These are obviously not theoretical questions. They’re the kinds of questions facing the Brazilian government, and they are relevant to the rest of us because decision we make—about the government leaders we elect or about what to eat for dinner—can have an impact on the Amazon. These are also the kinds of questions that arose frequently during my six-day tour of Brazil last week. The government-organized trip for international reporters focused on the Amazon.

The good news is that the rate of deforestation of the Amazon is decreasing, and dramatically. Six years ago, 27.7 square kilometers of trees were cut down—that’s about 10,700 square miles, an area bigger than the state of Massachusetts. Last year, about 7,000 sq. km. were cut down, and this year the pace is slowing further, satellite photos show.

Americo Ribeiro Tunes, who’s in charge of protecting the forest for IBAMA, Brazil’s equivalent of the EPA, told us: “Brazil is on the verge of a major victory over deforestation.”

Well, maybe, but, along with stepped-up law enforcement, a big reason for the decline in deforestation is the global recession, which drove prices down timber, soy and beef, easing pressures on the Amazon. A strong global economy recovery will likely renew the pressure to destroy forest land to raise cattle or harvest timber, no matter what the laws say.

Besides, there’s plenty of opportunity for legal deforestation of the Amazon. Today, landowners are permitted to cut down up to 20% of their land under Brazil’s Forest Code;  proposed revisions would raise that to 50%. Government-approved plans for industrial development include the controversial Belo Monte Dam, which would be the world’s third largest dame, and the potential expansion of the Urucu Oil Province, which we visited (See Deep in the Amazon, learning to like fossil fuels) also pose a threat. Revenues from Amazon development can be used to promote social and education programs in Brazil, the government says.

This may—may—justify drilling for more oil and gas at Urucu. The Petrobras project has done minimal damage to the rainforest, while providing tax benefits to the region, as well as cleaner energy and cheaper electricity to Manaus, where 2 million people live.

Similar arguments can be made for hydroelectric projects like the Belo Monte Dam, which has been in the works for years. The environmental costs are significant, Reuters reports:

The 6 kilometre-long (3.75 miles) dam will displace 30,000 river dwellers, partially dry up a 100-kilometer (62.5 mile) stretch of the Xingu, and flood a 190-square-mile (500-sq-km) area three times the size of Washington D.C.

And the benefits? According to Amazon Watch, which opposes the project,

The electricity may be exported in large part to eight industrial mining and construction companies: Alcoa, ArcelorMittal, Camargo Corrêa, CSN, Gerdau, Samarco, Vale, and Votorantim.

Without knowing more about what these companies do, how much they pay in taxes and how many people they employ, it’s hard to whether the dam will be worth building. In an interview last week, Brazil’s energy minister, Marcio Zimmerman, said the dam is valuable because it’s a source of carbon-free electricity.

As an outsider, and someone just starting to learn about Brazil, I’m not prepared to offer an opinion about these big infrastructure projects. It turns out, though, that while they attract a lot of controversy–movie director James Cameron of Avatar fame last spring joined a protest against Belo Monte–they aren’t the major cause of deforestation. Cattle ranching is, by far, No. 1:

Which brings us to gouda cheese and weinerschnitzel. The oil and gas from Urucu are necessities, so long as we drive cars and fly in airplanes. Likewise electricity–energy is a driver of economic growth, jobs and wealth. But the soy plantations and cattle ranches? They occupy a great deal of land, employ relatively few people and produce animal feed and meat, much of which is shipped to Europe at the U.S.  Ocean-going ships filled with soy, for example, travel from the Amazon port of Santerem to Amsterdam, to feed Dutch and German cows. Meat’s a luxury–millions of people can, and do, live without it.

Destroying rainforests to make cheese, veal and burgers seems like a bad trade-off. At the very least, it’s another reason to eat less meat–not that we really need one. (Among them: Meat is an inefficient and expensive way of getting calories, it contributes to heart disease and obesity, causes of animal suffering, pollutes waterways, etc.) Now that I’ve seen the Amazon, and come to understand the connection between deforestation, cattle and soy, I’m going to curb my own consumption of meat. It’s easy, and it seems like the very least we can do.

Disclosure: My week-long trip to Brazil, with a focus on the environment in the Amazon, was organized by Apex-Brasil, a government-backed agency that promotes trade and investment. It’s sponsored by Electrobras, Petrobras and Banco do Brasil.

