Environmental compensation

Maurício Mercadante (legislative consultant with the Chamber of Deputies and former Director of Protected Areas of the Ministry of the Environment from 2003 to 2008).

The SNUC law consolidated an important instrument for the conservation of biodiversity, which is commonly called environmental compensation. The law stated that, in the case of undertakings with significant environmental impact, the entrepreneur was obligated to earmark a minimum of 0.5% of the value of the undertaking to the creation or management of full protection units of conservation.

Parque Nacional do Araguaia (TO) - Rio Araguaia  / Araquém Alcântara - www.terrabrasilimagens.com.br

The history of this regulation began long before, back in 1987, when CONAMA published Resolution No. 10/87, establishing that in order to resolve the remediation of environmental damages caused by the destruction of forests and other ecosystems, the companies responsible for large-scale projects would have to finance the establishment and maintenance of an Ecological Station. The value destined for this should be proportional to the damage caused and could not be less than 0.5% of the total estimated costs for the undertaking. 

CONAMA reaffirmed this rule in 1996, through Resolution 2/96, only expanding the possibility that the unit of conservation installed and maintained could be not only an Ecological Station but any unit of indirect use (or full protection, in the SNUC Law’s terminology).

The SNUC Law attributed to the regulation a status of law, which was a great victory. However, the resistance to compliance of the regulation, which had always been very great, increased.

Based on the regulation of the SNUC Law, IBAMA developed and began to apply a methodology for calculating the value of environmental compensation, varying from the minimum of 0.5% to the maximum of 5% the value of the undertaking.

In December of 2004, the National Confederation of Industry (CNI) entered with judicial action in the Federal Supreme Court (ADI 3378) arguing the unconstitutionality of the collection of environmental compensation.

In June of 2005, as the result of the strong criticism presented on the methodology of calculating the compensation, IBAMA concluded the development and presented for debate a new proposal, which brought the following changes: Focus on the conservation of biodiversity (not taking into consideration the socio-economic and cultural impacts), without taking into consideration the possible future impacts resulting from the operation of the undertaking, only evaluating the non-mitigated damages, and not considering an impact more than once in the calculation.

The debate surround the new methodology mobilized the business sector, and the pressures against environmental compensation gained steam and the negotiations, until then conducted by IBAMA and the MMA, went on to be conducted by the Casa Civil (Cabinet) of the Presidency of the Republic, to the point of involving even Ministers, the Chief-of-Staff, and the President himself.

In April of 2006, CONAMA published a new Resolution (No. 371), establishing as regulation the modification introduced in the new methodology proposed by IBAMA: It was established that in the evaluation of the degree of impact of undertaking, socio-economic impacts and potential future damages would not be considered, nor would there be redundancy of criteria and, in addition to this, the investments not demanded by the legislation but established in the licensing process for mitigation and improvement of environmental quality were excluded from the total cost of the undertaking.  The Resolution fixed the compensation at 0.5% for, roughly, undertakings in licensing and new undertakings, until the adopting of the new methodology. The question of the ceiling for the charging of compensation, meanwhile, remained open.

Click here to read more about others Maurício Mercadante's considerations on progress and setbacks in the process of creating and managing protected areas after the SNUC.

In the second half of 2006, in order to close the subject, President Lula went on to establish, as a ceiling of compensation, the value of 2% of the cost of the undertaking. The new methodology of calculation, including the ceiling of 2%, would be established by Decree, and not by act of IBAMA, a prerogative that, by the SNUC Law, is the Institute’s. But the Casa Civil (read Dilma Roussef) continued resisting. The pressures against continued.

In 2007 Congress entered the game. A project of law was presented, limiting the value of compensation to 0.5% of the cost of the undertaking. What had been the minimum now threatened to become the maximum. In March of 2008 the project was on track to be approved in the Environmental Commission in the Chamber of Deputies.

At this moment, in April of 2008, there occurred a fact that completely altered the scenario: The Supreme Court judges the merit of the action brought by the CNI. The Supreme Court affirms the constitutionality of the collection of environmental compensation, but says that the value of the compensation must be proportional to the damage caused by the project and that, therefore, the minimum value of 0.5% of the cost of the undertaking is unconstitutional.

The technical teams from the ICMBio and the MMA went on to propose a methodology capable of generating a value of compensation proportional to the damage caused by the undertaking, based on the cost per hectare of creation, establishment, and management of a unit of conservation. The proposal, however, was not accepted by the direction of the MMA. The discussion, contradicting the decision by the Supreme Court, continued around a ceiling of compensation.

