Americas

Amazon Oil Row “Misses the Point”

Hope persists after Belém summit, despite South American governments failing to reach consensus amid divisions over fossil fuel policy.

Amazon leaders’ failed efforts to agree a deal to end deforestation by 2030, partly due to rows over oil extraction, may yet prove a “step in the right direction”.  

But progress will also depend on enforcement of existing rules, improved resources and greater transparency “to hold producers accountable”, according to Graham Stock, Co-Chair of the Investor Policy Dialogue on Deforestation (IPDD).  

Oil exploration arose as a “sticking point” at the two-day summit in the Brazilian city of Belém last week, Stock told ESG Investor. 

The topic is a “controversial matter” in the region, according to Stock, particularly in Brazil, where President Luiz Inácio Lula da Silva’s climate pledges are juxtaposed by his administration pursuing new oil projects in the ecologically sensitive onshore and offshore regions.  

Stock said that the issue also highlighted divergent long-term strategies between the two leading players involved in the Amazon Summit – Brazil and Columbia – which otherwise agreed on the need to end deforestation. 

President Pedro of Colombia plans to transition the country away from fossil fuels, while Brazil, although committed to renewable energy and biofuels, intends to exploit its fossil fuel resources alongside these efforts,” he said.  

Given these differences, an agreement on oil exploration at the summit was unlikely from the start, he added.  

The summit brought together the Amazon Cooperation Treaty Organization (ACTO) for the first time in 14 years with the aim of reaching an overall agreement on slate of overlapping issues, ranging from fighting deforestation to financing sustainable development. 

ACTO is an intergovernmental organisation formed by the eight Amazonian countries: Bolivia, Brazil, Colombia, Ecuador, Guyana, Peru, Suriname, and Venezuela, which signed the Amazon Cooperation Treaty (ACT), becoming the only socio-environmental block in Latin America.   

“Step in the right direction”  

Despite the eight South American countries falling short of a zero deforestation by 2030 deal, the summit still represents a “positive step” in addressing the issue, said Stock, who is also a senior sovereign strategist for emerging markets, at RBC BlueBay Asset Management.

“The focus inevitably has been on what they failed to agree on, and where the disagreements came from, but I think that misses the point,” said Stock, adding that the most crucial factor for the future of the Amazon is Brazil’s climate commitments, with the summit serving as further demonstration of the Lula administration’s dedication to protecting the lungs of the planet.  

The decision to hold the summit in Belém, in parallel with their intention to host COP30 there in 2025, aligns with impressive progress made this year in tackling deforestation in Brazil,” he said.

“We will reevaluate this summit from last week and conclude that it was important and useful, representing a step in the right direction, notwithstanding the reluctance of some other countries to sign up to a formal commitment to end deforestation by 2030.” 

WWF Brazil welcomed the creation of the Amazonian Alliance to Combat Deforestation at the summit, and the signatories’ commitment to “work in an articulated way in the implementation of actions to eradicate the illicit exploitation of minerals and related crimes, including money laundering”.  

But Executive Director Mauricio Voivodic added: “It is positive that the heads of state have recognized the Amazon’s point of no return and the urgency of avoiding it. However, it is necessary to adopt concrete and robust measures that are capable of eliminating deforestation as quickly as possible.” 

In a recent report by the Monitoring of the Andean Amazon Project (MAAP), a US-based non-profit, it estimates that 13.2% of the original Amazon biome has been lost as a result of deforestation among other causes. In fact, deforestation in the Amazon equates to more than 85 million hectares – an area equivalent to 10% of the size of the US or China. 

Government data, however, highlights that after four years of rising destruction in Brazil’s Amazon, deforestation has declined by 33.6% during the first six months of President Lula’s term in office.  

The IPDD focuses on engagement with governments rather than with individual companies, and its first two work streams covered two of the most heavily forested countries in the world – Indonesia and Brazil. This year marked the commencement of its third work stream, which involves conversations with consumer countries. 

“This specific stream is geared towards examining the demand side of the equation,” said Stock, noting how the IPDD is delving into the possibilities of introducing legislation or considering measures that would prevent deforestation from entering import supply chains. 

In June, the EU adopted new rules for deforestation-free products. The EU Deforestation Regulation mandates extensive due diligence on the value chain for all operators and traders dealing with certain products derived from cattle, cocoa, coffee, oil palm, rubber, soya and wood.  

The UK is also in the process of adopting similar measures to tackle illegal deforestation in UK supply chains.  

For the United States, Stock said the IPDD is conducting a data and stakeholder mapping exercise to identify the best points of pressure application for tackling illegal deforestation in US supply chains.  

“Looking ahead, our aspirations also encompass engaging with China to stress the significance of safeguarding commodities at risk,” he said.

Enhancing data transparency

Stock noted that all Amazonian countries face the challenge of enhancing enforcement and the application of existing deforestation legislation, such as Brazil’s Forest Code which is generally considered to be robust.

“Simultaneously, it’s about enhancing data transparency, which enables Investors, consumers, importers, and other nations to hold producers accountable,” he said. “Whether this pertains to sectors like beef, soy, or sugar, the critical question revolves around the origin of the product.  

“Is it being produced on land that aligns with Brazil’s Forest Code? Adhering to this requirement would eliminate one of the incentives driving future deforestation.” 

Brazil created and passed its first Forest Code in 1965, a law requiring landowners in the Amazon to maintain 35-80% of their property under native vegetation, permitting rural farmers to purchase land in the Amazon, but limiting them to only farm 20% of it.  

However, ownership records exist for only 10% of private land in the Amazon, prompting the Brazil government to make it mandatory for all rural properties to be mapped and registered through a government system known as Cadastro Ambiental Rural (CAR). 

Stock stressed the importance of enhancing the availability of databases like CAR to protect the Amazon as this increases transparency throughout the supply chain and helps investors hold industries to account.  

The staffing levels within Brazil’s Ministry of Environment and Climate Change remain notably low, highlighting the need to recruit and train personnel who can actively monitor and combat deforestation on the ground,” he said.  

Role of Indigenous Peoples 

There have long been concerns that Indigenous Peoples have been allowed too small a role in addressing the climate and nature crises, both in terms of benefitting from carbon sequestration projects and use of sustainable agriculture techniques to preserve biodiversity.   

These issues were among several addressed in recommendations published last week by the Taskforce on Nature Markets (TNM), designed to be actioned by policymakers, market actors and citizens to catalyse a global nature economy where markets work for people and the planet. 

According to Stock, the significance of the recommendations “cannot be understated”, with the perspective of the TNM central to the IPDD’s engagements with the Brazilian government.  

The TNM’s recommendations include ‘securing improved economic benefits for nature’s stewards’ and ‘aligning public finance with the needs of an equitable, global nature economy’ as crystallised in the Kunming-Montreal Global Biodiversity Framework (GBF).  

Stock told ESG Investor the IPDD is actively engaged in discussions with Indigenous Peoples in Brazil to ensure their collective voice is reflected in the group’s activities and recommendations alongside investors.  

Progress in this direction has been encouraging, he said, noting that the newly established Ministry of Native People in Brazil has been actively engaged in advancing and protecting the interests of Indigenous Peoples in the country.  

“It’s evident that this ministry will play a significantly more prominent role in shaping government policy in Brazil compared to its status under the previous administration,” he added.

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