Brazil: Scaling up Renewable Charcoal Production

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CHALLENGE
Charcoal is one of the main sources of energy used in the production of pig iron for steel in Brazil. The vast majority of the current charcoal production is from unsustainable and often illegal harvest of native forests, leading to severe environmental degradation and deforestation. However, there have been successful business cases of forest plantation for charcoal production in Brazil, including one Clean Development Mechanism (CDM) project financed by the Prototype Carbon Fund in Minas Gerais. Expanding the area of forest plantations for charcoal on idle or degraded pasture land would reduce the pressure on native forests in Brazil.

However, barriers have prevented wide adoption of forest plantations for charcoal. Some of the barriers include:

  • lack of credit to finance the initial production costs (first income revenue usually is generated after 7 years of plantation),
  • difficult access to credit (forest plantations are often not accepted as collateral for loans),
  • higher transaction costs relative to deforestation and coal production (planted forest activity has a cycle of 14-21 years of production, is labor intensive, and results in high costs of land management and environmental licensing),
  • inefficient technologies for carbonization process (contributing to the emission of greenhouse gases (GHG), including methane),
  • unclear agricultural and environmental regulatory framework to forest production,
  • weak institutional arrangements, etc. 

With 62 pig iron mills, the state of Minais Gerais is Brazil's largest producer of steel and iron, responsible for 60% of the national production.  Minas Gerais approved a law which virtually bans the use of charcoal from deforestation by 2018. In order to suppl