Amazon Fund Study Case

Background
In 2004, Brazil was the fourth largest greenhouse-gas (GHG) emitter in the
world with national emissions largely sourced from deforestation for agriculture, as
well as fossil fuel combustion (CAIT, 2015). Deforestation, especially in Amazons
rainforest, has been highlighted as the reason for half GHG emission in Brazil as can
be seen in the table by comparing the total GHG emissions without consideration of
land-use change and forestry and the total which includes these two factors. A fifth
of Amazons rainforest in Brazil has been deforested for over 40 years by 2008
(Reuters 2008) which peaked in 2004 with 27,249 square kilometers of land being
deforested. However, between 2005 and 2009, the country managed to reduce its
national GHG footprint by 25% as deforestation fell by 60%. Continued reduction of
GHG emission has pushed Brazil down on the list of the largest GHG emitter to the
6th position with 1823.24 MtCO2e of emission by 2012. By 2014, deforestation in
that region was reduced by more than 80% from the rate in 2004 (INPE 2015).
Table 1.1. List of Top 10 GHG Emitter Country Based on CAIT Climate Data
Explorer for 2004 and 2012

No
1
1
2
2
3
3
4
4
5
5
6
6
7
7
8
8
9
9
10
10
Total

Country
China
United States
United States
China
India
Russian Federation
Russian Federation
Brazil
Indonesia
India
Brazil
Indonesia
Japan
Japan
Canada
Canada
Germany
Germany
Mexico
Mexico
World

Year
2012
2004
2012
2004
2012
2004
2012
2004
2012
2004
2012
2004
2012
2004
2012
2004
2012
2004
2012
2004
2012

Total GHG
Emissions
Excluding LandUse Change and
Forestry
(MtCO2e)
10975.49869
6839.298862
6235.097159
6658.513564
3013.769931
2129.717302
2322.216741
826.298823
760.8077207
1988.604925
1012.554179
621.0767642
1344.576029
1330.551403
714.1185149
714.0999319
887.2169487
959.2114875
723.8526062
626.3258045
44815.53514

Total GHG
Emissions
Including LandUse Change and
Forestry
(MtCOe)
10684.2866
6495.933412
5822.870399
6288.660554
2887.083921
2135.824922
2254.472651
2029.872553
1981.003261
1823.312215
1823.148349
1600.831684
1207.300059
1231.204043
856.2776049
979.1940019
810.2499287
905.7132775
748.9117962
652.2213545
47598.55416

World

2004

37607.34796

40841.06103

2015. Washington, DC: World Resources Institute. Available online at: http://cait.wri.org. Please Note: CAIT
data are derived from several sources. Full citations are available at http://cait.wri.org/faq.html#q07. Any use of the
Land-Use Change and Forestry or Agriculture indicator should be cited as FAO 2014, FAOSTAT Emissions Database.
Any use of CO2 emissions from fuel combustion data should be cited as CO2 Emissions from Fuel Combustion,
OECD/IEA, 2014.

