Ecological ICMSA Genuine Brazilian Incentive for Conservation

Originated in Brazil in the early 90's, the “Ecological ICMS” (or ICMS-E) is a pioneer environmental

fiscal instrument, designed to reward local governments that promote conservation of biodiversity

and other environmental initiatives. To date the instrument has mobilized significant internal

funding for conservation and, if more widely adopted within Brazil, has potential to yield vastly greater amounts of

internal conservation funding going forward.

The ICMS is an acronym for Tax over Circulation of Goods and Services, similar to Value Added Tax levied

at the State level in various countries. Part of its proceeds are then reallocated back to municipal governments which

have protected areas within their territories as compensation for the loss of revenues pursuant to designation of

these protected areas. The ICMS-E is intended both as a compensating mechanism and as an incentive, encouraging

not only better management of existing protected areas, but also the designation of new conservation areas.

The instrument was introduced by the State of Parana in 1992, and it is estimated that in Paraná alone the

instrument has generated about U$170 million towards conservation in about 14 years and it has increased by 158%

the number of protected areas in the state. Since then, the ICMS-E has also been introduced in nine other Brazilian

States, also yielding significant conservation benefits and ancillary socio-economic benefits in those states. As an

other example, the Minas Gerais State, in its firts three year period the instrument generated about US$17,4 million,

benefiting protected areas in about 217 Municipalities.

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What are its objectives?

How does it work?

The ICMS-E is a compensatory

fiscal instrument meant to:

ÜCompensate municipalities

that have protected areas within

their territories for the resulting

loss of revenue;

ÜDevelop new mechanisms of

environmental management to

c o m p l e m e n t t r a d i t i o n a l

Command and Control instru-

ments;

ÜStimulate the creation of new

protected areas to conserve

biodiversity;

ÜRecompense municipalities

for the environmental services

they supply;

In some States, this instrument

also attends to some other

environmental criteria, such as:

Protection of water supply sources

and improved water quality;

Sanitation and treatment of solid

waste and sewage;

The ICMS literally, Tax over

Circulation of Products and

Services, is an indirect tax, similar

to the added value tax existing in a

few other countries and falls over

consumption of products and

services. Its introduction in Brazil

dates back from the 1950's. It is

basically a tax intended to raise

funds for the States, being,

therefore, the most important tax

at the State level. Today, it,

accounts for over 90% of fiscal

revenues for State governments in

Brazil.

Under the Brazilian Federal

Constitution (1988), 75% of

ICMS receipts are allocated to

state governments and 25% to

Municipalities. Of the latter

share, that is, from the 25%

allocated to Municipalities, 75

percent are distributed according

t o v a l u e a d d e d b y t h e

Municipalities. For the remaining

25 percent, Municipalities have

the flexibility to distribute

according to criteria defined by

each State.

Federal legislation opened a

window of opportunity for States

to decide how to best distribute

the fiscal revenues from the States

added value tax. It was through

this opportunity, that States began

to introduce complementary state

laws selecting and regulating

criteria that would establish

revenues allocation to comple-

ment and reward Municipalities

commitment to the environment

and other basic life quality

activities.

Despite its success, ICMS-E still

has not been adopted in several

states that harbor some of Brazil's

richest and most threatened

biodiversity. The States of Santa

Catarina, Bahia, and Alagoas

harbor some of the most precious

remaining fragments of Brazil's

Atlantic Rainforest one of the

Current Situation

world's top five “hotspots” of

threatened biodiversity, of which

just 7% remains. The State of

Ceará harbors both Atlantic

Rainforest remnants as well as the

largest area of “caatinga” the arid

scrublands of northeastern Brazil,

also one of Brazil's most threate-

ned ecosystems.

Adoption of ICMS-E within

these States would yield enor-

mous benefits for conservation of

these ecological treasures and for

poor rural communities whose

livelihoods are integrally bound

with conservation of these

ecosystems.

According to TNC assessments

To date, the primary reasons that

these States have not adopted the

ICMS-E are :

lack of technical, quantified

information about (and thus

awareness of ) the specific

benefits that ICMS-E adoption

would yield to these states and

consequently the lack of a suffici-

ently strong constituency for the

instrument .