Yet size is really important when talking about the Amazon.

Size is why the fate of the Amazon matters to everyone: it’s a crucial storehouse for carbon, and the richest repository of  biodiversity in the world. It’s also the reason why “managing” the rainforest is hard, if indeed it can be done at all. (Back in the 1970s, for better or worse, Brazil tried to build a 5,200km road called the Trans Amazonian Highway, but it never finished the job. Too much heat, rain, flooding, etc.) While Brazil has made great strides in stopping illegal deforestation (See Can Brazil Save the Amazon?), protecting what’s left of the forest remains a daunting task.

My government-sponsored trip with a group of international reporters focused on climate and the Amazon. When we met with Izabella Teixeira, Brazil’s environment minister, someone asked her whether the ministry needs more cops on the ground to enforce laws prohibiting deforestation. Of course, she said, smiling, but she was honest enough to add that there’s no way to catch all the violators. Remember, she said, we’re talking about a region of 3.5 million hectares, or  1.6 million square miles, and that’s just the portion of the rainforest inside Brazil. “If you put an army unit there, it would not be enough,” she said.

Size also makes predicting the Amazon’s future very difficult. Just last week, Andrew Revkin of The New York Times, who has reported on the region for more than 20 years, wrote on his blog:

I’m convinced that the system of rivers and forests is durable enough — not to mention expansive enough — to persist, and even thrive, as Brazil and its neighbors develop their economies.

But Lou Gold, a well-informed American blogger in Brazil, sees things very differently, warns that there’s a rush to develop the rainforest with roads, dams, energy projects, and more of the cattle ranches and soy plantations that have destroyed so much of it. A World Bank study called “Assessment of the Risk of Amazon Dieback,” available here, is summarized like this by the Bank Information Center:

The study predicts with more certainty than any other prior study that the legal Amazon (one of the four primary global climate feedback mechanisms) is very close (about 2-3% of total deforestation) to a tipping point of combined events that will lead ultimately to its collapse

Who’s right? I’m not expert enough to offer an opinion. Meanwhile, here are a few words, numbers and pictures from the trip, most chosen to give you a sense of the size of the river and rainforest.

First, a few words: Brazil is the world’s fifth biggest country and almost half the country is covered by the Amazon. One day, we flew for 90 minutes from the city of Manaus to an oil-and-gas outpost in the forest and in between saw nothing but treetops. They looked like a giant carpet of broccoli. Another day, we flew an hour in the opposite direction, from Manaus to Santerem and, again, saw nothing but forest between the two cities.

No bridges cross the Amazon. That’s not because the river is too wide, I was told, although there are places where, during the rainy season, the river grows to more than 120 miles (!) across. It’s because there aren’t enough people living alongside it to create a need for bridges. People travel from place to place by ferryboats like these, bringing hammocks to sleep in because riverboat journeys often take several days.

Ferryboats in Santerem

Now, a few numbers: The Amazonian forest holds 20% of the world’s fresh water. It’s home to about 45,000 species of plants, 1,800 species of butterflies and 2000 species of fish–ten times as many as all of Europe. (One night at dinner in Santerem, we enjoyed the ribs of a big fish called the Tambaqui that eats plants, by swimming among the trees that get covered during the rainy season when rivers rise by as much as 45 feet. A treat not to be missed if you visit Brazil.)

Tambaqui

Some other things that I saw on the trip…

The Negro River, one of several huge tributaries to the Amazon, from our hotel in Manaus:

The Tabajo River, another big tributary, seen from the riverfront in Santerem. Way in the background, you can see a big Cargill dock, used to ship soy to Europe.

Trees in the Tapajo national forest, part of the Amazon biome:

A church at dusk in Santerem:

Tomorrow, in my last report from Brazil, I’ll explore the question: Is sustainable development possible in the Amazon? Or is it an oxymoron?

Disclosure: My trip was organized by Apex-Brasil, a government backed agency that promotes trade and investment in Brazil, and financed by Petrobras, Eletrobras and Banco do Brasil.

Sergio Serra

A cell phone rings. It belongs to Sergio B. Serra, Brazil’s ambassador for climate change, a longtime diplomat with a professorial manner. Actually, it doesn’t ring. It croaks. Sounds like something in the rainforest.

“It’s a frog,” Serra says, laughing, during a meeting today with a group of visiting reporters. “Very politically correct.”

Serra is a green. But he’s also blue.

