VZCZCXRO3040
RR RUEHAST RUEHHM RUEHLN RUEHMA RUEHPB RUEHPOD RUEHTM
DE RUEHBR #1159/01 2461110
ZNR UUUUU ZZH
R 021110Z SEP 08
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 2343
INFO RUEHSO/AMCONSUL SAO PAULO 2654
RUEHRI/AMCONSUL RIO DE JANEIRO 6536
RUEHRG/AMCONSUL RECIFE 8393
RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHNY/AMEMBASSY OSLO 0041
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE

UNCLAS SECTION 01 OF 03 BRASILIA 001159 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR OES/PCI - L.SPERLING 
DEPT FOR OES/ENCR - S.CASWELL AND C.KARR-COLQUE 
DEPT FOR OES/EGC - D.NELSON AND T.TALLEY 
 
E.O. 12958: N/A 
TAGS: SENV ENRG KGHG EFIN NO BR
SUBJECT: BRAZIL LAUNCHES ITS AMAZON FUND, BUT WHO WILL CONTRIBUTE 
BEYOND NORWAY? 
 
REF:  (A) BRASILIA 750, (B) OSLO 472 
 
BRASILIA 00001159  001.2 OF 003 
 
 
¶1.  (U) THIS CABLE IS SENSITIVE BUT UNCLASSIFIED AND NOT FOR 
INTERNET DISTRIBUTION. 
 
¶2.  (SBU) SUMMARY.  On August 1, President Lula signed Decree 6527 
calling on the Brazilian National Development Bank (BNDES) to create 
the "Fundo Amazonia" (or Amazon Fund), a new tool to help reduce 
Brazil's high rate of deforestation.  Environment Minister Carlos 
Minc announced that the government had a target of USD 900 million 
for the first year, and it seeks to raise as much as USD 21 billion 
by the year 2011.  Brazilian officials stress in the domestic press 
that they will not brook any foreign interference with this fund. 
Contributors will receive non-transferable certificates (but not 
credits or any rights) indicating the reductions in carbon emissions 
resulting from their contributions.  Minc claims Norway is ready to 
make a major contribution and others (Germany, Sweden, and even the 
United States) are thinking about following suit.  For its part, the 
Norwegian Embassy says that Norway is negotiating conditions for a 
series of contributions to the fund of about USD 100 million per 
year for five years.  END SUMMARY 
 
¶3.  (SBU) On August 1, Brazilian President Luiz Inacio Lula da Silva 
issued a decree (No. 6527) creating the "Fundo Amazonia" (or Amazon 
Fund).  At the press event for the launching, Environment Minister 
Carlos Minc announced that Norway is expected to make the first 
contribution in September for a total of USD 100 million.  Minc 
announced that the government has a target of USD 900 million for 
the first year.  According to Eduardo Bandeira de Mello, the head of 
the Environment and Social Responsibilities Department of Brazil's 
National Development Bank (BNDES), which will manage the new fund, 
it could receive as much as USD 21 billion by 2011. 
 
THE FUND'S GOAL, ACTIVITIES AND GOVERNANCE 
 
¶4.  (SBU) Decree 6527 declares that this new fund has the goal of 
"preventing, monitoring and combating deforestation and promoting 
the conservation and sustainable use of forests in the Amazon 
biome."  The fund will support activities in management of forests 
and protected areas, environmental monitoring, sustainable economic 
development, zoning and regularization of land titles, conservation 
and sustainable use of biodiversity, and recovery of degraded forest 
areas.  With one exception, all activities must conform to the 
guidelines set forth in the government's Plan for a Sustainable 
Amazon (PAS), which was announced on May 8 (see REFTEL A) and the 
government's Plan for Prevention and Control of Deforestation in the 
Amazon (PPCDAM).  The single exception is that up to 20% of the 
resources can be used for the development of deforestation 
monitoring systems, including for forests outside the Amazon biome 
(such as the Atlantic Forest) and even in other tropical rainforest 
countries outside of Brazil. 
 
