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By Chris Lang

Founded in October 2011, the Rio de Janeiro Green Exchange (Bolsa Verde do Rio de Janeiro, BVRio) is a market for trading “environmental assets”, including carbon credits, forest credits, industrial effluent credits, tire disposal credits, and recycling credits.

BVRio was set up by Pedro Moura Costa, co-founder of the UK-based carbon trading company, EcoSecurities. Moura Costa made his millions when he sold some of his shares in the company. Moura Costa left EcoSecurities in 2009.

Moura Costa’s brother, Mauricio, is Chief Operating Officer of BVRio and President of BVTrade, the trading platform.

BVRio is a not-for-profit company, but the trading platform is a commercial firm. Here’s how BVRio explains this in its 2011-2013 Operational Report:

“[I]t was decided that [BVRio’s] trading activities should be conducted by BVTrade as a separate vehicle, structured in a way that it can leverage private sector capital to scale up the concepts initially
developed by BVRio.”

BVRio has received financial support from the Swiss Development and Cooperation Agency (via Forest Trends), the UK Prosperity Fund, the Climate and Land Use Alliance, Climate Works Foundation, Gordon and Betty Moore Foundation, Oak Foundation, Environmental Defense Fund, and E2 Brasil Sócio Ambiental (Moura Costa’s company).

“Facilitating compliance” with watered down forest laws

BVRio’s mission is “To promote the use of market mechanisms to facilitate compliance with social and environmental laws.” And BVRio operates hand-in-glove with Brazil’s controversial 2012 revision of its Forest Code. The first market on BVTrade was in Environmental Reserve Quotas (Cotas de Reserva Ambiental, CRAs), which were created through the 2012 Forest Code.

Under Brazil’s Forest Code, farmers cannot clear all the forest on their land. An area of forest has to be preserved as a Forest Legal Reserve. This varies between 20% and 80% of the total area of the property. (Forest Legal Reserves are 80% of the property in the Amazon region, and 20% in Atlantic Forest, Cerrado, Pampa, Caatinga and Pantanal.)

In its 2011-2013 Operational Report, BVRio quotes a study by the Brazilian Institute of Geography that found that about four million rural properties in Brazil don’t have a large enough forest reserve (out of a total of more than five million rural properties). Under the previous version of the Forest Code owners of properties with too little forest had the option of planting trees or regenerating forest, at their own expense.

Impunity for forest destroyers under the 2012 Forest Code

The 2012 Forest Code grants amnesty to “small” properties, ranging in size from 20 hectares in southern Brazil to 440 hectares in the Amazon. According to a 2014 study in Science, 90% of Brazilian rural properties qualify for the amnesty. The study found that an area of about 50 million hectares of forest had been illegally cleared up to 2008. But under the 2012 Forest Code amnesty, the area to be restored is reduced by 58% to about 21 million hectares.

Even worse, the 2012 Forest Code allows the legal destruction of 88 million hectares of forest on private properties, including 40 million hectares of the Cerrado. “Allowing that to happen would be an environmental disaster,” says Marcia Macedo, of the Woods Hole Research Center, one of the co-authors of the study.

As well as the amnesty, the 2012 Forest Code creates two offsetting mechanisms: Environmental Reserve Quotas; and Consolidation of Conservation Areas Offsets. The Science study calculated that if these offset mechanisms are fully implemented, only 550,000 hectares of farmland will legally need to be restored. Nevertheless, Woods Hole Research Center describes the offset mechanisms as one of two “key conservation measures” in the Forest Code. (The other being an online land registry system.)

We’ll look at these two offset mechanisms in turn.

Environmental Reserve Quotas (CRAs)

One CRA represents one hectare of forest legal reserve (or regenerating forest) above the legal minimum requirement. BVRio explains:

CRAs can be used to compensate for the lack of legal reserve in another rural property provided the latter is located in the same biome and in the same State where the CRAs are created.

In the three months after BVRio launched its trading plaform, more than 800 participants were offering Forest Reserve Credits on the platform. Now BVTrade has 2,500 participants offering CRAs, with a total area of 2.3 million hectares of rural properties.

BVRio explains on its website that this not enough for a spot market in CRAs. So BVRio developed a contract to allow CRAs to be traded before they are created: Contracts for the development of Forest Reserve Credits for Future Delivery (CRAFs).

Under these contracts, sellers (i.e. land owners with more forest area than legally required under the 2012 Forest Code) have an obligation to create CRAs and deliver them to buyers (i.e. land owners with less forest area than legally required under the 2012 Forest Code). The buyer pays for the CRAs on delivery, and the price is agreed when the contract is signed.

Conservation Area Offsets

The other type of offset that rural property owners can trade on BVRio are Conservation Area Offsets (Compensação em Unidades de Conservação). Under this type of offset, rural property owners who are in breach of the Forest Code pay the owners of land inside Conservation Areas to transfer the land to a government environmental agency.

BVTrade will allow landowners inside Conservation Areas to offer their land as an offset to rural property owners with less than the legally required area of forest on their land. So under this mechanism an area of already protected forest will change ownership, from privately-owned to government-owned. And as a result, an equivalent area of forest somewhere else will be destroyed.

Creating loopholes in watered down forest laws

The obvious problem with both of these forest offsets is that they provide a loophole in an already watered down Forest Code. The fact that the 2012 Forest Code created an amnesty for past illegal forest clearing creates the probability that the powerful agricultural sector in Brazil will continue to deforest in the expectation of another exemption from the law.

The offset mechanisms do nothing to protect the already heavily deforested Atlantic Forest or the Cerrado.

Meanwhile, the offset mechanisms allow land-owners to destroy forest that should be protected under the Forest Code, as long as they “offset” the destruction by buying Environmental Reserve Quotas or Conservation Area offsets.

PHOTO Credit: Marcia Macedo, Woods Hole Research Center.