The Folly of an Economy Going Against the Environment

From economists it is expected that they are in favour of production at any cost and against environmentalists. But it has to be the opposite. The Brazilian economy will suffer immensely if it continues the deforestation of (among others) the Amazon rainforest.

It is a shot in the foot. Export of Brazilian beef, for example, will face difficulties if the exporters are not guaranteeing the world market that the cattle did not come from deforested areas. The same problem producers will face with supermarkets, as they will require a ‘clean origin’ of the meat. Consumers also are awakening. As a consequence it is irrational, from an economic point of view, to go against the protection of the environment.

The Medida Provisória*) No. 458 (Decree MP 458), which passed Congress is foolish. It permits regularization of the lands for those who illegally invaded the Amazon rainforest. It regularizes illegality.

The confrontation between farmers and environmentalists is completely unreasonable. Even if the matter is discussed only in terms of economy, the environmentalists are right. Farmers celebrate victories that will turn against them in the future. The slaughterhouses will have to prove to supermarkets in Brazil and elsewhere that they did not buy cattle from (illegally) deforested areas.
The world is moving in one direction and Brazil running in the opposite direction with eyes fixed on the past, turning the clock back.

The debate, the proposals in Congress, the approval of MP 458, the mistakes of the government, the complicity of the opposition, show countrywide lack of understanding.
The tragedy is a multi-party action for burning down the Amazon.
Even China starts to change. In the United States, the Bush government is dumped in the trash bin of history. President Barack Obama steers the country in another direction. Presented US Congress with a set of federal parameters for reducing emissions of greenhouse gases. What was once just a Californian dream, is now the outlook for the entire country.
At a time when the environment begins to accelerate attention in the world, Brazil still thinks it can bring down the planet's largest tropical forest, as if it were an obstacle.

MP 458, now only pending presidential sanction, is worse than it appears. It is disastrous. It legalises grileiros, who illegally invaded and burned down a part of the Amazon. He, who stole 1,500 hectares before the first of December 2004 could buy it without bidding and without inspection. He has preference over the land and can pay in the most friendly way: in 30 years with three years of grace. And if at the end of the grace he wants to sell the land, the MP allows it. In three years, the property can be passed on. For up to four hundred ‘stolen’ hectares, the period is ten years. And if the grileiro stool the land and left the daily work to his labourers as he himself lives somewhere else? He has also the right to stay with it, because even if the land is run by a "figurehead" the grileiro can buy it. And if it is a company? No problem at all.

Supporters of MP 458 in the House and the Senate say it is to regularize the situation which was initiated by the Military Regime and later abandoned.
Bullshit. As the deadline to acquire land is set by the first of December 2004.
They said it was to benefit the small settlers. Bullshit. As it does allow the sale of land run by a figurehead, and the sale to corporate entities.

The bill creates indecent loopholes for privatization in the worst way of the patrimony of all Brazilians.

Former Minister for the Environment and presently senator Marina Silva said that the day MP 458 was adopted in Congress, it was her third worst day of her life. She feels as if Brazil has lost all the advances of the recent years.
It is almost impossible to agree with Marina Silva as there hasn’t been much progress shown in the last years. The Lula government has always been ambiguous in relation to the environment, and Fernando Henrique, his predecessor, kept silent. If they had shown some stature, Brazil wouldn’t have lost what it lost.
In just the first two years of the Lula government, 2003 and 2004, 51.000 km2 have been deforested. Compare this to the size of the Netherlands (41.528 km2). And many grileiros who were part of that attack at the rainforest will now be ‘regularized’.

Last week Greenpeace released a devastating report, showing that 80% deforestation of the Amazon is due to livestock. Greenpeace published the names of the perpetrators, of which Bertin, Marfrig, Friboi JBS are the largest. The Brazilian Development Bank (BNDES) is their partner and finances the ‘illegal’ operation. The mentioned companies provide meat to numerous retail chains, among them, large supermarkets as Carrefour, Wal-Mart and Pão de Açúcar.

During the Globonews’ programme ‘Espaço Aberto’, the coordinator of the study, Andrew Muggiatti met with Sussumu Honda, the chairman of ABRAS (Brazilian Association of Supermarkets). The BNDES was also invited, but did not show up.
The good news that came out of this programme was the positioning of the supermarkets. According to Sussumu Honda, they are preoccupied and will use their power to pressure the slaughterhouses to prove the origin of the cattle which meat is put on the supermarket shelves.
Brazilian meat exporters have threatened to sue Greenpeace. They should do the opposite and refuse any supplier linked to deforestation. The world will not buy Brazilian beef at this price. Exporters will face barriers. That's for sure.

The backward steps will not eliminate the external market. But that is of less importance. The tragedy is that Brazil is losing its future.
Ironically Brazil adopted MP 458 during the Week of the Environment.

This is a free translation and interpretation of an article which Míriam Leitão wrote on her blog on 05 June 2009

*) Medida Provisória In Brazilian constitutional law, a Medida Provisória (presidential decree) is issued by the President of the Republic, at his discretion, without the participation of the legislative branch. The measure has the force of law, albeit not being really a law in the strict technical sense of this term. Only in cases of importance and urgency the Chief Executive may issue decrees, which he should submit later to Congress. The decree stays in force for sixty days, extendable for another 60. After this time, if Congress does not approve it, and convert it into law, the measure will lose its force.
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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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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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