¶5.  (SBU) Minc told EmbOffs on August 12 that there would not be any 
disbursals from the fund if the annual rate of deforestation is 
increasing.  The decree, however, speaks vaguely of the Environment 
Ministry setting annual disbursal levels based on a to-be-developed 
methodology taking into account both reductions in carbon emissions 
from deforestation and also the amount of carbon reduction per 
dollar spent.  This new fund incorporates elements of Brazil's 
proposal at the Conference of the Parties (COP-12) of the UN 
Framework Convention on Climate Change (UNFCCC) in Nairobi in 2006. 
That 2006 proposal called for the creation of a voluntary 
international fund based on positive incentives for reducing 
deforestation rates, but without imposing on Brazil any obligations 
to do so and no repercussions for failing to reduce deforestation. 
 
¶6.  (SBU) The Amazon Fund decree sets up a Steering Committee 
composed of representatives of the national government, as well as 
representatives from (i) those state governments in the Amazon 
region that have developed a plan to prevent deforestation, and (ii) 
six designated non-governmental organizations  (NGOs), including 
national associations for industry, farmers, and indigenous groups. 
The Steering Committee will meet twice a year and will operate on a 
consensus basis, but in all cases is to be guided by the PAS and the 
PPCDAM.  (NOTE.  Reportedly, the fund initially had featured a 
significant role for international NGOs, but those provisions were 
stripped out when Minc became Environment Minister in May.  END 
NOTE.) 
 
¶7.  (SBU) BNDES will be the Executive Secretary of the fund.  It 
 
BRASILIA 00001159  002.2 OF 003 
 
 
will be responsible for day-to-day operations and for development 
and oversight of projects.  The decree allows BNDES to keep 3% of 
all money raised to cover operational costs. 
 
LOOK, NO STRINGS 
 
¶8.  (SBU) The key for the Brazilian government is that contributors 
will have no say whatsoever in how the funds will be used.  Minc 
exclaimed, "With the Amazon Fund, the donor countries don't have a 
seat" on the Steering Committee.  Minister for Strategic Affairs, 
Roberto Mangabeira Unger, who oversees the PAS, declared, "The fund 
is a vehicle by which foreign governments can help support our 
initiatives without exerting any influence over our national 
policy."  He added, "We are not going to trade sovereignty for 
money."  President Lula said that the fund was not only good for the 
country's image, but would also allow Brazil to walk with its head 
held high in international forums. 
 
¶9.  (SBU) So, what do donors get for their contributions?  The 
decree provides that donors will receive a certificate showing the 
reductions in carbon emissions resulting from their contributions. 
The Environment Ministry will develop a methodology for calculating 
the quantity of carbon emission reductions, which will be verified 
by a technical committee.  Moreover, BNDES is required to employ an 
external auditor, though there is no provision for sharing that 
audited report with contributors. 
 
¶10.  (SBU) Under no circumstances, however, will a certificate be 
transferable nor will it generate any rights or credits.  COMMENT. 
This comports with Brazil's long-standing opposition to granting 
carbon credits for reduced emissions from deforestation.  END 
COMMENT.  Amb. Everton Vargas of the Ministry of External Relations, 
the lead official on Brazil's climate change team, repeatedly has 
stressed that Brazil opposes the use of credits in connection with 
forests because it does not want to create a means by which 
developed countries can use Brazil's forests to avoid having to 
reduce their greenhouse gas emissions.  Moreover, he underscores 
that Brazil will not accept any restrictions that could impede their 
development plans for the Amazon and carbon credits for tracts of 
forests could be viewed as denying Brazil the right to develop those 
lands. 
 
