Tax incentives for planting forests in Brazil
Around 45 percent of all energy consumed in Brazil comes from renewable sources, reﬂecting the combined use of hydroelectricity (14.5 percent) and biomass (30.1 percent); the use of sugar cane in the internal renewable energy supply in 2006 represented 32.2 percent of renewable energy and 14.5 percent of total internal energy supply.
Until the decade of 1960 the deforestation was stimulated by the Brazilian government for mainly two reasons, to expand agricultural lands and to increase the supply of wood. Extra taxes were to be payed for areas that had forest in it. Things started to change when in 1965 was released the Forest Code of Laws, which established certain limits to the exploration of forests and when in 1967 was created the Brazilian Institute for Forest Development.
By understanding that Brazil needed more wood to continue expanding its economic growth and knowing that the native forests could not supply enough wood the state published a law in 1966 stablishing tax incentives for forest projects. These incentives allowed companies and people to save up to 50% of their due income taxes by investing in forest projects. Income taxes in Brazil for persons and companies range from 15% to 27,5% so the amount of money that could be invested in forest was relatively high. The law had the intention to stimulate the growth of Brazilian forests, but didn’t account for the final use of the forest. Since Brazil had by that time large amounts of wood that was extracted from native forests, planted forests was something new. Two exotic species that were largely planted back then remain until today the main species planted. Pinus and Eucalyptus adapted well for several reasons and account today for more than 90% of all planted forests in Brazil.
The main uses for wood in Brazil in the decade of 1960 and 1970 were for the reduction of carbon in the steel industry, production of trail sleepers used in the expansion of railways and construction of houses. Since the production of wood was entirely from native forests its price began to rise with the shortening of forests. Between 1968 and 1973 the annual planted area was between 100.000 and 250.000 hectares, number that rose to 450.000 between 1974 and 1982 and the final result was that nearly 6,2 million hectares of forests were planted. Before the law was active, Brazil had approximately 1 million hectares of planted forests. According to the ministry of the environment the investments totaled an amount of approximately US$ 10 billion during the period in which the law was active. In 1988 the tax incentive was removed by the government. The reasons for the removal were technical deficiencies in the forest plantation, distortions on the application of resources and flaws in forest inspections. Many forests were abandoned and many others resulted in low productivity since the tax incentive could only be used in the plantation. Forest plantations suffered a drastic reduction after the removal of the law.
The law stated that, to get the benefit only resources used to plant new areas were capable of being discounted in the due income tax, only big trees or fruit trees could be planted, minimum of 10.000 trees planted each year, trees planted needed to help soil and water conservation or have economic value and the forest project needed to be approved by the Agriculture ministry.
Current bioenergy policies in Brazil are guided by the Federal Government’s Agroenergy Policy Guidelines, prepared by an interministerial team. Linked to the overall policy of the Federal Government, the Ministry of Agriculture, Livestock and Food Supply has prepared a programme to meet the bioenergy needs of the country. The goal of the Brazilian Agroenergy Plan 2006–2011 is to ensure the competitiveness of Brazilian agribusiness and support speciﬁc public policies, such as social inclusion, regional development and environmental sustainability.
In my opinion this tax incentive permitted Brazil to develop its planted forests very fast but on the other hand the law could have also incentivized the investments in productivity rather than only in the total area planted. Another point is that today more than 90% of the area of planted forests is composed by either Pinus or Eucalyptys, which are exotic species. Eucalyptus is not such a big environmental problem since it won’t spread into native forest such as Pinus. If this law had stated that only native species could be planted, or even if a portion of the land should be of native species, maybe today we would have more planted areas and higher productivity of native trees.
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PINHEIRO, E. S. 2008. Estratégias e Mecanismos Financeiros para Florestas Plantadas. Available at http://www.fao.org/forestry/12075-06238d2267638fe1c5a6f26abaa6fb6ef.pdf [24.1.2016]
Servico Florestal Brasileiro. Available at http://www.florestal.gov.br/snif/recursos-florestais/as-florestas-plantadas [24.1.2016]