Chinese/Western Financing of Roads, Dams Led to Major Andes Amazon Deforestation

Deforestation surrounding Peru's Southern Inter-Oceanic Highway. Photo credit: Diego Perez / Mongabay

International development finance institutions (DFIs) have enabled large-scale deforestation in the Amazon, with no sign the trend is abating, according to recent research published by Boston University's Global Development Policy Center. Instead, say lead authors Rebecca Ray, Kevin Gallagher and Cynthia Sanborn, "evidence suggests that [environmental risks and costs] will accelerate."

DFI-financed projects triggered significant deforestation in Ecuador, Peru, and Bolivia between 2000 and 2015, according to the study. Using satellite data, the authors analyzed 84 projects, and determined that the area around them "experienced tree cover loss at a rate of over four times the average in comparable areas without projects in these countries." That's a forest carbon-sink loss equivalent to the annual emissions of Colombia, Chile, and Ecuador, combined.

Andean Amazon nations are currently "experiencing a surge in infrastructure projects," the authors report, with DFI-backed projects increasingly pushing into the Amazon basin itself. Just under half of the 60 DFI-financed projects carried out in Ecuador, Peru and Bolivia from 2000-2015 were located in the Amazon basin. But 45 out of the 57 DFI-backed projects completed since 2015, or currently planned, are, or will be, located there.

The analyses provide critical grounds for caution: infrastructure currently accounts for 60 percent of global greenhouse gas emissions, and yet, some international DFIs seek to increase their lending from "billions to trillions" in order to address massive global infrastructure demand – forecast to be as high as $97 trillion by 2040. This could be very bad news for South American nations trying to meet their targeted Paris Climate Agreement goals (which in countries like Brazil are linked to preventing deforestation), and for the international community as it tries to curb potentially catastrophic greenhouse gas emissions.

Amazon infrastructure project overview

International DFIs financed roughly 100 infrastructure projects in Amazon-basin countries between 2000 and 2015. The majority of them (84) were built in Bolivia, Colombia, Ecuador, and Peru, so Ray and her co-authors focused their study there.

DFIs examined in the Boston University study included the World Bank, Inter-American Development Bank, Development Bank of Latin America, Brazilian National Development Bank (BNDES), China Development Bank, and Export-Import Bank of China. A few other international DFIs have been active in financing infrastructure in the Amazon, said Ray, "but in much more minor ways and primarily by co-financing with DFIs that have a deeper history in the region."

During the 15 year period studied, international DFIs primarily supported highway construction and improvement, and also new hydroelectric dams – the latter once seen as carbon neutral, but increasingly coming under scrutiny as a large source of greenhouse gas emissions, independent of the deforestation that can result from dam construction. Other projects included ports, renewable energy plants, and thermoelectric plants.

Most of the construction included in the study occurred on the edge of the Ecuadorian Amazon, the Pacific coast of Peru, and in Southern Bolivia. Notably, of the projects that international DFIs financed in Brazil during this period, none were in the Amazon basin. Excluded were Brazilian projects financed domestically by BNDES, such as the heavily criticized Belo Monte Dam. The reason for this, says Ray, was that the study focused only on cross-border finance in order to hone in on the relationship between local communities, national governments, and external lenders.

Tree cover change near and without international DFI-financed infrastructure projects in Bolivia, Ecuador, and Peru, 2000-2015. Image courtesy of Ray, et al. 2018 / Mongabay

Substandard environmental performance among DFIs

Most of the deforestation, say the study authors, can be attributed to "the direct impacts of the projects, as well as indirect impacts such as illegal mining that can follow official opening of the forest."

Peru's Southern Interoceanic Highway was one of the most damaging. By 2015, more than 15 percent of the forested area within 10 kilometers (roughly 6 miles) of the 403-kilometer (250 mile) road had been deforested. The highway was financed by the Development Bank of Latin America (CAF).

The Riberalta-Guayamerín highway in northern Bolivia was also particularly impactful. Nearly half the tree cover within one kilometer (0.6 miles) of the road was lost by 2015. Over the same period, areas in Bolivia not near an international DFI-financed infrastructure project experienced a seven percent tree cover loss. The Riberalta-Guayamerín highway was also financed by CAF.

Such findings came as little surprise to Scott Edwards, Executive Director of Conservation Strategy Fund, a Washington D.C.-base international environmental NGO: "In CSF's 20 years of experience working on infrastructure development issues, we have come to some similar conclusions."

However, Edwards believes the environmental performance of some DFIs has significantly improved over the last few decades. "I think that there has been a more concerted effort by the World Bank and Inter-American Development Bank to respond to public pressure for greater and more stringent safeguards," he said. "I don't believe the same level of performance can be applied to the other banks."

