Does ecological ICMS help preserve the Environment?

Responsible researcher: Angelo Cruz do Nascimento Varella

Article title: CONTRIBUTION OF CONSERVATION UNITS TO ECOLOGICAL ICMS GENERATION FOR MUNICIPALITIES AND ENVIRONMENTAL CONSERVATION

Authors of the article: Indira Bifano Comini, Laércio Antônio Gonçalves Jacovine, José Cola Zanuncio and Gumercindo Souza Lima

Intervention Location: Minas Gerais , Brazil

Sample size : Data from municipalities in Minas Gerais between 1995 and 2015

Sector: Environment, Energy & Climate Change

Type of intervention: Effects of ecological ICMS on environmental preservation

Variable of main interest: UC Conservation Units

Assessment method: Other

Policy Problem

Environmental preservation is a challenge of major proportions that faces a complex range of difficulties across the planet. Practicing the conservation of ecological areas requires the reduction or prevention of economic activities in these locations, which generates an opportunity cost between environmental protection and financial gains.

Furthermore, the economic exploitation of natural areas generates local and concentrated wealth, while environmental damage is widespread and dispersed. This presents a severe problem of economic incentives. In order to combat this reality, public policies have emerged aimed at redistributing public resources conditioned on environmental preservation. In the Brazilian state of Minas Gerais, one of the most relevant initiatives in this regard is the Ecological ICMS.

 Assessment Context

Brazil is the pioneering country in creating a system of ecological fiscal transfers. The aim of this public policy was to benefit municipalities obliged to maintain environmental preservation areas in their territories, compensating them for the impediment to economically exploiting such regions. Other countries such as Germany, France and Portugal have also created their own ecological fiscal transfer tools, with the Brazilian model even inspiring the implementation of a similar public policy in the European Union.

 The Ecological ICMS, which was created in the state of Paraná, is present in 17 of the 26 Brazilian states, with some variations. In Pernambuco, for example, the law is called ICMS Socio-Environmental, as it takes into account social aspects for the redistribution of state resources to municipalities. In Minas Gerais, the initiative was implemented in 1995 through the “Robin Hood Law”, later replaced in 2009.

Policy Details

 The Tax on Circulation of Goods and Services (ICMS) is a state tax that is passed on to municipalities, so the Ecological ICMS, also known as ICMS-E, is based on three criteria, in the state of Minas Gerais, to implement part of this transfer:

1. Conservation Units
2. Waste and sewage treatment and final disposal systems
3. Proportion of deciduous forest (Mata Seca) in municipalities

With regard to Conservation Units (CU), there are basically two types, according to the objectives of each category. The first type refers to the Full Protection Category, whose objective is strictly aimed at environmental preservation and its direct economic use is prohibited, with activities such as education, recreation and research permitted. The second type refers to the Sustainable Use Category, whose objective is focused on nature conservation and ecologically viable commercial activities. The categories are arranged below:

Assessment Method

In order to find out whether the ICMS-E implemented in Minas Gerais is effective in its environmental preservation and conservation objectives, researchers from the Federal University of Viçosa (UFV) collected data from the João Pinheiro Foundation and the State Secretariat for the Environment and Sustainable Development – ​​SEMAD, from the Government of Minas Gerais.

Based on the data collected, the researchers compared the evolution of environmental protection areas in the state, analyzing the proportions of different types of conservation categories, in order to evaluate the preferences of public managers in ways of safeguarding Brazilian natural heritage.  

Results

The ICMS-E program covered 71.5% of Minas Gerais municipalities in 2015, with 61.5% of this total coming from Conservation Units rules. This represents a proportion of 44% of municipalities in Minas Gerais with at least one UC in their territory, so that the largest number of records are from Private Natural Heritage Reserves (RPPN) and Environmental Protection Areas (APA), both categories of Sustainable Use. In 2015, these records represented 87.9% of the state's total UC. The evolution of the proportion of municipalities benefiting from the legislation can be seen in the following graph:

Regarding the area, in 2015, the state of Minas Gerais had 8.7% of its territory protected, which represents more than 5.1 million hectares. Of this total, 90.8% are registered under APA and RPPN. It is worth highlighting that, between 1995 and 2005, the proportion of protected area in Minas Gerais went from 2.9%, which represents 1.7 million hectares, to 8.6%, with a total area of ​​5.0 million hectares. hectares. It should be noted, therefore, that between 2005 and 2015 there was an increase of just 0.07%, which demonstrates the maturity of the legislation in the state.

In relation to state transfers, transfers referring to UC through ICMS-E totaled 35 million reais, with Parks, APA and RPPN being responsible for 87.4% of this amount.

Public Policy Lessons

The proportion of municipalities in Minas Gerais benefiting from ICMS-E increased progressively throughout the existence of the law, going from just over 33% to more than 71% of the total number of municipalities between 1995 and 2015. Furthermore, the area under environmental protection also increased considerably, reaching 8.7% of the state's territory, triple that observed at the beginning of the implementation of this public policy.

Such results demonstrate that the creation of effective mechanisms, which address issues of economic incentives, are powerful tools in the search for environmental sustainability. Minas Gerais, as well as several other Brazilian states, prove that it is possible to preserve the environment without penalizing localities that engage in this activity, serving as a national and international reference in the search for the conservation of natural resources.

Reference : COMINI, Indira Bifano et al. Contribution of conservation units to Ecological ICMS generation for municipalities and environmental conservation. Land Use Policy, vol. 86, p. 322-327, 2019.