This rapid reduction of deforestation from 2005 to 2009 was reportedly driven
by two factors: 1) Ministry of the Environments series of political actions which
started by designing Plan of Action for the Prevention and Control of Deforestation
in the Amazon (PPCDAM) that recognized the needs for cross-sectoral approach
while recognizing the direct and hidden causes of deforestation; 2) The declining
commodity prices and a strengthening currency. The process of PPCDAM was led by
the Presidents Cabinet and participated by 11 ministries of Brazil. The result of this
planning was National Plan for Climate Change (PNMC) in 2008 which targeted the
reduction of deforestation rate by 40% between 2006 and 2009 and by 30% for
each four-year periods afterwards (Government of Brazil, 2008). Strengthening of
law enforcement, development of forest monitoring system with real-time
information, creation of significant protected areas and detailed annual analysis of
trends and needs were achieved by 2007. Meanwhile, social and economic
pressures for Amazon Forest deforestation may be still relevant in forms of the
complex land tenure systems, rare and non-formal safeguard systems and
increasing marginal difficulty of reducing deforestation with increasing incentive for
land change.
Pressures for Brazil to create a global fund to support efforts of slowing down
deforestation came mainly from Amazon States themselves and resulted in Brazils
shifting view on actions related to REDD+ that prior to 2006 was strongly influenced
by heavy dependence on fossil fuels and desire to retain sovereignty over the
Amazon forest and the proposal for the global fund to support slowing down of
deforestation (Silva, 2012). The proposal for an Amazonian Fund managed by the
National Bank for Economic and Social Development (BNDES) to help meet the
costs predicted by NGOs for zero deforestation pact with technical support from
the AVINA Foundation was led by Director of the National Forest Program at the
Ministry of Environment, Tasso Azevedo. A payment-for-performance model was
later adopted (Forstater and Zadek, 2009). Norway became the first and the largest
investor/donator in this fund with a US$1 billion pledge from its International Forest
Climate Initiative. The Amazon Fund then became the largest source of international
climate finance in Brazil.
The Amazon Fund was created to raise donations for non-reimbursable
investments, which are effectively grants, in efforts to prevent, monitor and combat
deforestation, as well as to promote the preservation and sustainable use of forests
in the Amazon Biome. It also functions to support Brazils National Climate Change
Law to cut deforestation rates by 80% between 2005 and 2020. The Amazon Funds
initial aim was to raise US$21 billion over 13 years (Goodman, 2008). Funds are
spent in accordance with the priorities of Brazils Plan of Action for the Prevention
and Control of Deforestation in the Amazon (PPCDAM) as well as its National Plan for
Climate Change (PNMC). The project funding from Amazon Fund is treated as a loan
until the end of the project period. Once BNDES verifies that funds have been spent

in line with agreed terms, repayment is cancelled. The availability of grants seeks to
reduce liabilities and risks for project implementers. Stakeholders of the Amazon
Fund have articulated three mutually reinforcing objectives and motivations (Zadek
et al, 2010):
To identify and scale up the implementation of effective projects, to support the
implementation of Brazils national strategy for preventing deforestation;
To signal support from the international community for existing Brazils policies for
sustainable development in the Amazon and to strengthen and reinforce the
political and institutional forces championing the Amazon in Brazil;
To direct resources, particularly from the international community, towards
catalytic approaches that enable large-scale economic transformation towards
sustainable development in the Amazon.
It should be noted that there is other source of funding for forest conservation in
Brazil aside of Amazon Fund. There is a significant domestic public finance in
supporting this mission, moreover, Brazil has secured funding from other
multilateral REDD+ initiatives including World Banks Forest Investment Program.
However, what differentiates Amazon Fund from other sources of funding is their
model of payment-for-performance fundraising model. International donors under
this system are supposed to provide financial support to deliver the objectives of
the fund only as much as the equivalent to the emission reductions achieved. The
emission reductions is estimated on the basis of the hectares of avoided
deforestation achieved below a reference level (or baseline), average carbon stocks
and a fixed carbon price. Brazil proposed US$5 per tonne of CO 2e and it was seen as
a reasonable price by considering of the overall value for money of Norways
donation for Brazils accomplishment and relative to carbon prices in the voluntary
and statutory markets at the time that would not create additional fears of carbon
prices being driven down. Nonetheless, the application of this resource mobilization
approach is naturally self-limiting because it depends on falling levels of
deforestation rate which within time would be lowered or even stagnated. The fund
will not be able to generate any additional tones if deforestation reached its
stabilized point.
Moreover, in reality, the Amazon Fund has not yet been able to mobilize funding at
the level that its payment-for-performance model implies. The Amazon Fund model
was initially aimed to deliver assurance of significance of the results to the funders
that emission reductions would not have occurred without the finance by presenting
a clear relationship between the amount invested and Brazils performance in
meeting its falling deforestation rate goals. This model is designed to mediate
between Norways desire to demonstrate that ex-post payments for verified
emission reductions provide the best way to create incentive for emission
reductions (Government of Norway, 2012) and Brazils policy positions on
sovereignty of the Amazon and on REDD+ as previously mentioned.
The payment-for-performance relationship between money and emissions is moreor-less symbolic due to flawed system and the emission reductions which have been
previously amassed by the fund. The Amazon Fund built up a stock of emission