The Boston University study disagreed with that more positive view, finding that, "there is no one model or bank that performs the best," said Gallagher. What did appear to matter, rather, was whether or not projects were "conducted under regulatory regimes (from either national governments or DFIs) that require prior consultation with affected indigenous communities."

This discovery regarding indigenous consultation was especially salient in Bolivia. There, areas near DFI-financed infrastructure projects which did not require prior consultation experienced a 36.5 percent decline in tree cover. When projects did require prior consultation, the decline was only 21.1 percent.

This finding is especially significant as DFIs begin to trend toward funding major projects in the Brazilian basin, where the national government has long been accused of not fulfilling its legal obligation to the National Labour Organization's Convention 169, which requires indigenous consultation before major infrastructure projects get underway – projects such as mega-dams and railways. Brazil and other Amazon countries are all signatories to this international agreement.

In Colombia, areas near DFI-financed projects experienced a similar rate of deforestation as areas without DFI projects – roughly three percent. All of the projects there had formal prior indigenous consultation processes.

DFIs lack sufficient self-regulation

Gallagher noted the difficulties in obtaining a precise measure of the social and environmental impacts of DFIs' Amazon infrastructure activities. "The DFIs lack measurement and monitoring systems that allow themselves, outside experts, and civil society to measure, monitor, and make projects accountable to their stated goals," he said. "DFIs are now part of the United Nations Sustainable Development Goals and have to align their policies with them and measure progress."

But progress towards that accountability is questionable. "While the DFI lenders have changed over time, and standards on paper have improved, little has changed on the ground," said Kevin Koenig, Senior Climate and Energy Strategist for Amazon Watch, an environmental NGO. "We are seeing some of the same manifest destiny-style development schemes that characterized the region decades ago. It is rapidly turning the Amazon from carbon sink to carbon source at the time the climate ­– and planet – can least afford it."

The linking of DFIs to global efforts to combat climate change is critical, analysts emphasized. The Boston University study is not the only one to highlight the continuing carbon-intensity of DFI-supported infrastructure projects. The climate change think tank E3G found that, as of 2017, fossil fuel investments of multilateral development banks such as the World Bank Group and European Bank for Reconstruction and Development still outpaced these institutions' climate finance activities. A recent World Bank report found that, out of all the infrastructure projects in which both private financiers and multilateral DFIs were involved between 2002-2017, DFIs spent 75 percent more on conventional projects than on low-carbon projects.

Of the six DFIs examined in the Boston University study, only the Inter-American Development Bank (IDB) responded to Mongabay's request for comment.

Janine Ferretti, Chief of the IDB's Environmental and Social Safeguards unit, noted that the IDB is "aware of the findings report" and met with the authors earlier this year to discuss "some pioneering approaches to Environmental and Social Risk Management." She said the IDB "welcomes efforts to examine relationships between project finance and land use change," calling the study "an important contribution."

However, Ferretti also said that "it is important to recognize the methodological challenges to doing this kind of research, arguing that "there is a need to more clearly establish the timeframe of the actual investment and deforestation that occurred during the period of 2000-2015."

She referred specifically to the Montero-Yapacaní Road in Bolivia, the widening of which the IDB is currently financing, and one of the case studies featured in the report. Ferretti pointed out that the existing road "goes back five decades as a two-lane road" and that deforestation in the area "occurred during the course of several decades prior to IDB's financing of the upgrade due to the clearing of land for the production of sugar cane and other agricultural products."

While the Boston University study does qualitatively link IDB financing to deforestation in the area – in addition to reporting that social conflict related to unpaid workers has accompanied the project – it does not count this deforestation in its qualitative analysis of the link between international DFI finance and deforestation.

Ferreti added that protecting the environment and the livelihoods of IDB's stakeholders is the core principle of IDB's safeguard policies. "We are ready to apply the mitigation hierarchy and a range of other strategies to identify and solve challenges that may arise during Bank projects and programs," she said.

China's rising influence

More than $70 billion worth of infrastructure projects, supported by both development banks and the private sector, are currently planned for the Amazon basin region between now and 2020, according to the Boston University study.

These include the Rurrenbaque-Riberalta highway in Bolivia (financed by CHEXIM), the San Gabán III dam in Peru (CDB), the Simon Bolivar dam rehabilitation project in Venezeula (CAF), and the Hidroituago dam in Colombia, financed by the IDB, the Chinese fund associated with the Inter-American Investment Corporation, and private banks.

A scramble for resources is driving the surge, says Gallagher. "The Amazon basin is home to oil, timber, soybeans, cattle, and waterways for energy. Countries want to exploit these resources, and they want to build infrastructure to facilitate getting these goods to market," he said.

The Chinese policy banks – the China Development Bank (CDB) and the Export-Import Bank of China (CHEXIM) – have financed, or are expected to finance, roughly one third of DFI infrastructure projects currently planned for the Amazon basin.

