Wrong Choices

This is a (translated and edited) text of the blog of Miriam Leitão, economist and columnist for O Globo
The response of Lula’s government to the financial crisis has serious defects: some market sectors are benefiting but not the entire economy, and incentives are given without something in return. The car, a product for the middle class and the rich got a tax waiver, the employees of the automakers received an employment guarantee, but the sugar-alcohol sector has neither, not even a guarantee of the labour laws.

In the United States, aid to the automakers was given under the condition of environmental improvements. Here, nothing was requested from the automakers, except to keep labour employed, which creates a distortion in the economy: all Brazilians can be dismissed, except employees of the automotive sector and public officials.

March 30 was the “Day of Cars”, here and in the US. There, the president of General Motors fell in disgrace because the government refused his plan for the adjustment and adaptation to the requirements. I do not want to compare the aid of billions of direct tax-dollars to the coffers of the auto-industry in the US, to the tax waiver here, but insist that this was a great opportunity to induce changes upon the Brazilian auto-manufacturers.

The new president of GM will have 60 days to submit a new plan, but already started to say that the new cars will be different. Frederick Henderson said that the automaker is one or two generations behind in green technology for cars and that the company will have to learn to make money on light cars, and not just SUVs. Another requirement is that of a fiscal adjustment in the company, which will separate good assets and problematic liabilities difficult to digest, such as the employees’ pension fund.

Over in the U.S. it is entirely different, but it is important to see the attitude of governments, in helping the industry. The Obama administration has asked something in return. The Lula government extended the reduction of the IPI-tax for cars and trucks requiring only keeping employment at the same level. It is worth remembering that the manufacturers of trucks did not meet the requirement, from the beginning of 2009, to manufacture only trucks with clean diesel engines. After seven years of delay, they said they were not prepared and needed three more years to deliver here in Brazil, what they deliver in other countries already for years. This, for example, could have been a consideration, a quid pro quo.

The complete absence of concern of the Lula government for the environment is shocking. Yesterday the government reduced the IPI-tax to zero for electric showers, high consumers of energy, and a product which has been abandoned in other countries. Electric showers have had a reduction of the IPI before and have now been set to zero along with other conventional building materials such as cement and brick. The Ministry of the Environment had asked to equalize the tax for the electric shower (which was 5%) with solar panels (which pay 18%). The decision "has not yet been taken” and is still in consideration by the Treasury.

End of March Banco do Brasil got authorized to extend the credit line of the FAT Giro Rural for two years. The credit line is BRL 4 billion (USD 1,8 billion) and the first trance will be paid from April 1. The agribusiness is getting an aid package for the sugar-alcohol sector and the production of meat, two flagrant champions of slave labour. Livestock breeding is directly related to the deforestation of the Amazon. The BNDES (Development Bank) will make a classic rescue operation, supplying BRL 200 million (USD 87 million) for a bankrupt slaughterhouse, which operates in a deforested area. In none of the aid programmes any change in conduct was negotiated, neither in relation to the workers, nor in regard to the environment. This all happens as if the Brazilian government is not of this world.

The vehicle per capita in Brazil, according to Anfavea (Automobile Manufacturers Association), is one vehicle for every eight inhabitants. This is the overall average, taking into account the population and the fleet of 25.5 million cars. Just to compare, the same density in the US. is one vehicle for every 1.2 inhabitants, in Japan it is one vehicle for every 1.7 inhabitants, in Mexico it is one for 4.7 inhabitants, in Argentina it is a car for every 5.2 inhabitants, all data from Anfavea.

The 2000 census said that 54.4 million Brazilians lived in households that had one or more cars, which then represented 32% of the population. Imagining that this percentage has grown a bit, as the sales of vehicles increased - though most new cars have been bought by the same families who had cars before, but some new entered the market - who owns a car belongs to the middle class and from there upwards. The two figures show that the motorized do not reach 40% of the population. The ones who buy a new car are exactly the ones who have a higher income.

The government did something that will benefit only the middle class and the rich, protected only employees of automakers and support the agribusiness without requiring any change of conduct.

Lula is losing the chance to change opened up by the crisis.