reductions from 2006 despite Amazon Fund itself being initiated in 2009. By the
time of establishment, emission reductions were valued at US$ 4 billion, and by
2011 US$ 10 billion worth of emission reductions had been accrued. On paper
certificates received by Norway from the Amazon Fund, Norways payment officially
still reward emission reductions achieved in 2006. In reality, however, the level of
funding is determined and announced with reference to deforestation in the
previous year. This also implies that the value of the emission reduction is much
lower than US$ 5/tCO2e.
The payment-for-performance model actually would be relatively valid as long as
deforestation rate is falling and the funds increasing allocations and Norways
continued annual pledges all signal in the same direction. In 2014 and 2015,
however, the deforestation appeared to be rising again, breaking the apparent link
between spending funding and performance of Brazil in reducing deforestation rate.
Other options to be considered in increasing confidence in the significance of
emission reductions and in proportionality of the carbon value are to revise the
baseline and value of carbon. It is discussed in the article that unfunded emission
reductions are now more than ten times those that will be funded.

Amazon Fund is managed by the Brazilian National Economic and Social

Development Bank (BNDES). BNDES is a federal-owned public company under the
supervision of the Minister of State for Development, Industry and Foreign Trade.
The advantages of appointing BNDES as the manager include the established
governance, operational and risk control systems of BNDES, as well as reputation
for integrity and impartiality from political processes (Zadek et al 2009). A domestic
institution was also predicted to increase national ownership and validate
sovereignty compared to an international organization (Forstater and Zadek, 2009).
However, BNDES only received 3% of funding as management fees that only cover
expenses such as travel, audit, advertising and support for the COFA, much lower
compared to 10-15% rate for World Banks management fees in addition of charged
costs on particular project and transactions. Amazon Fund itself is relatively a very
small program for BNDES compared to its other programs, but it is a program that
brings significant attention and scrutiny from international sector which might

create greater effort in managing the environmental and social sectors within the
institution.

Box 1.1. The Brazilian Development Bank

The Brazilian Development Bank (BNDES) is the main financing agent for development in Brazil. Since its
foundation, in 1952, the BNDES has played a fundamental role in stimulating the expansion of industry
and infrastructure in the country. Over the course of the Banks history, its operations have evolved in
accordance with the Brazilian socio-economic challenges, and now they include support for exports,

BNDES itself is criticized over management and funding criteria setting which are
technological innovation, sustainable socio-environmental development and the modernization of public
deemed as difficult for organizations to achieve in practice. External stakeholders
administration.
Bank offers
several financial
support mechanisms
Brazilian companies
of all sizes
and
some COFAThe
members
specifically
complained
on narrowtooperational
criteria,
as well
as public administration
entities,
enabling investments
in all
economic
sectors.the
In any supported
lack
of communication
and rigid
procedure
which made
it hard
to access
funding.
Conservationists
were
reported
in 2012
to saythe
that
BNDES
hindered
undertaking,
from the analysis
phase
up to the
monitoring,
BNDES
emphasizes
three factors it
projects
with
paperwork
and
endless
meetings
that
sometimes
it
took
19
months
for
considers strategic: innovation, local development and socio-environmental development.
getting approval.1 In the same article, the BNDES official also admitted that the fund
is not working as well as donors had hoped previously.
With its extensive knowledge, stemming from its vast experience allied with the technical capacity of its