China's dominance as a Latin American infrastructure financier is directly linked to its policy of rapidly growing its influence over agricultural and mining commodities there. Lending commitments to the Latin America-Caribbean region from the China Development Bank, alone, have far outpaced those of any other DFI operating in the region – reaching more than $33 billion in 2010. According to the Inter-American Dialogue, between 2005 and 2017, CDB and CHEXIM provided the region with more than $150 billion, surpassing support from the World Bank, Inter-American Development Bank, and Development Bank of Latin America (CAF), combined.

CDB and CHEXIM have four existing regional funds with Latin America. These include the China-LAC Industrial Cooperation Investment Fund and China-Brazil Fund (both $20 billion), as well as two funds known as the "Special Loan Program for China-LAC Infrastructure Projects," launched in 2014 and 2015, with $10-15 billion and $10 billion, respectively.

Importantly, China's infrastructure construction record at home, across Asia and in South America with respect to environmental and social responsibility and transparency has been poor.

Western hemisphere DFIs invest

Western-led DFIs are looking to step up their infrastructure financing, as well. Multilateral development banks such as the World Bank – recognizing that they will not be able to muster the funds to fill the multi-trillion dollar gap between global supply of infrastructure finance and global demand in its entirety – are attempting to draw in private-sector partners. The goal, the banks say, is to increase development financing "from billions to trillions."

In a recent op-ed, World Bank president Jim Yong Kim argued that "the reality is, we won't come close to achieving [Sustainable Development Goals] unless we work to attract private sector investment."

The World Bank recently approved a $13 billion capital increase, which will double the institution's current lending levels by 2030. In addition, a U.S. effort to consolidate multiple agencies providing investment to developing countries – termed the BUILD Act – is quickly progressing through Congress. The legislation would create a new International Development Finance Corporation (IDFC) that would put the USAID Credit Authority, Overseas Private Investment Corporation (OPIC), and Office of Private Capital and Microenterprise under one roof, with more capital and financial instruments at IDFC’s disposal than the separate entities had before.

However, even as international infrastructure investment increases, critics argue that efforts to ensure that this new capital goes toward socially and environmentally sustainable projects have lagged. Writing for Project Syndicate, Gallagher pointed out that "the current financing pattern of the MDBs [multilateral development banks] – and particularly the World Bank Group – is highly carbon intensive." As it stands, the BULID Act lacks strong social-environmental standards, such as human rights provisions and greenhouse gas caps and accounting processes.

"As the World Bank tries to increase private investment from billions to trillions, it should make a proportional commitment to safeguards and accountability," urged Natalie Bridgeman Fields, founder and executive director of the Accountability Counsel and a lecturer at Stanford Law School.

Whether or not DFI activity results in fewer social-environmental impacts may depend on the extent to which recipient governments set and enforce their own social-environmental standards, said Alfonso Malky, Latin America Technical Director for the Conservation Strategy Fund. "Protection from governments themselves will be the only way to guarantee a significant social and environmental impact reduction in the long term," he added.

However, Latin American governments in Amazon countries including Brazil, Peru, Bolivia, Ecuador, Venezuela and Colombia have relatively poor records for environmental and social safeguards during the planning and implementation of large-scale infrastructure.

Projects to watch: the Rositas dam system, Bolivia

As already mentioned, most of the projects in the Boston study were located in the Andes headwaters region. How rising international financing levels for infrastructure will play out in the Amazon basin remains to be seen. One concerning planned project, said Ray, is the Rositas hydroelectric project in Bolivia. The dam would flood a large, biodiverse area, while affecting more than ten local communities.

If built, the 156-meter high, 400 megawatt (MW) hydroelectric dam would sit on the Grande and Rositas Rivers in the Rio Grande Basin. Planned since the 1970s, the project has only relatively recently attracted financing. According to the China Global Dams Database, the Export-Import Bank of China will provide $850 million for the project, while Bolivia's national electricity company, Empresa Nacional de Electricidad Bolivia (ENDE), will contribute the remaining $150 million.

Most of the electricity that the Rosita dam generates appears destined for export. The project is part of a larger hydropower development scheme, consisting of eight mega-dams in the Rio Grande Basin. Taken together, government forecasts say, the eight projects will produce approximately 3,000 MW, roughly twice Bolivia's maximum national demand.

However, Rositas will flood approximately 45,000 hectares (174 square miles) of mostly forested area, according to a 2018 report by Mongabay – equivalent in size to more than half of New York City. Forest loss due to flooding will result in the elimination of a large carbon sink, while leaving underlying vegetation to rot, releasing large amounts of methane, a powerful greenhouse gas, into the atmosphere. Recent analyses performed using the Conservation Strategy Fund's HydroCalculator tool – open-source software that utilizes user input data to perform cost-benefit analyses of hydroelectric dams – estimated that the Rositas dam and reservoir will ultimately result in roughly 70 million tons of CO2-equivalent emissions – more than the state of South Carolina emits annually.

