Dam Disaster Forces Bolsonaro into Environmental Rethink

April 23, 2019

After being elected by a comfortable margin on an unapologetically pro-business platform to de-regulate extractive sectors and relax environmental regulations, the Bolsonaro administration has been overtaken by reality and is currently facing an impasse.

During the presidential campaign, Bolsonaro repeatedly declared that one of the main incentives he would provide to the economy would be to “remove the state’s interference in productive sectors”, criticising the federal environmental agency IBAMA, which he accuses of having created an ‘industry of fines’ that drives investors away and generate multiple opportunities for corruption. After proposing to downgrade the Environment Ministry and transfer its functions to the Ministry of Agriculture – a clear message about his administration’s priorities – Bolsonaro backed down and appointed Ricardo Salles to head the ministry.

Outdated environmental laws

Yet Salles mirrors Bolsonaro’s views. So far, he has criticised IBAMA and FUNAI, Brazil’s indigenous affairs agency, proposed to replace environmental licensing proceedings for a system in which companies would self-declare their conformity to environmental standards and suspended all partnerships with environmental non-governmental organisations (NGOs). He has also threatened to strengthen controls over the activities of IBAMA’s environmental inspectors, which could dissuade these officials from enforcing environmental rules.

These proposals have worried NGOs and the general public but Bolsonaro and Salles may have a point. Brazil’s environmental legislation is widely perceived by business as being excessively bureaucratic. Moreover, it has created a culture of corruption and cronyism, exposing companies to facilitation payment requests to expedite proceedings or obtain permits without proper assessment studies. As a result, a strict and complex system has failed to protect the environment. Brazil’s tragic track record in mining dam collapses shows the current setup isn’t working. The 2015 Mariana tailings dam collapse, which killed 19 people in Minas Gerais state, came on the back of two other tailings dam failures in 2003 and 2007. Then this year, on the 25th of January, Brazil suffered the collapse of a tailings dam near the city of Brumadinho killing more than 200 people and causing substantial environmental damage.

The new administration’s diagnosis is accurate – environment protection rules are outdated. However, simply relaxing regulations or oversight would also create risks for businesses. Ultimately this would undermine Bolsonaro’s flagship goal of attracting foreign investment to the country.

Balancing the environment and the economy

Brazil’s economic recovery remains highly dependent on the success of its commodity industry, which has been rapidly developing new environmental protection standards. In order to have access to these markets, commodity producers must comply with increasingly rigorous rules. International buyers now put more emphasis on deforestation controls, waste handling, water quality and carbon management. With growing pressure from the public opinion and scrutiny from civil society groups, these standards are likely to become more stringent and ubiquitous in the near future, undermining the competitiveness of markets that fail to abide by these rules. As multinational companies face growing scrutiny over their supply chains, they transfer their operations to jurisdictions with more advanced environmental regulations.

In this context, commodity producers in Brazil have been seeking to go above and beyond existing regulations to improve their supply chains in order to continue to have access to global markets. For example, over the last decade beef and soy producers, two of the country’s main exports, have successfully introduced a number of intensification methods such as multiple cropping systems, that reduce deforestation and also increase profit margins.

business and sustainability are not mutually exclusive…

In October 2017, after Bolsonaro announced his intention to downgrade the Environment Ministry, the then minister of agriculture and owner of Brazil’s largest soy producer, Blairo Maggi, strongly criticised the measure. He argued that the agriculture sector’s recent efforts to demonstrate its sustainability to international markets could be undermined. Maggi’s reaction highlights the mismatch between the real needs of business and Bolsonaro’s rhetoric. The former is arguing that business and sustainability are not mutually exclusive. Thus, Bolsonaro’s stance is likely to gradually shift over the next months to a more nuanced approach that aims to appeal to international investors and respond to the sobering experience of another major environmental disaster.

Reality kicks in

The first step Bolsonaro took to tone down his fiery rhetoric against environmental regulations came during his speech at the World Economic Forum on 22 January. While he claimed that the country’s natural resources are open for business, he moderated his previous views by stating that his “mission is to balance environment and biodiversity with economic opportunities”. The message to international businesses signalled that his administration recognises the importance of having robust environmental standards to access global supply chains, although how this will work in practice remains to be seen. The second, and certainly more consequential step, will be the government’s response following the Brumadinho tragedy. Major reforms in the sector, such as the long-awaited approval of the Environmental Licensing Law (Bill 3,729), which streamlines procedures for extractive projects with minor potential for environmental impact, and gives greater autonomy for state-level agencies to approve less-intensive projects, are very unlikely to be approved in the short-term. Focus will likely shift to improving environmental oversight. And that could ultimately increase the country’s attractiveness to foreign investors.