Biodiversity is Infrastructure

Originally published in Portuguese at Valor Econômico – 9/19/2024

Brazil’s strategy neither reduces poverty nor conserves biodiversity. The time for low-tech and low-convenience products is over.

If I ask someone to look at a photo taken at Legado das Águas, the largest private Atlantic Forest reserve in Brazil, managed by Reservas Votorantim, and ask them to respond where the infrastructure is, it’s hard not to say: the dam. For me, however, the forest is the main infrastructure. Antônio Ermírio de Moraes knew this 80 years ago, long before the Forest Code, when he acquired land around the Juquiá River to build hydroelectric plants and produce aluminum. The reasoning was simple: no forest, no water; no water, no energy; no energy, no aluminum. This decision proved correct over time. During the water crisis of 2014, São Paulo had to rush to build the São Lourenço System, a project costing over R$ 2 billion to divert water from the Juquiá River.

Forests, mangroves, and coral reefs should be seen as infrastructure. We all understand the economic value of infrastructure: it provides services and generates stable revenue. It requires large investments for construction, ongoing maintenance, and cannot be created quickly. It becomes a competitive advantage. In the case of this natural infrastructure, the limitations imposed by geography and climate make this advantage even greater. Even if a society has the space, technology, and resources to build a tropical forest, it cannot do so if it’s not in the right location. Otherwise, we would already have a replica of the Amazon in the United Arab Emirates.

Viewing biodiversity as infrastructure is legitimate due to the environmental services it provides: recycling, air and water purification, pollination, among others. Due to its location and size, Brazil captures most of the benefits of these services and this competitive advantage, both in terms of diversity and ecosystem extent. We have famous brands: Atlantic Forest, Pantanal, Cerrado, and Amazon are primarily associated with Brazil.

This brings us the responsibility for the cost of maintaining, particularly the territorial integrity and assets, but we have the right of first refusal on revenue generation. However, we have failed to generate revenue from this infrastructure.

Ecosystem services have value, but no price. Until 2021, when the CNAE for ecosystem services was created, the legal instrument for this payment didn’t even exist, and protected areas could be considered unproductive. These services will continue to be without price as long as the assets are difficult to integrate and the market difficult to operate. Their importance is local, but the price needs to be global.

As in other sectors, revenue generation is proportional to the energy and technology invested in differentiating the commodity. Brazil tries to capture the value of the forest with low technology, justifying this by involving traditional populations at risk, with the expectation that consumers will pay more out of guilt or ideology. This is contrary to what happens with other land uses. No other commodity, such as grains, meat, or oil, is exploited with low technology.

When we export biodiversity as a low-differentiation commodity, most of the value is captured outside the country, where the high technology is. Of the R$ 15 billion in the global açaí market, only R$ 1 billion remains in Brazil. Of the US$ 5 billion from Captopril, not a single dollar stays here. Brazil’s strategy neither reduces poverty nor conserves biodiversity. The time for low-tech and low-convenience products is over.

This situation can be reversed through scientific and technological development. Brazil has R&D resources from the energy sector (ANEEL and ANP) and the Biodiversity Access Law to invest in biotechnology and create high-value-added products and services. R&D resources from ANTT can be directed to technologies aimed at conserving biodiversity infrastructure, contributing to the preparation of highways for climatic events. Moreover, the creation of FIPs with R&D resources, as provided by the 2021 Startup Law, would position Brazil among the world’s largest in innovation investments.

Brazil can develop its technological community to extract value from biodiversity faster than England can recover its forests, as the technology to do this on a scale doesn’t even exist.

Investment in R&D is a self-fulfilling prophecy. Just as a commercial property is valued by its revenue potential, forests will be valued by the revenue they generate. The commitment to investing in the creation of high-tech products and services creates expectations that can be anticipated by the futures market, generating a virtuous cycle of asset appreciation, technological development, and increasing the forest’s present value.

Biodiversity credit trading would allow Brazil to capture the main pricing factor of this asset: the risk it represents to certain economic activities. The Environmental Kuznets Curve, which suggests that at a per capita income level of $4,000, society becomes more demanding about the environment, helps explain the growing pressure for biodiversity conservation and its impact on business. The intolerance of environmental degradation, even if influenced by policies, is behind the challenges faced by major projects such as power generation in Belo Monte and oil exploration in the Equatorial Margin. Former Minister Izabella Teixeira declared that biodiversity is a factor of energy security for Brazil. We need technology to ensure the integrity of ecosystems, which are essential for both conservation and the generation of energy needed for the country’s development.

Perhaps the greatest advantage of seeing biodiversity as infrastructure is the possibility of valuing it through real options. The forest is built with a technology that we do not fully understand and therefore cannot completely manipulate. Both at the micro level, with species’ genomes, and at the macro level, with ecosystem functioning, our knowledge is limited.

Biodiversity functions as a hedge against future risks. Maintaining ecosystem integrity ensures that the country can better adapt to climate change and capture new economic opportunities in the long term, reinforcing the value of the real options associated with these assets.

The forest is infrastructure, and cutting it down is like destroying a bridge, a building, or even a city. Keeping it standing is an asymmetric investment, low cost and high return.

Biodiversity credits can align short and long-term interests, encouraging the development of technologies to capture the value of our privileged natural position.