Green? Brazil will commit to reducing its greenhouse gas emissions, even as a developing country, in the next round of climate negotiations. Brazil gets nearly half of its energy from renewable sources, mostly hydropower and sugar cane ethanol. Brazil is even winning the battle against deforestation in the Amazon.

That’s green.

Blue? Well, even though Serra is spending virtually all his time promoting a global climate treaty—this weekend, for instance, Brazil is hosting a meeting of the so-called BASIC countries (Brazil, South Africa, India and China) to talk about climate change—he has modest expectations for COP16 in December in Cancun, the next big UN meeting on climate. Nor does he have much hope that a global climate treaty with binding caps on carbon emissions, the kind of deal that will likely be needed to deal with the climate crisis, can be negotiated in the immediate future.

No wonder he’s blue.

The biggest obstacle to a global deal is the U.S. Congress, which has yet to pass a law capping climate pollution in the U.S. and, even if it does, may resist a UN-administered treat. Other counties won’t go forward without a commitment from the U.S., the world’s No. 2 emitter of greenhouse gases, behind China.

The U.S. is pivotal, Serra said: “Just as pivotal as the U.S. thinks China is pivotal.”

Serra, who speaks near-perfect English, spent about 90 minutes chatting with the visiting reporters, and provided an insider’s view of the thorny politics of climate action. He was in the room, representing Brazil, when President Obama personally tried to broker a deal last December in Copenhagen, and he moves easily between the western powers and the poor countries of the global south, no surprise since Brazil is somewhere in between.

Climate is the biggest and most complex collective action problem ever. No action by an individual, a company or even a country to curb its greenhouse gas emissions will solve the climate crisis until most everyone agrees to do so. Each country’s circumstances and history differ, leading to arguments about who is obligated to do what. And the climate crisis creates risks for politicians because the costs of action are short-term and significant, while the benefits are long-term and uncertain.

Unlike some enviros in the U.S., Serra acknowledges the cost issue in a straightforward way.  “There’s a price for being responsible in terms of climate,” he says. “Especially because much of the evolution towards a green economy depends on technology.” Developing countries can’t be expected to foot the bill, he said, because, one, they’re poor and two, they didn’t make the climate mess; the rich countries did.

He explained:

This is the concept of historical responsibility, and it’s not that complicated. The situation we are in regarding global warming is due mostly to the burning of fossil fuels since the beginning of the industrial revolution. So the countries whose industries which industrialized later are much less responsible for global warming.

China is now the world’s No. 1 emitter but “they have much less of a historical responsibility than the U.S.,” he said.

Post-Copenhagen disappointment, if not dismay, led some critics to suggest that the UN process itself, which seeks to reach a global consensus, is to blame. Why not let the world’s 20 biggest countries work on a deal, I asked Serra.

“We will get nowhere if we don’t try to make the negotations as transparent and inclusive as possible,” he replied. He said “consensus is not exactly unanimity” because some countries can express their consensus with their silence. Besides, he said, poor countries in Africa, Asia and Latin America “that are more vulnerable, that are most affected” are not part of the 20 major economies, and they need to help shape a  global deal.

Serra expressed two hopes for Cancun. First, that an agreement could emerge around REDD (Reducing Emissions From Deforestation and Forest Degradation) that would provide financing to developing countries, like Brazil, that protect vital forests. Second, that rich countries could work out details of a $30-billion financing commitment they made at Cancun to help poor countries adapt to climate change and develop new technologies. The financing deal is ridiculously complicated, with disagreements about who should administer the fund, how spending should be monitored and where the money would come from.

As if that weren’t enough, the global economic crisis has left rich countries feeling  less rich, although my travels in Brazil, where you can see people living in conditions that would not be tolerated in the U.S., made clear that even in these tough times, most Americans are very, very well off by global standards.

When our discussion ended, I checked my email and learned that Senate Democrats have given up on a climate bill this summer.

Barring a stunning performance by Democrats in this fall’s midterm elections, that means no climate legislation until 2013, if then.

Now I’m blue.

Disclosure: My six-day trip to Brazil was organized by Apex-Brasil, a government-backed agency that promotes trade and investment, and sponsored by Petrobras, Electrobras and Banco do Brasil.

More important, they talk about how they are harvesting timber from the rainforest with extreme care, strictly limiting the number of trees that are cut, preserving younger specimens and removing the older ones with minimum impact.