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The Owner Doesn't Care Much

There is still no strategy to defend the Amazônia
In just one month, the deforestation of the Amazônia exploded. The National Institute for Spacial Research (Inpe) reported data on deforestation in the Amazônia Legal, for the month of April. According to the Deter system (Detecção do Desmatamento em Tempo Real = Deforestation Detection in Real-Time) there was an increase of 774.48% in deforestation in the region, eight times more. In March 2008, 145 km ² was cut down, while the number in April rose to 1,123 km ². Unfortunately Deter is only able to detect deforestation polygons of areas larger than 25 hectares due to the resolution of the space sensors.

And the owner of the Amazônia?
Unfortunately it occurs that the Amazônia has a not-properly-caring owner. Approximately 62% of the Amazônia delta with its rain forests belongs to Brazil, but the numbers of deforestation are alarming. Just in the first five years of Lula’s government, it was 100 thousand km2 (2½ x the Netherlands).

The Brazilian economic columnist Míriam Leitão stated in Bom Dia Brasil: “The argumentation that the world has no right to claim the protection of the Amazônia because rich countries pollute or have already destroyed their forests, is not quite correct. If the Amazônia is ours, we have to preserve it. ........ If Brazil protects its biodiversity, they have to use its wealth for the production of medicines, cosmetics, timber in a sustainable way and industrial production of various items.”

That’s why the Brazilian Academy of Sciences proposes to invest heavily in universities, technological institutes, training of scientists in the Amazônia, to activate research in the region to find the best model of exploitation of its wealth. Today, it is only being occupied by ‘grilagem’ (unlawful claiming of rain forest areas), deforestation and even criminal slave labour.
This is not development.

The main task of the extraordinary minister of Strategic Affairs, Roberto Mangabeira Unger, as coordinator of the Plano Amazônia Sustentável (PAS = Program for a Sustainable Amazônia) is to develop "a strategy of zoning the Amazônia, one with forest and another one without forest." As quoted by his own words.

"Let’s stop talking about the fiction that there is a war between environmentalists and developers. This is not the problem. The problem is that we have not yet formulated the necessary measures neither to defend the forest, nor to develop the Amazônia," he assessed.

The coordinator of the PAS believes (what others are saying for years on end) in a correlation between the unemployment rate and the (illegal) deforestation of native forests: "The Amazônia is not just a collection of trees, it is also a group of people, and if the Brazilians who live there do not have economic opportunities they will be inexorably led to illegal deforestation activities."

But from whom is the Amazônia, after all?
A story published in the American newspaper The New York Times suggests that global leaders argue that the Amazônia is not a unique heritage of any country, which is causing concern in Brazil. And continues: "a chorus of international leaders are more openly declaring the Amazônia as part of a much larger heritage then the only nations that share its territory."

The newspaper quotes the former US vice-president Al Gore, who in 1989 said that "contrary to what the Brazilians believe, the Amazônia is not owned by them, it belongs to us all."

In the meantime the government of President Luiz Inácio Lula da Silva tries to pass a law to restrict access to the Amazônia Forest, imposing a licensing scheme for both foreigners and Brazilians.

"But many experts say that the Amazônia in the proposed restrictions conflict with his own efforts (of President Lula) to give Brazil a greater voice in the negotiations on global climate change - an implicit recognition that the Amazônia is critical to the world as a whole," the article reads.

"It's a fight that shall only become more complicated in the coming years in the light of two conflicting trends: a growing demand for energy resources and a growing concern with climate change and pollution."

But President Lula is adamant: "The Amazônia has an owner and that’s us, Brazilians."
President Luiz Inácio Lula da Silva said, attending the 20th National Forum in May that "the world needs to understand that the Amazônia has an owner and that we, Brazilians, are that owner."

He questioned the conditions of developed countries, the biggest polluters, to discuss this issue. "The countries which are responsible for 70% of the world’s pollution are talking now about the Amazônia," he said. Lula advocated the preservation, but also the development of the Amazônia. "It will be a discussion for the next two decades," he said.

“But don’t cry out prematurely”, the "Economist" is right after all
Although most Brazilians do not like it when someone, particular a gringo, wants to "put a finger" in the Amazônia, as President Lula called it, the truth is that the British "The Economist" had it spot on, when it stated that it is almost impossible to put rules in the region,” writes the Brazilian journalist Ricardo Kotscho in one of his columns. And he follows with:

In its story "Welcome to our shrinking jungle" the Economist states bluntly that it is very difficult for the Brazilian government to control the exploitation and deforestation of the Amazônia forest "because there is no control over the ownership of land in the region."