NORWAY LIKELY TO CONTRIBUTE WITH SOME STRINGS 
 
¶11.  (SBU) At a meeting on August 22, the Norwegian Embassy DCM 
informed EmbOffs that Norway is negotiating with Brazilian officials 
making a series of contributions to the fund over the next five 
years (REFTEL B).  The amount hasn't been specified; however, he 
acknowledged that discussions were revolving about a USD 100 million 
contribution in the first year and similar amounts for the next four 
years.  An announcement is expected during the Norwegian Prime 
Minister's visit to Brazil in September.  Norway has a critical 
requirement:  the funds need to be used in a manner that would allow 
Norway to qualify the contribution under the OECD Development 
Assistance Committee (DAC) rules on assistance.  The DCM explained 
that the Norwegian government was under domestic pressure to provide 
qualified aid equal to at least one percent of Gross Domestic 
Product (GDP).  He said Norway hadn't met the 1% goal in recent 
years and so the government wanted to establish a program for Brazil 
and a handful of developing countries with large forests to boost 
its qualified aid levels. 
 
¶12.  (SBU) COMMENT.  Coincidentally, the Norwegian DCM said the 
Prime Minister's top priority for his upcoming visit to Brazil is to 
strengthen ties in the area of exploring and developing the newly 
discovered off-shore oil and gas reserves.  He explained that Norway 
had many companies that would be able to supply a significant 
quantity of goods and services to Brazil in this area.  Further, the 
Norwegian government had the technical advisors who could help a 
country follow the "Norwegian Model" in developing its oil sector. 
While there is no talk of a direct linkage between contributions to 
the fund and gaining oil and gas contracts (which would be 
inconsistent with ODA rules), the contributions could well have a 
positive impact.  END COMMENT. 
 
¶13.  (SBU) Minc has urged the USG to contribute to the fund. 
Further, he claims to be in discussions with Germany, Switzerland 
and some private corporations for contributions.  The British DCM 
reports that the United Kingdom would like to help Brazil in the 
area of reducing deforestation, but this Amazon Fund with "no 
 
BRASILIA 00001159  003.2 OF 003 
 
 
strings" and "no supervision" is not attractive. 
 
SERIOUS OUTSTANDING TECHNICAL QUESTIONS 
 
¶14.  (SBU) The Amazon Fund still needs to overcome some significant 
technical hurdles.  BNDES has limited experience with environmental 
projects and a small environmental staff.  At the same time, it has 
a track record of loans to a variety of projects in the Amazon 
region that have been drivers of deforestation - like ranching and 
slaughterhouse industries.  It is unclear how soon BNDES would be 
able to receive contributions and then develop worthwhile projects. 
 
¶15.  (SBU) What could be even more challenging for the fund is that 
under existing law contributions will be subject to a tax of about 
30%.  NOTE.  Norway has made clear that it will not make any 
contribution to the fund unless the tax issue is satisfactorily 
resolved.  END NOTE.  BNDES's lawyers are working to find a way to 
avoid taxation of contributions, but to date has not solved this 
conundrum.  On August 1, the President submitted a Provisional 
Measure (No. 438), which if approved by the Congress, would grant a 
tax exemption for the Amazon Fund. 
 
COMMENT 
------- 
 
¶16.  (SBU) The Brazilian government believes that with the Amazon 
Fund it has created a mechanism for the international community to 
provide financial support to address the serious ongoing 
deforestation problem in Brazil without going through international 
financial institutions.  It meets the Lula Administration's two 
criteria:  (1) no outside interference in the government's forest 
management policy, and (2) no credits under the UNFCCC or other 
market scheme.  The question is which country, other than Norway, 
will contribute. 
 
¶16.  (SBU) In addition, the fund may be encountering domestic 
troubles.  What may be a particularly telling warning signal for the 
fund is that not one of the governors or environmental secretaries 
from the nine states in the Amazon region was present at the August 
1 launching of the Amazon Fund.  The largest state in the region, 
Amazonas, has its own, state-level mechanism to combat deforestation 
and does not appear to be supportive of the competing Amazon Fund. 
This domestic disarray at a minimum sows confusion among potential 
contributors interested in supporting Amazon forest conservation. 
END COMMENT. 
 
SOBEL