These activities and others like them—harvesting acai or Brazil nuts, ecotourism, or developing oils for medicinal or cosmetic use–are absolutely vital to protecting the Amazon because they generate the income needed by the people who live there.

They’re often called sustainable livelihoods, meaning that they are ways to make a living that preserve or restore the environment.

Without them, people would resort to cattle ranching—small-scale agriculture, soy farming or illegal logging—the very activities that already have deforested nearby areas, as shown here:

Yesterday (July 21), I visited  Coomflona with a small group of reporters from the U.S., UK, France and Brazil. Before the visit, we took a charter flight from the small city of Santarem over the Tapajos forest to see the contrast between protected zones and denuded areas. Below is an image of the forest and another of deforestation, taken from the plane:

After the flight, we drove an hour from Santerem to the coop– a potential solution to the problem of deforestation, albeit at a small scale. Coomflona, which began in 2005 with lots of Brazilian government and international support, has organized people from nearby communities to exploit the rainforest in sustainable ways.

“The secret is to find the right tools to create income for the people, while preserving the forest,” says Darlyson Fernandez of the Chico Mendes Institute for Biodiversity Conservation, a government agency that supports the operation.

So far, things are going very well. Jeremias Batista Dantas, a 23-year-old local man who has emerged as a leader of the forestry, told us that the incomes of families living in the region have doubled since the coop arrived.

Before, the typical family earned about 4800 reais, or $2700 a year, mostly by subsistence farming or fishing in the Tapajos River, an Amazon tributary. Now families earn about 7500 reais ($4215) from the coop, plus ($1350) from farming or fishing on their own when timber work stops, during the rainy season.

The coop itself appears to be thriving. In 2009, according to Dantas, the operation brought in about $1.45 million dollars by harvesting 13,000 cubic meters of timber that were sold for an average of $110 per cubic meter. They brought in roughly another $100,000-exact figures were hard to come by– by selling handicrafts and oils. Operating costs were about $840,000, mostly for labor and equipment, and the profits were reinvested into the operation or spent on community development.

Most FORTUNE 500 companies would envy those margins.

Of course, the economics are not quite as simple as that. The coop’s startup costs were paid by the federal government and other nonprofits, and they were substantial. In fact, some villagers were overwhelmed when they were allocated nearly $1 million to inventory the forest, develop a timber plan, organize the community and the like.

“We were not used to dealing with that kind of money, and we had no management skills,” said Dantas, a very impressive guy who has a high school education and some technical training in forestry, but hopes to go to college soon.

What’s more timber prices could fluctuate, and there’s no guarantee that the forest will regenerate itself before too many trees are cut down. The coop’s studies rely on computer models, and reforestation rates are hard to predict. Dantas said the coop would like to be less reliant on timber by building up revenues from handicrafts and oils.

After the visit to Coomflona, we took a walk through the rainforest where I had a brief but fascinating talk with Toby Gardner, a research fellow at the University of Cambridge. With funding from The Nature Conservancy, Gardner is leading an extensive study of land use in the Amazon, to measure the social, environmental and economic impacts of such activities as forestry, soy cultivation and cattle ranching.

He told me that he very much admired the coop, but noted that it is a pilot project that can’t easily by replicated widely.

Fundamentally, he said, the people of the Amazon should aim to use land that is already deforested in ways that are intensive (i.e., as productive as possible), diverse (to generate various revenue streams and not be dependent on a single commodity) and able to capture more of the value chain (by selling processed goods or finished products rather than raw materials.) Put simply, the goal would be to extract the maximum value from deforested land and protect the rest.

For the coop, that might mean getting into the furniture business rather than selling wood. That’s a lot to ask of 228 people, who are just learning to harvest and sell timber. In theory, of course, they could cooperate with others in the city of Santerem, a big river port that’s about an hour away by road.

Santerem, as it happens, is the place from which the global agribusiness company Cargill ships soy to Europe, so that people there can feed it to cows, so that diners can enjoy meat and dairy products. (Or chicken, which set off  a controversy involving McDonald’s, Cargill and Greenpeace a few years back.) Soy farms are good for Cargill and meat-eaters but they deliver very little value to the people of the Amazon.

Better than Coomflona and other efforts like it succeed–to preserve beautiful places like this:

Disclosure: My week-long trip to Brazil, with a focus on the environment in the Amazon, is being organized by Apex-Brasil, a government-backed agency that promotes trade and investment. It’s sponsored by Electrobras, Petrobras and Banco do Brasil.

