Case Name: IBAMA vs. Madeireira Madevi (Timber deposit in Santarém and climate damage)

Summary

This is a Public Civil Action, with a request for urgent relief, filed by IBAMA against Madevi LTDA seeking compensation for environmental and climate damages caused by the storage of timber without an environmental license. This Public Civil Action is part of a set of 9 actions filed by IBAMA with the same grounds, but against different defendants, to challenge illegal timber storage and climate damage. The plaintiff alleges that the storage of timber without proven origin is associated with illegal deforestation and predatory exploitation in the Amazon biome. Thus, it seeks compensation for associated environmental damages, including (i) damage caused to flora and fauna, (ii) soil erosion, (iii) contribution to global warming. Regarding climate damage, it claims that the illegal conduct not only removed carbon sinks from the forest but also caused the release of carbon into the atmosphere. The author seeks to have determined (i) an obligation to restore vegetation in an area equivalent to that estimated by IBAMA, based on the volume of seized logs, totaling 29.57 hectares, and (ii) an obligation to pay for climate damage based on the Social Cost of Carbon (SCC). Based on the polluter-pays principle, the author argues that the negative climate externality represents an external social cost that was not internalized by the illegal vegetation suppression activity. The author maintains that climate damage can be identified on an individual scale by multiplying the estimated GHG emissions from the activity by the SCC. In this specific case, IBAMA uses the Amazon Fund methodology to estimate emissions based on the area of the Amazon biome considered deforested. The author expressly mentions environmental justice and argues that accountability for climate damage consists of legally affirming the correction of the distortion of environmental burdens and benefits. The author requests, as an urgent measure: (i) suspension of financing, tax incentives, and access to credit lines for the offender, (ii) freezing of assets in the estimated amount for the obligation to restore vegetation and the obligation to pay for climate damage, and (iii) a court order to halt the illegal polluting activity. The author further asserts the need for reversal of the burden of proof and, definitively, requests that the defendant be ordered to restore an area equivalent to the deforested area and to pay the amount corresponding to the social cost of carbon emissions.

The judge issued a preliminary injunction partially granting the request for an injunction regarding the freezing of the defendant company's assets, the suspension of the defendant's participation in financing programs, and the suspension or loss of tax incentives or benefits, given the strong evidence of damage and the duty to repair it (probability of the right) and of
The danger of jeopardizing the useful outcome of the process (ensuring reparation) is a factor. However, at this time, the use of the Social Cost of Carbon (SCC) for the purpose of ordering the freezing of assets was deemed unfeasible due to a lack of technical support, and the amount requested appeared, at first glance, to be disproportionate.
IBAMA filed an interlocutory appeal (AI 1004508-40.2019.4.01.0000) requesting the inclusion of the value related to the Social Cost of Carbon (CSC) in the declaration of asset unavailability, considering the soundness of the methodology used as a reference for its quantification. It argues that to fully compensate for the environmental damage caused, it is necessary to include the social cost of carbon, which is classified as "residual damage" or "permanent damage".

An initial conciliation hearing was held in which the parties expressed interest in formalizing an agreement, although they did not have a prepared proposal.

In its defense, the defendant alleged a violation of the principle of due process in the administrative proceedings to investigate the environmental infraction and the absence of a causal link for imputing liability. Furthermore, it argued that using the social cost of carbon to quantify the damage implies unjust enrichment, since the extraction of forest products is conduct unrelated to its business activity.

A new hearing was held, during which the defendant presented a settlement proposal. IBAMA disagreed with the settlement offer because it only addressed the obligation to compensate for environmental damage, making no mention of the need to restore the degraded area, and requested that the proposal be supplemented. Therefore, the defendant submitted a new proposal, which is currently under review by IBAMA. Consequently, a new conciliation hearing was scheduled to reach an amicable solution to the dispute.

The defendant did not appear at the hearing, and the court deemed the attempt at amicable settlement unsuccessful. At the time, IBAMA argued that an agreement was not possible since administrative proceedings had already taken place, and this option was rejected.

A judgment of partial merit was rendered, condemning the defendant for environmental damages resulting from the irregular dumping of timber 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 timber was acquired illegally, through the improper use of forestry credits in the traceability system, without proof of the origin of the forest product, characterizing an environmental infraction. The obligation to recover the degraded area was converted into monetary compensation, according to established technical parameters. The court imposed the loss and suspension of tax incentives, as well as prohibiting participation in public financing programs until the environmental liability is regularized. The request for compensation for climate damages was rejected due to the lack of reports or technical studies to justify the amount to be imposed.

IBAMA filed a motion for clarification arguing that the judgment was incomplete regarding the application of the CNJ Protocol for judging environmental actions, which was acknowledged and dismissed by the court.

Subsequently, IBAMA filed an appeal arguing, on the merits, the obligation to pay the Social Cost of Carbon (CSC). Upon discovering that the defendant had deposited forest products without the proper certification of origin, it argued that there had been illegal suppression of vegetation in the Amazon biome and carbon emissions, which is why the polluting enterprise should internalize the resulting social cost. It maintained that the methodology for calculating the social cost of carbon is referenced by the Environmental Protection Agency (EPA) and allows for pricing the values for climate damage, indicating a value to be imputed for environmental remediation for each ton of greenhouse gas emitted irregularly. Climate damage can be identified on an individual scale by multiplying the estimated GHG emissions at the source by the CSC and, for initial estimation purposes, adopted the OECD-stipulated carbon price per ton as a midpoint for estimation (to be verified during the investigation). It was indicated that the official standards of the Amazon Fund, based on Brazilian legislation and international conventions, allow for the identification of how many tons of greenhouse gases are produced from the suppression of 1 hectare of vegetation. This methodology, in the specific case, requires the conversion of the volume of wood found to the area measured in hectares, making it possible to determine the area in hectares and the tons of carbon released, and finally, to assign values to the emissions. It was further argued that the CNJ Protocol for the Judgment of Environmental Actions (CNJ Recommendation No. 145/2023, established in collaboration with Resolution 433/2021) recommends the application of the Social Cost of Carbon to the methodology for calculating climate damage and acknowledges that there is sufficient literature to support this application. It was requested that urgent provisional relief be granted to uphold the preliminary injunctions requested in the initial petition, as well as the consequent freezing of the defendant's assets and a civil injunction against all illegal polluting activity.

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Main norms mobilized

• Article 225 of the Federal Constitution (CRFB/88)
• National Environment Policy Act - PNMA (Federal Law 6.938/1981)

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