Federal Environment Agency (IBAMA) v. Madeira Nova Aliança Ltda.

In January 2019, Brazil’s Federal Environment Agency (“IBAMA”), filed a public civil action (environmental class-action) against Madeira Nova Aliança 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 30.46 hectares, 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) in the amount of R$ 2,957,915.77 . It claims, based on the polluter pays principle, that the climate damage represents an external social cost that is not 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 this case, IBAMA uses the Amazon Fund methodology to estimate emissions based on the area of the Amazon biome considered deforested, summing up to 11,178.82 tons of carbon. The plaintiff requests, as an injunction: (i) suspension of financing and tax incentives and access to credit lines by the offender, (ii) unavailability of assets in the estimated amount for the obligation of the vegetation restorage and the obligation to compensate the climate damage, and (iii) judicial restraint order of the illicit polluting activity. On the merits, it requests the defendant's conviction in the obligation to do - to recover an area equivalent to that deforested - and the obligation to pay - in the amount related to the social cost of carbon. In a preliminary decision, the court partially granted the injunction, considering that the danger of delay was evident, especially in view of the fragility of the ecologically balanced environment. Thus, it granted and ordered (i) the suspension of the right to participate in financing lines offered by official credit establishments and (ii) the restriction of access to tax incentives and tax benefits offered by the Government in the three spheres of the Federation. However, the Federal Judge stated that, for the time being, the use of the Social Cost of Carbon (SCC) for the purposes of decreeing the unavailability of assets was not feasible due to the lack of technical subsidies, and that the amount requested was, at first glance, disproportionate. IBAMA then filed an interlocutory appeal (AI 1005432-51.2019.401.0000) requesting the inclusion of the amount related to the CSC in the declaration of unavailability of assets, considering the soundness of the methodology used as a reference for its quantification. It argues that in order to fully recover the environmental damage caused, it is necessary to include the social cost of carbon, which appears as "residual damage" or "permanent damage". In response, the defendant alleged the ineptitude of the initial petition as well as the incompetence of the court, which they mention should be the same as the place of the damage. It also claimed the absence of a causal link between its conduct and the alleged damage. 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 in relation to the application of the Social Cost of Carbon (CSC). In October 2024, a partial judgment was handed down ordering the defendant company to (i) present a Degraded Area Recovery Project (PRAD); (ii) pay material damages in the amount of R$327,201.32; (iii) suspend the Rural Environmental Registry (CAR) of the area until the damage has been fully recovered; and (iv) maintain the suspension of participation in financing lines. In summary, the ruling confirmed the preliminary injunction without, however, addressing the requests for payment of compensation for the social cost of carbon.