Nobody has control - and hardly somebody will one day. I say this with sadness. In Amazônia region everything is too grand, too immense, too vast, too dense and far too huge for anyone to even dream to place the forest under some form of order.

You can see it with the naked eye: the pastures progressing in cleared areas owned by nobody, where the law has not yet arrived and the State is a distant mirage for the owners of cattle that are multiplying in geometric progression.
Some alarming data show how the burst of cattle raising is devastating the forest:

• In 1964, Amazônia had a flock of about one million cattle and less than 1% of the area had been deforested for pastures.
• In just thirteen years, between 1990 and 2003, the Amazônia herd rose from 26,6 million to 63 million heads, an increase of 6,7% per year, ten times the increase in Brazilian population.
• Today, the pastures shelter more than 70 million heads of livestock, one third of the entire cattle herd in the country. Since the Amazônia has a population of 23 million people there is an average of three heads of cattle per capita (including babies and old people).
• To open the pastures 16% of the forest area has been deforested, which is more than 70 million hectares, equivalent to Spain and Portugal together.
• The Amazônia continues losing 24.000 km2 of native forest per year, an area equivalent to two thirds of the territory of Belgium. As 1% of the forest turns into grass each year, and the current progress of livestock in the region is kept, in 2050, half of the forest will have been cut to house a corral of 285 million head of cattle.
• The main reason for this burst in cattle raising is the low or even non-existent price of land by pure and simple invasion of public areas, the popular ‘grilagem’. It is cheaper to cut trees (USD 200 to USD 300 per hectare) than to recover land from areas already deforested and degraded and turned into ‘juquira’ (USD 700 to USD 750 a hectare). Juquiras are deforested areas which are claimed back by nature with the springing up of small trees and an abundance of weeds. As sugarcane took the place of pastures in the fever for ethanol and soybean moved to the centre west of the country, cattle farms were pushed into the Amazônia in search of new pastures.

A study carried out by Instituto do Homem e Meio Ambiente da Amazônia (Imazon = Institute of Man and Environment of the Amazônia), and commissioned by the World Bank, brought to light that 42 million hectares - an area corresponding to 8,5% of the Amazônia (an area the size of Germany, the Netherlands and Belgium together) is in illegal possession and totally outside the control of the government.

"This is, in practice, a free privatization of the forest. They never paid for the land and continue without paying taxes," said the coordinator of the research, forestry engineer Paulo Barreto. The process is always the same: the ‘grileiro’ "lends" the land to a timber friend to "clear the area", that is, overthrow the forest, and then plant grass, moving forward without limits and without any control, because, here a title deed is a fiction, even if it were existing.

In this context, some initiatives announced by the federal government to stop the destruction of the rain forest after the world started to protest against the progressive deforestation, sound romantic. But the government actions are entirely insufficient and even laughable and can only be considered as serious and might even revert the situation, if and when the federal government sends the Brazilian Armed Forces with all available equipment including helicopters and planes to the Amazônia.

The worst thing is that this time, we are obliged to accept that the English magazine is correct to say: "In practice, it is almost impossible for the Brazilian government to impose its will within the limits of its empire, even if it wanted."

If Lula claims: "the Amazônia is ours." Why can he only launche a grand-scale manoeuvre with the armed forces, including the navy and air forces, to defend the Amazônia Azul (Blue Amazon, in my next post I shall explain the Blue Amazon) and not do the same for the Green Amazon. Well, frustratingly, the answer is simple, as always: the Amazônia Azul has all to do with oil, while the Amazônia Verde has, as it is, only to do with the environment and global climate change.

source: IG Ultimo Segundo, Ricardo Kotscho
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Brazil and its ‘green’ bio-diesel

We all know that Brazil champions bio-fuels and as I wrote in a previous post, President Lula promotes worldwide the use (and thus Brazilian export) of ethanol from sugar-cane. You should think puffing out his chest Brazil is the prime example of clean air.

But as Míriam Leitão writes in her column “Economic Panorama” in O Globo, inhaling Brazilian air causes a frontal attack on your nose and your health.
People have to breathe to survive, but when you breathe in Brazil’s large cities, you are bound to inhale the sulphur rich fuel exhausts, mainly diesel. In the United States, Europe, Taiwan and Mexico, the sulphur content in diesel has already fallen. Seven years ago, a resolution determined clean fuel in Brazil. Petrobras, Brazil’s state-owned petroleum giant said that it will commit to this resolution in 2009. Not meeting these requirements will cost more human lives.

