Brazil’s largest carbon credit scandal, which came to light in June after a major police raid, has cast doubt on the viability of REDD+ projects in the Brazilian Amazon. The initiatives targeted by the Federal Police’s Operation Greenwashing were settled in land-grabbed areas, and its owners were part of an illegal logging organization suspected of extracting the equivalent of 38,000 truckloads of wood, authorities said.

Mongabay first revealed the links between Brazil’s largest carbon credit projects and a group of illegal loggers, publishing a yearlong investigation a few weeks before the police raid. Following the operation, Verra, the largest registry of the voluntary carbon market, suspended the projects under investigation, and authorities recommended shutting down all ongoing and future REDD+ initiatives in the state of Amazonas, where the fraud took place.

REDD+, which stands for reducing emissions from deforestation and forest degradation in developing countries, consists of paying landowners to protect an area that could otherwise be deforested. Emissions avoided as a result of this effort can then be sold as carbon credits, and companies buying them can tell their clients and investors that they’re “offsetting” their carbon footprint.

Brazil’s carbon market is not legally regulated, so most projects rely on guidelines designed by entities like Verra.

The intricate rules of Verra’s registries created a market opportunity for so-called developers, companies specialized in calculating deforestation baselines and conducting all the bureaucracy of registries and audits.

One of these companies is Carbonext, Brazil’s largest carbon credit generator. Partially owned by the oil giant Shell, it developed Fortaleza Ituxi, Unitor and Evergreen projects, all targeted by the Federal Police in Operation Greenwashing and owned by São Paulo’s physician and entrepreneur Ricardo Stoppe.

A new Mongabay investigation, however, found that Carbonext’s alliances with loggers are not restricted to Amazonas state and seem to be part of the company’s business strategy in the Brazilian Amazon.

Mongabay looked at Carbonext’s four projects in the state with the highest deforestation rate, Pará, and found that all of them were developed in partnership with timber entrepreneurs. Their roles in the REDD+ initiatives range from official proponents to owners of the land where the projects are being developed and Carbonext brokers who deal with local communities.

Together, Carbonext partners racked up 28.8 million reais ($4.8 million) in environmental fines, mostly related to transporting and selling illegal timber, according to authorities.

“When we see that developers are partnering with people who are deforesters, it ends up bringing a certain suspicion to bear on them,” federal deputy Thiago Marrese Scarpellini, chief investigator in Operation Greenwashing, told Mongabay.

These Carbonext’s projects, Caapi, Awa, Ybyrá and Cikel, are located up to 400 kilometers (248 miles) from Pará’s capital, Belém. Except for Awa, which is developed in Quilombola territories (occupied by descendants of enslaved Black people), all take place on private properties.

As in Stoppe’s case, two of these projects include areas of sustainable forest management, a system in which timber is supposedly cut and sold under stringent environmental regulations, but leaves loopholes for illegal logging schemes.

“There are several forest management plans in areas where there are also carbon credit projects. It’s all very mixed up,” Ione Nakamura, a public prosecutor working on Pará’s land issues, told Mongabay.

In a statement sent to Mongabay, Carbonext said that 14 of the 32 individuals and companies mentioned in the investigation have no contractual relationship with the company, and that the other 18 meet all the legal requirements. The company also states that its due diligence “is as robust as possible,” and analyzes 52 different documents. Read the full statement here.

Both sides of the counter

One of these projects was created by the Pereira Dias family, which owns two sawmill networks in eight states across Brazil. The growth of this timber empire has left behind a trail of environmental fines: Since the 1990s, Brazil’s environmental agency, IBAMA, has registered 50 penalties totaling more than 15 million reais ($2.5 million).

In 2006, the family decided to “diversify its business beyond wood products,” initiating plans to legally deforest 20% of their lands in Paragominas municipality to open space for cattle ranching. A total of 27,434 hectares (67,790 acres) of forest, an area almost five times the size of Manhattan, would be put on the ground legally — Brazil’s Forest Code says Amazon landowners can clear up to 20% of their land.

However, the approval of a REDD+ project and the sale of carbon credits persuaded the family to suspend deforestation plans and keep selective logging in the area; the same activity earned them a long history of environmental violations. That is how the Cikel project, currently part of Carbonext’s portfolio, was born.

“It’s the same sector; they’ve just changed their marketing strategies to make money,” said Nakamura, referring to loggers and REDD+ owners in general. “Then there’s this discussion: ‘I’m going to stop deforesting here, so you pay me to stop deforesting.’ And some people buy this idea and are willing to pay for it.”

Cikel was registered with Verra in 2020 as CKBV Florestal, one of Pereira Dias’ timber companies. When Carbonext officially joined the project in 2023 as the proponents’ technical support, “administrative changes” led to the replacement of CKBV by a new organization called CBNS Negócios Florestais S/A, which has no environmental fines background.