What does the ICMS-E bring to the front? Main results:

Some new opportunities

T h e A t l a n t i c F o r e s t

Conservation Program believes

that the ICMS-E is a strong

incentive for the creation of new

protected areas, therefore, is a

powerful instrument to support

TNC 2015 goal. By working with

State governments and other

organizations with significant

interest in the working of this

instrument, some of the expected

results are:

ÜIncrease in the number and

surface of Protected Areas in

important conservation areas;

Ü Improvement in the quality

of Protected areas, through

enhanced public funds channe-

led to them;

ÜInstitutional strengthening

of Environmental State and

Municipal Agencies;

ÜPositive impact on municipal

finances, through more funds

entering the public budget;

ÜIntroduction of the environ-

mental agenda in small towns;

ÜImprovement of the relations

of surrounding communities

with the Protected Areas and

their staff;

ÜPotential positive impacts on

the quality of life of traditional

people;

ÜICMS-E has been a harbin-

ger of new partnerships

between public and private

actors for conservation purpo-

ses.

Again, positioning itself as the

pioneer, the State of Paraná has

started a new mechanism to

actually transfer some of the

ICMS-E revenues directly to

private reserve landowners. Lead

by a regulation in the State

legislation, that authorizes the

private reserve landowner to

request an exclusion of it's

reserves part in the ICMS-E total

amount transferred to the

Municipality, the Mayor has a

strong motivation to negotiate

with the landowner, and through

the State Association of Private

Reserve landowners, the sharing

of this ecological tax revenues.

As an example of its potential,

the seven landowners who receive

these benefits received a total

amount of US$ 86,710 in 2005.

The Conservancy is working

with partners to promote adop-

tion of the instrument within

Brazilian States that are still

pending adoption of this impor-

tant conservation incentive/tool.

The work that TNC is leading

involves the following activities:

ÜAnalysis and assessment of

present political and environ-

mental situation of States;

ÜIdentification of all key

stakeholders and institutional

actors affected by and essential

to ICMS-E adoption and

development of ICMS-E

learning network

ÜAssessment of conservation

status and protected area

coverage within these States

and conservation needs in

terms of unprotected high

priority conservation target

areas

ÜLegal and fiscal analysis

assessment of appropriate legal

strategies for adoption of

ICMS-E within these states

and analysis of fiscal impact

ÜModel building based on

above analyses, creation of

ICMS-E models (for each

target state that) would yield

precise information on conser-

vation, socio-economic and

fiscal effects of ICMS-E

adoption in these states,

fol lowed by s takeholde r

workshops to present and

refine the ICMS-E models

TNC'S role in promoting the use of ICMS-E

ÜOutreach - dissemination of

model results highlighting

ICMS-E benefits and deve-

lopment and distribution

within these States of educatio-

nal materials on ICMS-E

ÜSpread information about

ICMS-E; educate stakehol-

ders; political turnover is high,

and newcomers are not familiar

with the instrument.

ÜBring ICMS-E adoption to

all 17 Brazilian States of

Atlantic Forest of Brazil;

ÜIncrease the ecological share

of ICMS allocations.

ÜRaise the level of current

ICMS share to environmental

purposes rather than other

areas, like basic sanitation.

ÜQuality factor: there is great

need to improve table of

valuation of green areas x other

areas in order to better reward

those that are better;

ÜResources for lobbying and

technical consultations.

Challenges for the future:

FOR MORE INFORMATION, PLEASE CONTACT:ATLANTIC FOREST

CONSERVATION

PROGRAM

CURITIBA, PARANÁ,

BRAZIL

Fernando Veiga, Coordinator, Environmental Servicesfveiga@tnc.orgDenise Levy, Coordinator, Private Lands Protectiondlevy@tnc.orgMiguel Calmon, Director mcalmon@tnc.org

Address: Alameda Julia da Costa, 1240, Bigorrilho, Curitiba, BrazilZip code: 80.730-070