Byworkforce,
the end of
Brazil
only to
used
US$
39Amazon
millionFund
on 23
the2011,
Brazilian
decided
house
the
in sustainable
BNDES while growth
being guided by an
projects,
with
another
US$
53
million
under
contract.
The
poor
performance
at the
independent steering committee. This measure was taken in order to protect the Norwegian funds from
time lowered the amount of funding received by the BNDES by half between 2010
being
politicized
or wasted.
BNDES
was criticized
for starting
slowly and for
supporting
projects that
and
2011.
Unused
fund from
Norway
at the time
were deposited
in the
Norwegian
Central Bank. Additionally, other potential donors were also discouraged from
investing funds. A lack of prioritization within the PPCDAM policy framework was
partly reflected from this inability of Amazon Fund to allocate funds quickly as they
took more part to act as a filter for projects and organizations that were able to
meet BNDESs administrative criteria, for organizational fiduciary responsibility and
monitoring (Hargrave 2012).
Nonetheless, improvement for funding mechanism was immediately done by
simplification of the process, increasing the accessibility of the fund and offering
more support for applicants in developing proposals. Afterwards rejected project
proposals has fallen which shows a level of success in improving the system. By the
end of 2015, the Amazon Fund had approved 80 projects which amount to US$ 566
1 Brazil's Amazon Fund bogs down, donors frustrated Jan 14, 2012retrieved from:
http://www.trust.org/item/?map=brazils-amazon-fund-bogs-down-donors-frustrated/

million with disbursement totaled to US$ 223 million, of which US$ 39 million (17%
of total) was given in 2015.
However, there is also a concern on the possibility of BNDESs duality in managing
Amazon Fund for reduction of deforestation rate and in managing funding for
conventional infrastructure in the sensitive area of Amazon region. Ministry of
Environment officials maintained a position for policies by establishing innovative
linkages with private sectors that permit economic growth and environmental
protection to proceed together.
In managing Amazon Fund, BNDES is to be supported by COFA for guidance and
AFTC for technical assistance. The Amazon Fund Guidance Committee (COFA) is a
three-block committee comprising the federal government, state government and
civil society (including indigenous peoples, traditional communities, NGOs, industry
and scientists). Each block holds one vote on committee decision and each member
holds one vote inside his block. The role of COFA is to establish guidelines and
criteria for use of Amazon Funds resources, update the Board of Directors and
Executive Officers annually, and attest to their application in the Amazon Fund's
annual report. The COFA is chaired by the Ministry of Environment as the lead
government institution with focus on forest policy that is held accountable to the
president for deforestation rates. Meanwhile, the Amazon Fund Technical Committee
(AFTC) is six authoritative technical and scientific experts appointed by the Ministry
of Environment for a three yar term, extendable once for an equal period. The AFTC
issues the certificates of carbon emission reductions and it calculates the amount of
carbon per hectare as well as the amount of deforestation avoided.
Officially, COFA and AFTCs missions are to gather stakeholders and to utilize their
capacity and momentum to provide legitimacy and assurance. However, in practice
these committees seem to have limited roles in decision making. COFA members
complained at the difficulty of influencing BNDESs operational procedures while
AFTC members expressed their concerns on being underutilized with limited role of
signing off on carbon emission reductions without being able to contribute to the
development of investment strategies and priorities. It needs to be brought into
attention that no COFA meetings were held in 2012. Civil society members in an
interview stated that [the] failure to hold meetings COFA reflects one of the most
critical points of the current governance of the Fund. There is a blatant disregard in
conducting the Steering Committee, whose annual meeting schedule has not been
observed, leading to difficulty in fulfilling their duties, in particular the monitoring of
the implementation of the Fund, and the definition of its priorities, strategic
guidelines and criteria for applying resources (Ramos, 2012). The balance of power
between the Government, BNDES and COFA is reportedly shifted over time, as key
people have come and gone in government and the civil service.
The downstream investment strategy differs from its fundraising strategy because
it does not apply payment-for-performance model. There is no requirement for
demonstration of effectiveness in terms of low cost emission reductions or a
particular area of hectares conserved. Projects are selected through an ongoing
open call for proposals. The area that may be supported by the Amazon Fund is
specified in Decree No. 6, 527/08: 1) Management of public forests and protected
areas; 2) Environmental control, monitoring and inspection; 3) Sustainable forest
management; 4) Economic activities which use forests sustainability; 5) Ecological

and economic zoning, territorial arrangement and agricultural regulation; 6)