In May of 2009, the MMA capitulates: The President of the Republic signs Decree No. 6.848 , which establishes a new methodology for calculating compensation. The maximum value of collection is fixed at 0.5% of the cost of the undertaking. What had been the minimum became the maximum. Of the total cost of the undertaking, in addition to the exclusions listed in the previously mentioned CONAMA Resolution 371, from 2006, which the Decree reproduces, “the incidental costs and charges over the financing of the undertaking, including those relative to the guarantees, and the costs with personal and real insurance policies and premiums” were excluded as well. The victory of big business could not be bigger.

The drastic reduction in the resources coming from environmental compensation was the greatest loss for SNUC since its inception in 2000. From 2000 to March of 2009, IBAMA/ICMBio applied into the federal units of conservation 58 million reals (33.7 million dollars) generated by compensation. More than 102 million reals (59.2 million dollars) more were available to ICMBio (although not in the Institute’s hands, because the resources actually remained in possession of the companies). There were already another 33 million reals (19.2 million dollars) earmarked for the states and municipalities. In addition, taking into consideration the licensing processes underway whose value of compensation had already been agreed upon; the processes whose definition of value was dependent on the decision of the Supreme Court on ADI 3378; and processes held up pending the judicial decision, there was the expectation of a contribution of another 388 million reals (225.6 million dollars). As can be seen, it is an expressive and extremely important volume for the consolidation and maintenance of the system of units of conservation in the Country.

A recent study by the Ministry of the Environment indicates that for a minimally adequate management of the federal system of units of conservation at least R$ 543.2 million (US$ 315.8 million) would be necessary per year. This without considering the minimal infrastructure for the units (another R$ 611 million = US$ 355 million) and the cost of land regularization (which is on the order of billions of reals). In 2008, the receipt of the federal units was R$ 331.6 million (US$ 192.8), an annual deficit, considering only the recurrent courses, of more than R$ 200 million (US$ 116.3 million). Read more on the sustainability of the SNUC by clicking here.

 Although Federal Environmental Compensation Board had already been created in July 2008, in November 2010 it was recreated with changes such as National Environmental Compensation Board, composed of representatives of the MMA, ICMBio, IBAMA, Brazilian Association of State Entities of Environment (ABEM) and Municipal Environmental Agencies (ANAMMA), National Confederation of Industry, CNI and academia. Access Ordinance by clicking here.If the federal decision to establish a ceiling of compensation of 0.5% of the cost of an undertaking were followed by the states, the impact will be more significant still, especially in those that had already organized their system of collection and application of the resources of compensation, such as, for example, São Paulo, Rio de Janeiro, and Minas Gerais.

In June of 2008, ISA and Friends of the Earth – Brazilian Amazon entered with a new action in the Federal Supreme Court (Reclamation 8465) alleging that the ceiling of 0.5% of the cost of the undertaking for environmental compensation established in Decree No. 6.848/2009 is unconstitutional. In fact, if the Supreme Court decided that the value of the compensation must be proportional to the damage and that minimum value of 0.5% is unconstitutional, it is evident that the ceiling of 0.5% is as well. Nobody, however, believes that the Supreme Court will make a pronouncement in the short term. More than three years were necessary for the ADI proposed by the CNI to be judged. But, as the illustrious minister Gilmar Mendes affirms that the Judiciary’s sluggishness is a myth, it is possible that I am wrong. By any means, the story of the calculation of environmental compensation is not over yet.

Read More About

Brazil. 2009. Federal Decree Nº 6.848 de 14/05/2009. It alters and adds devices to Decree Nº 4.340 de 22/08/2002, in order to regulate environmental compensation. (in Portuguese)

See the Menu and Judgment of ADI 3378/2004 in its entirety (In Portuguese)

Joint Directive No. 225 of 2011 (MMA/IBAMA/ICMBio). Creates the Federal Environmental Compensation Committee (CCAF, Portuguese acronym) withing the scope of IBAMA. The committee has the objective to deliberate about the division and purpose of the resources result of federal environmental compensation for conservation areas, as well as activities to foster SNUC.

IBAMA Normative Ruling No. 8 of 14 July 2011. Regulates, within the scope of IBAMA, the procedure for environmental compensation as of Decree No. 4340 of 22 August 2002, with alterations made by Decree 6848 of 14 May 2009.

Directive (no number) of 17 August 2011. Nominates the members of the Federal Environmental Compensation Committee (CCAF, Portuguese acronym).

Resolution No. 1 of 24 August 2011. Establishes the By-Laws of the Federal Environmental Compensation Committee (CCAF, Portuguese acronym).