Potential trajectories of the upcoming forest trading mechanism in Pará State, Brazilian Amazon

In 2012, the Brazilian government revised the federal Forest Code that governs the use of forest resources on rural properties. The revisions included a forest trading mechanism whereby landowners who deforested more than what is legally allowed before 2008 could absolve their deforestation “debts” by purchasing Environmental Reserve Quotas (CRA) from landowners who conserved more forest than legally required. CRA holds promise as a tool to complement command-and-control initiatives to reduce deforestation and incentivize restoration. However, the success of this instrument depends on how its implementation is governed. This study builds on a few recent assessments of the potential of the CRA in Brazil–but that are focused on biophysical potential–by assessing how a few key implementation decisions may influence the CRA market development. Specifically, this study estimates how decisions on who can participate will likely influence the potential forest surplus and forest debt for the CRA market, and takes into account governance characteristics relevant to the State of Pará, eastern Amazonia. In particular, the study evaluates the effects in the CRA market eligibility after simulating a validation of properties in the environmental rural registry (CAR) and assessing different scenarios surrounding land tenure status of properties. Results show how regulatory decisions on CRA market eligibility will determine the extent to which CRA will serve as a tool to support forest conservation or as a low-cost path to help illegal deforesters to comply with legislation, but with limited additional environmental benefits. The study reviews regulatory options that would reduce the risk of forest oversupply, and thereby increase the additionality of the areas eligible for CRA. Overall, the study demonstrates the importance of including governance as well as biophysical characteristics in assessing the potential of forest trading tools to deliver additional environmental conservation and restoration benefits.

The second category (occupations) includes parcels georeferenced by the Legal Land Program (from the federal government) up to August 2014. These parcels are in the process of obtaining a land title from the Legal Land Program. I excluded non-titled parcels overlapping more than 5% with the first category (titled properties) and within this second category.
Finally, the third category (parcels in the Environmental Rural registry) includes parcels whose CAR information was validated by the environmental agency and those pending validation. I eliminated: i) parcels in CAR with more than 5% overlaps from the previous two categories (titled and non-titled category); ii) overlaps above 5% within CAR parcels (pending and verified), and iii) overlaps above 5% between pending and verified environmental registry, prioritizing validated CAR over pending validation. Table B summarizes the steps for eliminating overlaps.    Table D for more   details) ii.

Method for determining forest surplus and debt per property
Using data from the new layer Prodes without secondary vegetation, I excluded from each property the non-forest vegetation areas and the deforested areas. The result was the sum of the existing primary and secondary forest. I then calculated whether each parcel had the minimum legal reserve and the amount of forest eligible for CRA.
iii. I subtracted the step two output from step one results to determine the forest eligible for CRA formed only by secondary forests.
In general, the forest code requires a legal reserve of 80% allows the issuance of CRA certificates for forest areas above this percentage. However, there are several exceptions to this rule. In some cases, all existing forest cover on the property are eligible for CRA; in other cases, only forests above 50% of the property can be transformed into CRA. For deforested areas eligible for compensation, exceptions also apply, so the percentage can vary between zero to eighty. To determine which rule to use, I considered the following factors according to the forest code: i. Size of the parcel in fiscal module: a unit used by the government to measure rural properties. A fiscal module average is 64 hectares in Pará State. In this analysis, I calculated the number of fiscal modules per property and, for properties located in more than one municipality, I considered the average fiscal module size.
ii. Location of property: in some circumstances, the legal reserve is reduced from 80% to 50% only for the purpose of regularization. However, this specific rule is not a permission to deforest legal reserve above 50%: if there is forest between 50-80%, it is considered legal reserve and new clearings are not allowed. No matter the size or location of the property, the Forest Code permits new deforestation only in the forest exceeding 80% of the property.
If the legal reserve was deforested as of 2008, the property owner needs to regularize it up to 50% instead of 80%. This specific rule applies in the following cases: i) for properties in municipalities located in areas designated as in expansion and consolidation according to Pará Economic and Ecological Zoning or ii) when the municipality has more than 50% of its territory as protected area (Indigenous lands and conservation units).
iii. Existence of 50% of forest cover by 1997: up to1996, the Legal Reserve area in the Amazon forest region was 50% of the property. Those who had complied with the 50% rule by 1996 can follow this limit to issue or use CRA for compensation.
However, to apply this rule in this analysis, I used accumulated deforestation data up to 1997, since this is the oldest disaggregated data provided by Prodes.
Moreover, I identified a legal conflict when applying this rule to properties inside environmental protection areas (EPA), a type of protected area that allows private property. A state law that establishes the Ecological Economic Zoning of Pará considers that the legal reserve percentage of properties inside EPAs is 80% (regardless of whether or not there was 50% forest cover by 1996). Thus, I considered both scenarios (prevalence of forest law and prevalence of state law) for estimating CRA supply and demand in properties inside EPAs.