VZCZCXYZ0013
PP RUEHWEB

DE RUEHBR #2661/01 3561248
ZNR UUUUU ZZH
P 221248Z DEC 06
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 7693
INFO RUEHRI/AMCONSUL RIO DE JANEIRO 3590
RUEHSO/AMCONSUL SAO PAULO 8891
RUEHBU/AMEMBASSY BUENOS AIRES 4486
RUEHMN/AMEMBASSY MONTEVIDEO 6660
RUEHAC/AMEMBASSY ASUNCION 5852
RUEHSG/AMEMBASSY SANTIAGO 5993

UNCLAS BRASILIA 002661 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR OES/CMCMURRAY; OES/PCI/LPOULTON, LSPERLING; OES/EGC 
TTALLEY, HWATSON; OES/ETC SCASWELL; WHA/BPOPP 
 
PLEASE PASS TO USFS/LMAYHEW AND MZWEEDE 
 
E.O. 12958: N/A 
TAGS: SENV TBIO KSCA BAIO BR
SUBJECT:  Brazil's Proposal for Compensated Reduction of 
Deforestation to Address Climate Change 
 
Sensitive But Unclassified; not for internet distribution 
 
¶1. (SBU) Summary.  On December 19, 2006, USAID's Embassy Brasilia 
office and Emboffs hosted Paulo Moutinho of the Amazon Institute of 
Environmental Research (IPAM).  Moutinho presented details of the 
Government of Brazil's proposal for compensated reduction of 
deforestation as a means to combat global climate change.  The GOB 
proposal was tabled at the United Nations Climate Change Conference 
meeting in Nairobi November 15-16 and was also briefly presented at 
the most recent Common Agenda for the Environment meeting in 
Brasilia (reported septel).  It builds upon an earlier - and in some 
ways superior - proposal tabled by IPAM itself.  Although 
deforestation reduction is not specifically addressed under the 
Kyoto Protocol's Clean Development Mechanism (CDM), the GOB seeks to 
capture the spirit of the CDM, while providing an alternative for 
developing countries with tropical forests to address climate change 
via fiscal incentives for voluntary reductions in deforestation. 
Moutinho's informative presentation described the mechanics of the 
proposal, but also illustrated several substantive faults, as well 
as internal Brazilian political obstacles, that may hinder its 
actual acceptance.  End of Summary. 
 
The Basics - Put Your Money Where Your Mouth Is 
--------------------------------------------- - 
 
¶2.  (SBU) The GOB introduced its proposal for compensated reductions 
in deforestation at the United Nations Framework Convention on 
Climate Change (UNFCCC) meeting in Nairobi, citing, in part, a lack 
of a mechanism under the Kyoto Protocol to address contributions to 
global climate change by deforestation. By some accounts, 
deforestation accounts for as much as 25% of global greenhouse gas 
emissions - though the Government of Brazil (GOB) generally believes 
that deforestation represents less than 9% of global emissions. 
Moutinho explained the operational objectives of the proposal: (1) 
to achieve a demonstrated reduction of tropical deforestation by 
developing countries; and (2) to allow developing countries to 
better contribute to the goals of the Kyoto Protocol through a 
decrease in net greenhouse gas emissions caused by deforestation. 
The centerpiece of the proposal is compensation for demonstrated 
deforestation reductions to be paid by donor (developed) countries 
and only following proof of actual reduction.  This is, therefore, a 
results-based program.  All efforts under this proposal would be 
voluntary and, according to Moutinho, would not act as an offset for 
other countries' emissions. 
 
In a Nutshell - How Would the Proposal Work? 
------------------------------------------- 
 
¶3.  (SBU) According to Moutinho, the proposal contemplates that 
participating countries would measure their national rate of 
deforestation each year during a particular reference period, e.g., 
five years.  That yearly rate of deforestation would then be 
measured against an agreed upon baseline, established in accordance 
with historical deforestation rates and agreed to by donor and 
forest countries (and updated periodically).  Moutinho indicated 
that IPAM and the Brazilian Ministry of Environment (MMA) are 
currently working on a scientific model to establish historical 
baselines. 
 
¶4.  (SBU) A net decrease in deforestation following the reference 
period would entitle the country to credit from an as yet to be 
established international fund, while a net increase would mandate a 
debit from that fund.  Credits would be assigned a monetary value 
based upon the current value of carbon credits on the international 
commodities market.  Simply put, if the rate of deforestation during 
the reference period was lower than the historical baseline, then 
the country would be entitled to receive credit for that reference 
period.  On the other hand, should the country's deforestation rate 
be higher than the historical rate, the country would be debited for 
that period.  Moreover, Moutinho explained, should a net increase in 
deforestation result, the forest country would theoretically be 
required to reduce its deforestation rate during the subsequent 
reference period sufficient to achieve a zero sum deforestation 
rate. 
 
¶5.  (SBU) The GOB proposal builds upon an earlier - and in many ways 
superior idea - originally floated by IPAM itself.  Under the IPAM 
proposal, instead of receiving disbursements from an international 
fund developing countries would receive carbon credits which could 
be negotiated on any of the carbon credit exchanges currently 
existing throughout the world.  In formulating its proposal, the GOB 
 
eschewed this approach in favor of the fund idea. 
 
Next Steps 
--------- 
 
¶6.  (SBU) Comment:  While the GOB's proposal has potential to be a 
basis for future discussions and its overall environmental goals are 
positive, on its face the proposal appears to lack answers to 
several technical and political considerations that would require 
resolution prior to it gaining any traction.  Technically speaking, 
the issue of quantification of deforestation reduction has not been 
substantively addressed.  Without an internationally accepted basis 
for determining increases and decreases in deforestation it could be 
difficult for the proposal to move forward.  Moreover, there are no 
guarantees that a country, after receiving compensation for 
decreasing deforestation during a particular reference period, would 
not pull out of the program in order to allow for future full-scale 
development of forest lands.  Thus, the program, as it stands, might 
only be a short-term solution.  Additionally, the GOB has not 
provided any details on the overall administrative structure of the 
fund, nor has it indicated how the compensation fund would be 
managed.  While the current idea is that funds received would be 
under the control of the MMA for use in deforestation enforcement 
and conservation management projects, no guarantees or plans have 
been presented by the GOB for transparent use of the money. 
 
¶7.  (SBU) On the political front, the proposal lacks serious 
consideration of the fundamental question of sovereignty as it 
relates to deforestation monitoring within the borders of 
participating countries.  Given Brazil's recently stated stance on 
the Amazon Basin Conservation Initiative, for example, that a 
country such as the U.S. (a country from outside the region) should 
not be directly involved in the management of Brazil's natural 
resources, and reported disputes among involved Ministries (i.e., 
Environment Ministry for, MFA against), the proposal may lack full 
political support within the GOB.  In a related show of the 
political gamesmanship underlying the proposal, the GOB will not 
refer to any net reduction in deforestation as an "avoidance" or 
"conservation" measure, which may be an attempt to protect itself 
from future deforestation obligations or targets for developing 
countries.  End Comment. 
 
SOBEL