The resolution 315 from 2002 published by Conama, the National Environment Institute, established that Brazilian diesel should have 50 parts of sulphur per million (i.e. a maximum of 0,005% of sulphur). Diesel is a composition basically consisted of carbon, hydrogen, and concentrations of sulphur, nitrogen and oxygen. There is a worldwide movement to reduce the share of sulphur as it is responsible for the existence of acid rain. Compared to the product in other countries, diesel in Brazil, a country that champions bio-diesel, is just a shame. For years ago the United States reached the level of 50 parts per million (ppm). At this moment the USA target for 15 parts per million. In Europe, the goal today is 10 ppm. In Brazil, diesel has 500 parts of sulphur per million in the large cities and 2.000 in the rural areas. Petrol (gasoline) has 1.000 ppm. But diesel raises more concern as it is a heavier compound with emitted particles more harmful to human health.

If the regulation of Conama, finally, comes into force in the coming year, the level of sulphur will fall to 50 ppm for diesel in both large cities and rural areas. Even when we get there, we are still far behind countries like Mexico, which today has 50 ppm and will go to 15 ppm next year. Taiwan reached 50 ppm 4 years ago. Canada, which has a heavy oil, had 340 ppm, but moved to 30 ppm. There are several large and medium-sized countries which are already reaching levels causing less pollution and less harm.

Why is this country with its abundance of ‘green’ bio-diesel one of the worst polluters in the world? Because it is typical Brazil, it contains all the signs of the various and many defects in Brazil: the excessive power of Petrobras (the Kingdom within a Republic), the inefficiency of the regulatory bodies, particularly the Agência Nacional do Petróleo (National Agency for Petroleum), the neglect of and the disinterest in the health of the citizens, and last but not least the lobby of the auto industry. Conama submitted to a long term period in which its resolution should be met, but the National Agency for Petroleum (ANP), which had to detail the technical specifications of fuels, let the time running out. Finally in October last year and after much pressure from entities such as the movement “Our São Paulo”, the OAB, the Department of Environment of São Paulo, among others, the ANP reported the specifications.
And then a lobby started to delay the enforcement of the resolution, whose implementation was scheduled for January 2009. The authorities reacted. The Ministry of Environment announced not to be inclined to accept postponements. Minister Carlos Minc of the Ministry of Environment reiterated this, saying that he shall require compensation from Petrobras and Anfavea (the Association of Brazilian Car Manufacturers) if they do not meet the deadline. Petrobras divulged in a bulletin that "the Company shall provide the 50 ppm diesel to be used by vehicles with technology P-6. This product is also available for tests by the auto industry."

Heavy sulphur loaded diesel is the main culprit for the pollution generated by traffic. The pollution causes various respiratory diseases and even lung cancer, 5% of the cases are caused by pollution. Two million people die each year worldwide from diseases caused by air pollution.

Professor Paulo Saldiva of the Laboratory for Atmospheric Pollution of the University of São Paulo, made a calculation regarding the effects on the economically active population, between 20 and 60 years in the metropolitan region of São Paulo; he arrived at a cost of 1,5 billion USD per year because of problems caused by pollution. While only 10% of the fleet is diesel, the fuel is responsible for 50% of the emissions of fine particles, which forms the black smoke, responsible for deaths and respiratory diseases. According to Paulo Saldiva, pollution causes some 400 deaths per year in the city of São Paulo only.

Petrobras, in its memo, said it is gradually removing the sulphur content of diesel and gasoline since the early 90’s and states that it invested 1,6 billion USD from 2000 to 2007 to improve the quality of fuels.
There is no reason for further postponements, the technology to reduce sulphur content is readily available and public health should be at the top of the list of priorities of the socialistic administration of President Lula.

But there is hope, although we have to wait a long time. Yesterday the Ministry of Environment proposed a plan to reduce the share of sulphur to 10 ppm in 2012. Nice, but various sources are reporting that the proposed resolution will not be imposed before 2017. Nine years from now, just to go from 50 ppm to 10 ppm, a level many a country has reached already nowadays. Nine years more to see Brazil change from a lavish green to a dry savannah.

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