Preservation and sustainable use of biodiversity and Recovery of deforested areas.
Furthermore, the minimum requirements of the projects are as the following:
Directly or indirectly contribute to emission reduction through avoided
deforestation or forest degradation;
Demonstrate consent from communities or from their representative institutions;
Do not substitute for public budgets earmarked for allocation areas in the Amazon
Fund; and,
Demonstrate a multiplying effect on the funds used, by leveraging other resources
(in cash or kind).
BNDES appears to be transparent in its agreement with Norway, nonetheless, most
informants in Brazil often are unable to understand perfectly the terms of the
Agreement, including: (1) what exactly determines Norways transfers under the Agreement, (2)
what types of activities and grantees are eligible for support, and (3) how decisions are made on
individual proposals. That is why stakeholders can request support by submitting a

Previous Consultation. The Previous Consultation template specifies basic

characteristics of the proposed project, and seeks details on (i) the history and
description of the applying organization (ii) information on basic elements of the
project (with details elaborated through the analysis phase) such as, area of
deforestation envisaged and involvement of local communities and Indigenous
peoples; and (iii) on legal aspects. These are assessed by BNDES, using the criteria
agreed and annually updated by the COFA in addition to BNDES assessment of the
organizations management capacity and similar to establish eligibility.
Many of Amazon Funds projects are focused on important but well-established
interventions, such as forest mapping, state fire-fighting, municipal environmental
management and the social projects of NGOs. The largest allocations have been for
a Payment for Ecosystem Services (PES) scheme in the State of Acre, and to the
Brazilian Forest service for development of the National Forest Inventory. State
projects (mainly support for fire departments) average at US$6.2 million and
projects managed by NGOs averaged at US$7.9 million. The NGOs that have
accessed funding from the Amazon Fund tend to be well established organisations
such as The Nature Conservancy, Imazon, and IPAM, and experienced in handling
funding from national and international agencies. Larger NGO projects tend to be
partnerships with state governments such as the Bolsa Floresta (forest allowance)
project managed by the Sustainable Amazon Foundation (FAS) under a mandate
from the State of Amazonas.
Despite the significance of one billion dollar for the environmental sector, the
amounts of funding available to date is considered not large enough to help shift
overarching institutional incentives. There were also strong pressures from public to
spend money across different sectors and recipients, in order to avoid creating the
impression that certain regions or sectors were being favored. However, several
stakeholders viewed the funds initial approach as too focused on projects and not
sufficiently strategic; the fund may be better aimed for larger and systemic impacts
through policy-level initiatives. The example for this is support for large-scale
implementation of cadastral registration of private lands under the revised Forest
Code, which will in turn support a new market that increases the efficiency of land
use.

The Amazon Fund so far has not focused on advancing the national policy or
regulatory environment for addressing deforestation in Brazil. It also has not funded
projects that focused on addressing market drivers of deforestation and degradation
or any incentives and subsidies that probably support deforestation. This means
that the projects funded by Amazon Fund may have inadequate level of
sustainability in protecting the forest as the Fund is unable to interfere where it
matters the most. It may even be implied that reduction of deforestation through
regulations with command-and-control approach may have reached its limits by
looking at the data of increasing deforestation rate. More focus should be put on finding
and supporting a strategy of forest-friendly sustainable growth.

There is also a concern about the risks of the funds resources being used
inappropriately to subsidize inadequate government budgets. Funding of Amazon
Fund may simply replace domestic commitments of funding for a limited period of
time, and are not yet realizing the systemic changes in capacities and incentives
that are needed for REDD+ efforts to be sustainable.