“We don’t believe that people with an extensive criminal record on environmental issues, sometimes for more than a decade, are simply going to turn the key to start carrying out projects to keep forests standing,” the federal deputy Scarpellini told Mongabay. “It’s just a way they’ve figured out how to generate profit. As has already been seen in other situations, they often continue to promote deforestation, either in the same area or in neighboring areas.”

In a statement sent to Mongabay, Cikel’s owners said CKVB operates lawfully and was a pioneer in sustainable timber certification by the Forest Stewardship Council. The company also claims that eight infraction notices issued against CKBV between 2004 and 2020 were annulled or canceled in the course of the administrative process. Read the full statement here.

According to Verra, Cikel issued at least 2,824,810 carbon credits from 2012-24. Verra doesn’t disclose the complete list of buyers. Among those made public, however, its top clients are the British Ecologi Action and the French Reforest’Action, both of which offer climate solutions for private companies. Cikel also has clients such as the Brazilian investment bank BTG Pactual and the major U.S. airline Delta Airlines.

Ecologi Action said it bought an “incredibly small proportion” of Cikel’s credits years ago but that it stopped the purchases in October 2021 (read the full statement here). A Reforest’Action spokesperson told Mongabay that it no longer has any ties with this project since it started developing its own carbon initiatives in 2021 (read the full statement here). BTG Pactual declined to comment, and Delta Airlines didn’t respond to Mongabay.

Caapi REDD+, which is still pending Verra’s approval, is also owned by entrepreneurs who have exploited timber in the area. Occupying 33,766 hectares (83,437 acres) in the municipalities of Paragominas, Ipixuna do Pará and Tomé-Açu, it is owned by Josmar Gilson and Jose Gilvan de Oliveira Matogrosso Costa, who account for 38 IBAMA fines amounting to 3 million reais ($500,000). They didn’t respond to emailed questions and text messages.

“Who is this group that has made money doing a lot of things that we consider bad and is now entering this carbon market as a partner, an intermediary, and is making money from climate change?” asks Shigueo Watanabe Junior, a senior climate policy specialist at the Brazilian think tank Talanoa Institute. “I think it’s a shame.”

In an email sent to Mongabay, a Verra spokesperson stated it “continuously strives to uphold the highest standards of compliance with all local and national laws and regulations.” According to the organization, a project can be reviewed if there is information on any irregularities. Read the full statement here.

Intermediaries on the ground

For 12 years, the sawmill Hadex, currently known as Benevides Group, exploited timber in 12 Quilombola communities in Gurupá, a Pará municipality on the shores of the Amazon River.

According to the company, which registered 11 IBAMA fines totaling 3.6 million reais ($600,000), the project helped develop the communities while keeping the forest standing and became an “example to other regions.”

For some Quilombolas who spoke to Mongabay, however, the company left a legacy of deforestation and little money for the community. “They say they have a green seal, that they protect, that they reforest,” a resident from one of the communities told Mongabay. “But in reality, what they did a lot was take the trees out. They didn’t reforest,” said the community member, who declined to be identified for security reasons.

In a statement to Mongabay, Hadex said all of the cases are now closed and disputed the information on IBAMA’s system, according to which just one of them has been canceled (another five have been paid and four await the end of the administrative process). The company also said it had never received any complaints from the communities.

By the end of the forest management contract, Hadex representatives presented another project to the association representing the Quilombolas, ARQMG. “The owner of Hadex said there was a carbon company that he knew and that wanted to make a proposal to enter the area,” said the resident.

The timber company’s role in brokering the carbon deal is also registered in a publication financed by the Benevides Group. The publication reproduced a quote from ARQMG’s president, Francisco Ramos Muniz. “We are now working on a carbon project within the 83,000 hectares [205,000 acres], a negotiation that our board has already made with Benevides,” Muniz told the publication.

However, not all the community members agreed with the project. As shown by the Brazilian news outlet O Joio e o Trigo, which visited the area, several people didn’t understand the term “carbon credits” and feared losing autonomy over the territory.

But that didn’t prevent ARQMG from signing a contract with Carbonext in 2022 for the development of Awa REDD+, which covers 80% of the Quilombola territory and is still pending approval by Verra.

In an email to Mongabay, Hadex said it has no relationship with Carbonext or the REDD+ project. According to the company, Quilombolas asked them to recommend a partner to develop a carbon project, and Hadex just provided the contact details of the Campo Verde Agency, Carbonext’s partner in the Awa project. “From then on, this brokerage firm [Campo Verde] looked for commercial partners for the community, and introduced them the company Carbonext.” Read Hadex’s full statement here.

Campo Verde, based in Paragominas municipality, describes itself as a commercial real estate agency, and states one of its purposes is connecting rural landowners to payment for environmental services initiatives.

“Do you want to turn your rural property into an example of sustainability and increase its market value? Contact the Campo Verde Agency,” the company wrote on Instagram.