In addition, local indigenous communities who stand to be affected by the dam claim that they haven't been adequately consulted, as required by Bolivian law, and also by the International Labour Organization's Indigenous and Tribal Peoples Convention (No. 169), to which Bolivia is a signatory. The indigenous communities have filed a lawsuit against Bolvia's ENDE.

"CHEXIM may not be aware that it has been asked to finance a project that could not attract financing elsewhere, which is not necessarily beneficial from a climate perspective, and which carries a risk of serious [indigenous] conflict," said Ray.

Projects to watch: the Inter-Oceanic Railroad, Brazil/Peru

While Rositas may be one of the most environmentally-threatening dams on the Amazon basin agenda, a Brazil-Peru Inter-Oceanic Railway, aimed at linking the Pacific and Atlantic oceans, is perhaps the most hotly-debated planned project.

The rail line would traverse between 3,000 and 5,000 kilometers (1,800-3,100 miles) – depending on which route is chosen – offering a more efficient, less costly, means of transporting commodities from Brazil and other Amazonian countries to China and the rest of Asia. Some expect the railway will decrease the cost of shipping grain from Brazil to China by $30 per ton. Among other likely cargo are iron ore and soybeans from Brazil and gold and copper from Peru.

The project has moved forward slowly since its initial announcement, with mixed signals from government to the media. In February, Brazilian Vice Planning Minister for International Affairs Jorge Arbache told Reuters that planning for the transcontinental railway had "stopped, because it was extremely costly and the feasibility study was very unsatisfactory." He added that, "The engineering challenges were absurd." But the Chinese Embassy in Brazil refuted the statement soon after, stating that China, Brazil, and Peru had reached an agreement. In late April, Railway Technology reported that "talks have been intensifying in recent months."

Vast environmental and social costs are expected to accompany such connectivity. According to Ray, two potential routes are chiefly under consideration. "One crosses through un-contacted, or voluntarily isolated indigenous territory, along the central Peru-Brazil border.… The other crosses into southern Peru in the Madre de Dios watershed, in an area that has already been hit by tremendous deforestation linked to informal gold mining that has been made possible due to the CVIS highway in Peru." A report by the Regional Group on Financing and Infrastructure noted that, out of five possible routes for the railway, four traverse protected areas or indigenous reserves.

Paulina Garzón, Director of the Bank Information Center's China-Latin America Sustainable Investment Initiative, told The Guardian that "this project is iconic and is likely to become center-stage for Latin America civil society organizations. It will be tremendously controversial on both environmental and social fronts."

A transcontinental railroad that decreases the cost of, and shortens the trade route for, commodities transported between the resource-rich Brazilian and Peruvian interiors to rapidly expanding Asian markets, could open the Amazon basin to massive deforestation. The region's rainforests will be poised to turn into sites of lucrative beef, soy, corn, cotton, sugarcane, and palm oil production; as well as large-scale iron, gold, copper, and aluminum mining.

Financing and contracting details for the railway remain uncertain. Chinese, Czech, French, German, Spanish, and Swiss investors and construction companies have all expressed interest, an indication of the assumed profit potential of the project. In 2016, the Inter-American Dialogue speculated that Chinese support would likely come from the CDB-managed Special Loan Program for Chinese-LAC Infrastructure Projects and an already approved credit line to the Bolivian government. According to Railway Technology, Spanish and Swiss-German consortiums, numbering more than 70 companies in total, have been involved in recent discussions.

The railway does more than endanger the basin's rainforests: it also puts global climate stability at risk. With around 17-18 percent of the entire Amazon deforested already, scientists warn that a further increase to 20-25 percent could result in a sudden regional shift in rainfall patterns toward widespread drought and past a tipping point where large swathes of rainforest could rapidly convert to savannah. The loss of the massive carbon storage capacity of Amazon basin forests could result in a large increase in atmospheric greenhouse gases and to intensified global warming past the 2 degree Celsius (3.6 degree Fahrenheit) danger zone recognized by the Paris Climate accord.

"Opening up the Amazon to further road building, dam construction, and resource extraction will push the Amazon past its tipping point," said Koenig. "We need to have a basin-wide approach for protecting the ecosystems of the Amazon that respects indigenous rights and territories."

Citation:

Ray, K. P. Gallagher, and C. Sanborn, Standardizing Sustainable Development? Development Banks in the Andean Amazon. (2018) Sponsored by the John D. and Catherine T. MacArthur Foundation, Charles Stewart Mott Foundation, Rockefeller Brothers Fund. Published by the Boston University Global Development Policy Center, Center for China and Asia-Pacific Studies - Universidad del Pacífico.

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