Federal Environment Agency (“IBAMA”) v. Indústria, Comércio e Exportação de Madeiras Floresta Verde Ltda.

On February 4, 2019, Brazil’s Federal Environment Agency (“IBAMA”), filed a public civil action (environmental class-action) against Indústria, Comércio e Exportação de Madeiras Floresta Verde Ltda. seeking compensation for environmental and climate damages based on an infringement notice for illegal wood storage without an environmental license. This public civil action is part of a set of 9 lawsuits brought by IBAMA on the same grounds, but against different defendants, to question illegal wood deposits and climate damage. The plaintiff alleges that the storage of wood without proven origin is associated with illegal deforestation and predatory exploitation in the Amazon biome. Thus, it seeks reparation for environmental damages provoked by it, including (i) the damage caused to flora and fauna, (ii) soil erosion, (iii) contribution to global warming. As for the climate damage, it claims that the unlawful conduct not only removed carbon sinks from the forest, but also caused the release of carbon into the atmosphere. The plaintiff seeks redress through the determination of (i) an obligation to restore the vegetation in an area equivalent to that estimated by IBAMA, based on the volume of logs seized, amounting to 96 hectares - counted from the volume of 3,359.993 m³ of forest products stored, which was considered equivalent to 9,599.99 m³ of roundwood-, ideally in an area of the same biome in Indigenous Land, Conservation Unit or Agrarian Reform Settlement Project and (ii) an obligation to pay the climate damage based on the Carbon Social Cost (CSC). It claims, based on the polluter pays principle, that the climate damage represents an external social cost that has not been internalized by the illegal deforestation, leaving it to society. It also argues that climate damage can be quantified on an individual scale by multiplying the estimated GHG emissions of the activity by the CSC. In the present case, IBAMA uses the Amazon Fund methodology to estimate emissions based on the area of the Amazon biome considered deforested, totaling 35,232 tons of carbon. The plaintiff requests, as a matter of urgency: (i) suspension of financing and tax incentives and access to credit lines of the offender, (ii) unavailability of assets in the estimated amount for the obligation to do plant recovery and the obligation to pay the climate damage, and (iii) judicial embargo of the illicit polluting activity. It affirms the need for reversal of the burden of proof and, definitively, requests the defendant's conviction in the obligation to do, to restore an area equivalent to that deforested, and obligation to pay, in the amount related to the social cost of carbon. In a preliminary decision, the court rejected the injunction, considering that there was no urgency of the provision or danger in delay. The defendant filed a reply to the indictment stating that the initial claim for compensation for environmental damages was inaccurate, arguing that the liability has not been proven and questioning the amount of the calculated damage. It also claimed that the environmental agents had gotten the quantity of timber stored wrong and , therefore, that the defendant did not have illegal wood deposit. It also questioned the methodology used by IBAMA to calculate the environmental damage based on the Social Cost of Carbon, stating that there was no possibility of really individualizing the alleged damage. Finally, it requested the dismissal of the case without resolution on the merits or the judgment on merits rejecting the complaint. IBAMA filed a reply challenging the points raised in the opposition, and attached Technical Information No. 10/2019-COREC/CGBIO/DBFLO, which explains how the calculation is made to arrive at the amount of compensation sought regarding the application of the Social Cost of Carbon (CSC). The court ruled the claim in advance, partially accepting the initial petition requests. The Federal Judge understood that the materiality and authorship of the environmental offense had been proven by the work of IBAMA agents - inspection report and photographic report presented. It considered that the defendant's conduct caused damage to the community, including loss of soil nutrients, effects on the local population, loss of natural capital, increase of carbon dioxide in the atmosphere and decrease of water availability, accepting the request for condemnation to pay for the social cost of carbon. He argued that the amount to be paid should be fixed based on the severity of the damage, the degree of guilt of the offender and the socioeconomic size of the defendant. Thus, he understood that the damage in question is relevant and that the defendant has a high degree of guilt. He ordered the defendant to recompose 96 hectares through the preparation of a reforestation plan, according to the conditions established by the court; to pay the amount of R$1,000,000.00 on the basis of the social cost of carbon, by depositing it in a judicial account; and to the loss or suspension of the defendant's participation in financing lines offered to official credit establishments and the loss or restriction of access to incentives and tax benefits offered by the Government. The defendant submitted an appeal in the execution phase of the proceedings, alleging the unenforceability of the order, requesting the annulment of the decision that converted the obligation to do into losses and damages.