers for the protection of their forest legal reserves, assisting them in complying with the Brazilian Forest Code.  Based on the price that hundreds of individual farmers asked for maintaining their forest legal reserves, BVRio Environmental Exchange has assembled a portfolio of over 2 billion tCO2 for an aggregate cost of ca. U$ 250 million (an average of less than US$ 0.13/tCO2).

This type of direct REDD+ investment result in direct, measurable, and low cost carbon benefits. Furthermore, the benefits are front-loaded (i.e., happen shortly after the investment is made) and of easy verification (the new CAR system enables precise verification of forest maintenance). And, if payments were directed to smallholders, this would also result in significant social benefits accruing to low income groups in rural areas.

It is important to mention that, similarly to any official contribution to Brazilian REDD+ activities (e.g., the Amazon Fund), these credits cannot be used for compliance with the UNFCCC.

 

 

CVCs

The Brazilian Forest Code

The new Brazilian Forest Code (Forest Law 12.651 approved in 2012), if fully implemented, has the potential to transform the rural landscape and environment of Brazil, conserving over 250 million ha of native vegetation, protecting biodiversity, and storing ca. 100 GtCO2 (Britaldo et al., 2014). A central component of the Forest Law is the requirement that all rural properties in the country maintain a certain amount of land under native vegetation (called “Forest Legal Reserves”), which can range from 20% to 80% of their land. Enforcement of this obligation would create one of the most powerful domestic mechanisms for avoiding deforestation and protecting natural forests anywhere in the world.

With the support of the newly created Rural Environmental Registry system (CAR), a georeferenced digital registry connected to satellite images that enables monitoring and mapping of land use in rural properties, the government will have the capacity to monitor and enforce compliance with this legislation and demand that rural producers fulfil their obligations.

It is estimated, however, that over 4 million properties currently don’t have sufficient area of Legal Reserve (IBGE). Those that do not have sufficient Legal Reserves can comply with the law in different ways such as planting or regenerating areas within the rural property itself, or through two Compensation Mechanisms created by the Law: “Forest Reserve Credits” and “Consolidation of Conservation Areas” (i.e. by purchasing privately held land inside areas subsequently designated as conservation units and donating them to the government).

One of the main risks associated with the Brazilian Forest Law is the remaining opposition to the Law among some, based on the argument that it is impossible to be complied with. Assistance to producers on registering with the CAR and use of the Compensation Mechanisms, as well as support to enforcement agencies and increase transparency are essential factors in making the Law achievable.

BVRio was created to facilitate compliance with environmental laws in Brazil. In relation to the Forest Law, its main focus has been to promote the use of its Compensation Mechanisms and increase the level of compliance with the Legal Reserve obligations in the country.

Forest Legal Reserves available for sale

At the end of 2012, BVRio launched an electronic platform (www.bvrio.com) to connect buyers and sellers of Forest Reserve Credits and Conservation Offsets. Today the platform counts with offers from more than 3000 participants and over 3 million ha of rural properties offering forests for compliance with the Forest Legal Reserve obligations of the Code.

The aggregate CO2 stored in these areas is more than over 2 billion tCO2, for sale at average prices lower than US$0.13/tCO2. These prices are based on the sale price asked by the farmers themselves for the sale of Compensation Mechanisms derived from their forests.