Federal Environment Agency (IBAMA) v. Madeireira Madevi Ltda.

In December 2018, Brazil’s Federal Environment Agency (IBAMA), filed a public civil action (environmental class-action) against Madeireira Madevi 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 29.57 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$ 2,871,48947. 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 10,852.19 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 1004508-40.2019.4.01.0000) 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". A first conciliation hearing was held in which the parties expressed interest in formalizing an agreement, although they did not have a proposal ready. In response, the defendant alleged a violation of the principle of due process of law in the administrative proceeding to determine the environmental violation and the absence of a causal link for imputation of liability. In addition, it argued that the use of the social cost of carbon for the purpose of quantifying the damage implies unjust enrichment since the extraction of forest products is a conduct unrelated to its business activity. A new hearing was held with the presentation of a settlement proposal by the defendant. IBAMA disagreed with the settlement offer because it only contemplated the obligation to indemnify the environmental damage, with no mention of the need to restore the degraded area, and requested the proposal to be complemented. Thus, the defendant submitted a new proposal that is under analysis by IBAMA. The defendant did not appear at the hearing and the court ruled that the attempt at self-composition had failed. At the time, IBAMA claimed that there was no possibility of an agreement since there had already been an administrative procedure, and this hypothesis was rejected. In March 2025, a judgment of partial upholding was handed down, condemning the defendant for the environmental damage resulting from the irregular deposit of wood, without proper proof of legal origin. The conviction was based on strict liability, imposing on the polluter the obligation to repair the damage caused to the environment, regardless of fault. It was proven that the wood was acquired illegally, through the improper use of forestry credits in the traceability system, without proof of the origin of the forestry product, characterizing an environmental violation. The obligation to recover the degraded area was ordered to be converted into monetary compensation, under established technical parameters. The imposition of loss and suspension of tax incentives, as well as a ban on participation in public financing lines until the environmental liabilities are regularized. The request for compensation for climate damage was rejected due to the lack of technical reports or studies to support the amount to be charged.