Campo Verde, which states the Quilombola communities were consulted beforehand, is run by a group of lawyers, politicians, engineers, rural producers and sawmill owners (which Campo Verde says are inactive). One of Campo Verde’s partners, for example, is Adnan Demachki, Paragominas’ mayor from 2005-12. He became known for leading an initiative that reduced deforestation numbers and pulled the municipality out of the top-deforesters list. Later, he became Pará’s economic development secretary.

Justiniano de Queiroz Netto, who worked with Demachki at the municipal and state levels, is also on the company’s board. Netto is a lawyer and was previously the executive secretary of Pará’s Timber Export Industries Association and is a partner in two sawmills — according to Campo Verde, the companies have been inactive for more than 20 years.

Also originating from the timber industry is Osmar Scaramussa, who had a sawmill active until 2015 and is now a well-connected farmer in Paragominas.

Campo Verde is also a Carbonext partner in Ybyrá REDD+, which is expected to be launched soon, according to Carbonext’s website. The initiative accounts for 74 rural properties owned by 46 ranchers, totaling up to 76,481 hectares (189,000 acres) in the municipalities of Paragominas, Ipixuna do Pará, Tomé-Açu and Ulianópolis.

Nine of these landowners are sawmill owners who have been fined repeatedly for exploring and selling illegal timber or inserting fake information in the federal control system — an irregularity usually associated with timber laundering, when illegal wood is sold as if it were legal.

Despite their environmental fines, they state In Verra’s registering documents that they would work for the “protection of endangered species,” to “recompose small degraded areas” and to “promote the connectivity between forest fragments with the creation of ecological corridors.”

According to Campo Verde, just one of the Ybyrá’s landowners remains in the timber business, and the project is already implementing various conservation actions, such as the formation of fire brigades and the creation of ecological corridors (read the full statement here).

Reputational risks

Carbon developers should look for partners on the ground for very practical reasons. One is the challenge of finding private properties with standing forests in the Brazilian Amazon, especially in the region known as the deforestation arc on the southern border of the Amazon.

This area has the highest deforestation pressure and is, therefore, more suitable for REDD+ projects since no one would pay carbon credits for someone “protecting” a forest in an area with no deforestation threats.

Another reason to look for intermediaries is that most developers hold headquarters far from the Amazon, in major financial centers such as Rio de Janeiro and São Paulo, and have little or no experience on the Amazon ground.

“They don’t know the territory, so they have to find partners who can do the deal for them,” said Talanoa’s Junior. “But when a company goes to do a deal like this somewhere, it knows it will be associated with people with a significant track record. It’s a risk they’re taking.”

According to Junior, the failure to assess their partners’ environmental records jeopardizes the reputation of everyone involved in the REDD+ business, including the companies buying the carbon credits.

“When I buy credit for a project, I’m putting my reputation on the line because I will show it to my shareholders and stakeholders. Although we’re talking about reducing emissions, reputation’s at stake.”

Partnering with loggers, where the illegality rate is close to 70%, makes the risks even higher. “There are serious management plans, but much of the logging that goes on in the Amazon is still illegal,” André Guimarães, executive director of the Amazon Environmental Research Institute, IPAM, told Mongabay. “So a carbon project linked to a logging activity requires double, triple attention.”

In November, the Brazilian Congress approved a regulated carbon market similar to a cap and trade system. In this model — adopted by the European Union, for example — companies emitting more greenhouse gases than allowed may buy credits from those emitting fewer than their limits. This framework usually does not include credits from REDD+ projects.

In Brazil, however, the pressure from developers operating in the Amazon allowed part of these credits to be supplied from the voluntary market, including REDD+ projects. According to Junior, from Talanoa, this permission would dampen credit values and decrease the motivation for companies to actually reduce their emissions.

“REDD+ credit will always be cheaper, so it will take the entrepreneur a lot longer to do his homework because he will always be able to buy cheap credit,” Junior said. “And for the project developer, it’s wonderful; he finds a captive market here in Brazil.”

It’s not clear to which extent and under what rules these credits will be accepted. The bill still must be sanctioned or vetoed (partially or totally) by President Luiz Inácio Lula da Silva, and, after becoming law, it will need regulation. In the meantime, Amazon states are working to approve their own REDD+ legislation. In late September, Pará state announced the “world’s largest” carbon credit deal, surprising traditional communities that weren’t previously consulted. While public administrations struggle to set their frameworks, private companies keep operating in the regulatory vacuum.

“And then the mess begins. Nobody really knows if these projects are actually distributing benefits, if they are really fixing carbon, if there is additionality or permanence,” Guiamarães said. “These projects are not transparent. If a company wants to spend money on carbon cowboys to do public relations and doesn’t give a damn about the planet’s climate, don’t call it a carbon project to mitigate climate change.”

Banner image: Mongabay found that all Carbonext’s projects in Pará state were developed in partnership with loggers. Image courtesy of Vicente Sampaio/Imaflora.

CORRECTION (9/12/2024): A previous version of this article stated that the Brazilian Congress was still debating a bill to regulate carbon credit trading. The legislation was already approved by the publication of this story, and the post has now been corrected.

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