Clean Develpment Mechanism and Brazil

When Russia signed the Kyoto Protocol this past fall, the signatures on the internatonal agreement to combat global warming met conditions to be implimented. One of the mechanisms by which developed nations (which must meet new carbon dioxide reductions quotas) can meet expected emissions levels is through the Clean Development Mechanism (CDM), which allows developed countries to lower emissions in developing nations, rather than within their own boarders. One of the rules of CDM projects is that they must not only create emissions reductions, but also promote sustainable development. Here is an outline of one CDM project that is being proposed for Brazil.

Brazil: Plantar Sequestration and Biomass Use

Project Summary
In September 2002, the PCF entered into an agreement to purchase emission reductions from the Plantar Project in Brazil. This project will create emission reductions by avoiding a fuel switch from charcoal to fossil fuel in pig iron production; it will also promote sustainable development by reducing pressure on the native forest and conserving biodiversity under the Clean Development Mechanism.

In addition to reduced greenhouse gas emissions, the Plantar Project will reduce the pressure on endangered native cerrado forests, currently being decimated for charcoal used in the Brazilian pig iron industry. Traditional small-scale producers of pig iron in Brazil use charcoal in blast furnaces with an annual output of about 100,000 tons of pig iron per year. In the 1960s and 1970s, as the Brazilian pig iron industry boomed, several million hectares of native dry “cerrado” forests were cleared to produce charcoal--greatly reducing drylands forest ecosystems, and significantly expanding the area under low yielding pasture, resulting in degraded soils and hydrology. Subsidies for fuelwood plantations were introduced in the 1960s to take the pressure off native forests, but proved to be expensive and economically inefficient and were discontinued in the 1980s. As a result, fuelwood plantations are being depleted and pressure on native forests has increased again. The shortage of planted biomass is causing small-scale pig iron mills to close down, leading to increased rural unemployment.

The PCF’s support for the Plantar Project aims to demonstrate how carbon finance for well-managed forests--made possible by the Kyoto Protocol’s Clean Development Mechanism--can reduce destruction of native forests, help conserve their unique biodiversity, help preserve local community use of forest fruits and other non-timber products, and secure high-quality employment in rural areas with few other employment opportunities. In this context, sustainably managed and harvested plantations, established on land which was not forested before, can help to conserve and to take the pressure off the unique ecosystems of native primary forests.

Without carbon finance such plantations are neither economically viable nor is it possible for small-scale pig iron producers to obtain financing. More importantly, there is no other financial incentive to set aside large areas of native cerrado forests. In fact, recent economic growth in the area is leading to further legal and illegal clearing of native cerrado forests in Minas Gerais and neighboring States. The Brazilian Government has reported that there is a shortage of around 200,000 hectares of plantations that would have to be planted annually to satisfy the national demand for wood. Because of that, Federal and State environmental authorities strongly support the establishment of new sustainable plantations to reduce the pressure on native forests. PCF support is in accordance with this strategy and is enabling Plantar S/A to become completely independent of native forest charcoal by 2008.

Permanent Climate Benefits
The PCF project reduces atmospheric concentrations of greenhouse gas emissions in the following ways:

1. Supports the establishment of 23,100 hectares of fuelwood plantations that are independently certified by the Forest Stewardship Council (FSC)as well-managed.
2. Uses climate-neutral charcoal to replace coal coke in pig iron production.
3. Reduces global and local emissions from charcoal manufacture.
4. Restores native forests and forest biodiversity on pasture land and ensures the permanent conservation of an additional 478.3 hectares of natural forest.

The PCF will purchase about 1.5 million tons of carbon dioxide equivalent (CO2e) in emission reductions from the Plantar Project through 2012. Although the Plantar Project delivers sequestration reductions (removals or Sequestration Emission Reductions) from the plantation and biodiversity component of the Project and mitigation reductions from the industrial mitigation and carbonization component, the agreement foresees the possibility that the full amount of the purchased emission reductions will eventually be transferred in the form of emission reductions generated by the mitigation activities of the project. The contract distinguishes between the sequestered reductions and the mitigated emission reductions. The Sequestration Emission Reductions are used to insure the reductions the PCF will receive from the mitigation activities; “permanence“ of sequestration reductions is assured by the contract.

The contract with Plantar S/A encompasses the following two mechanisms to guarantee the “permanence” of sequestration reductions:

1. All Sequestration Emission Reductions can be replaced with emission reductions generated by the greenhouse gas mitigation components of the project (carbonization and industrial processes).
2. Upon delivery of the mitigation emission reductions that replace the Sequestration Emission Reductions, the PCF will return the sequestration emission reductions to Plantar S/A which will consequently permanently retire them and they will not be sold again.

This means that the PCF has built into the contract a system of double insurance against the risk of permanent loss of sequestered greenhouse gases. Even if any Sequestration Emission Reductions are permanently lost or not eligible under the Clean Development Mechanism, these reduction units can be replaced with emission reductions generated by a mitigation activity. Additionally, the PCF has the right to return all Sequestration Emission Reductions to Plantar S/A as mitigation emission reductions are generated. Sequestration Emission Reductions will subsequently be permanently retired.

In addition to the climate benefits, the Plantar Project contributes to the sustainable development of the region in the following ways:

Sustainable Development Impacts
Independent Certification of Environmentally and Socially Responsible Production- Plantar S/A was the first Brazilian pig iron company to receive certification that its plantations are well-managed under the principles of the Forest Stewardship Council. Plantar S/A agreed to maintain FSC certification as a condition of PCF support.

Plantar S/A also maintains certification under the independent NGO Foundation, ABRINQ, as an employer that provides exceptional employment benefits, including child day-care facilities and educational benefits for its workers and their children, and as an employer that does not use child labor. Plantar S/A must maintain ABRINQ certification as a condition of PCF support.

Plantar S/A has also agreed as part of the PCF Project to monitor and report on preventative health measures and health care provided to charcoal workers.

Plantar S/A is establishing a community relations function to ensure that concerns of local communities about Plantar S/A’s operations are heard and addressed in a timely and effective manner. Such community relations will be closely monitored by the World Bank and the Forest Stewardship Council.

Rural Employment Benefits- Plantar has created around 1,200 secure full-time jobs in the rural area of Minas Gerais, Brazil, and leverages additional social welfare programs. In the absence of the Plantar Project, Plantar would be unable to maintain charcoal-based pig iron production and would be forced to close its blast furnace operations when its current plantations are exhausted (by 2008), resulting in loss of jobs in plantation maintenance and pig iron manufacture.

The World Bank’s sectoral analysis demonstrates that without the benefit of carbon finance for small-scale pig iron producers, this “independent” sector of the pig-iron industry would gradually yield its share of pig-iron production to large integrated iron and steel producers which use coal-coke as the reducing agent. As a consequence, employment would decline markedly in the rural areas where the independent pig-iron producers currently operate and there would be little incentive to restore endangered cerrado forest ecosystems.

The Minas Gerais State Environmental Authority, Municipality leaders, several national NGOs, regional unions and social organizations (a total of 380 signatories)have endorsed the project as a contribution to sustainable development.