This remote outpost is known as the Urucu Oil Province, and, believe it or not, state-controlled Petrobras says it’s an example of  “sustainable development.”

Flaring gas at Urucu: Is this sustainable development?

This is sustainable only if you believe that the oil and gas will last forever, that climate change isn’t a worry, and that drilling for fossil fuels in one of the world’s most unspoiled and biodiverse regions makes sense.

Here’s the surprise, though: Petrobras’s Urucu project may not be sustainable in the strictest sense,  but it is about as environmentally benign as an oil-drilling project in a rainforest can be. That may be damning with faint praise, but I have to confess that I came to like Urucu after visiting today with a group of reporters on an six-day tour of Brazil.

Urucu has issues, to be sure, but it is generating thousands of jobs, contributing considerable wealth to a developing nation in the form of taxes and royalties, and generating electricity in ways that are cleaner and cheaper than the current alternative.

And, as a company executive told me, Petrobras uses the term sustainable to describe projects that balance economic, environmental and social goals.

“As long as the production lasts, we will keep the environment from being harmed,” says Julio Cesar Carvalho Coelho, exploration manager for Petrobras in the Amazon region. “We preserve as much as we can.”

This week, I’m visiting Brazil on a trip organized by Apex-Brasil, a government-backed agency that promotes trade and investment. It’s financed by Petrobras, Eletrobras and Banco do Brasil. Naturally, they are presenting the country in the most favorable light.

Still, they didn’t have to bring us to Urucu at all. They did so partly because it’s an epic story: Imagine building a big oil-and-gas plant in a rainforest where the only way to get people and equipment in (at least until the airport was built) was by loading them onto barges and tugging them on a seven-day trip from Manaus, the gateway to the Amazon.

Big oil companies do this kind of thing all the time, of course, whether they are extracting oil from the Canadian tar sands or drilling in deep waters off the Gulf of Mexico. These bold adventures don’t always end happily, as we’ve all learned lately, but anyone who pumps gas into a car should remember that (1) drilling for oil is not a pretty business and that (2) we all benefit from projects like Urucu as oil supplies grow.

But the trip organizers also flew us to Urucu because, once there, you can’t help but be impressed by the care being taken by Petrobras. Production began at the site in 1988—long before anyone was talking about “green business”–but the company brought in environmental consultants to advise it on how to minimize its footprint. This may be partly because Petrobas is majority-owned by the federal government, and therefore more accountable than a private firm.

In more than two decades since, the company has built on less than 0.5 percent of the site; the rest is undisturbed. Yes, Petrobras has built 71 kilometers of paved roads, but they are built only when needed. When doing exploratory drilling, for example, Petrobras doesn’t build a road to a potential site; it clears a patch of land and brings in equipment by helicopter. If the exploratory work proves disappointing, native plants from a on-site nursery are brought there to restore the forest. The nursery, at last count, had about 200,000 seedlings and more than 85 varieties of orchids. I didn’t expect to find that at an oil-and-gas plant.

Orchids

Walking around the plant was more fun that you might think. Oil fresh from depths of more than 2,000 meters was poured into our hands.

Black gold

A handful of oil

We also got the feel of liquid natural gas, which is very cold to the touch and evaporated instantly. We saw a school where workers are taught to read, a recycling facility and the river port where a barge arrives every day with provisions—ranging from Caterpillar bulldozers to the tapioca and acai sorbet we ate at lunch.

Meanwhile, and most important, the plant is producing lots of energy—55,700 barrels of oil a day, 10 million cubic meters of natural gas (most of which is immediately injected back into the earth because of insufficient demand) and 1.3 tons of liquid propane gas which is used by Brazilians for cooking.

Oil is shipped by pipeline and boat to a refinery in Manaus. The natural gas travels by a 411-mile-long pipeline that slices through the Amazon and opened in 2009 after three years of very challenging construction. The pipeline was controversial–critics charged it would pave the way for more development in the rainforest–but it was built without a road and hasn’t spurred development, at least not yet.

Now that the gas is arriving Manaus, power plants and factories that burn diesel are being converted to natural gas plants because the gas is less expensive and cleaner. Lower energy costs, of course, will drive economic development of the region.

Beyond that, Petrobras is by far the biggest taxpayer in the state of Amazonas, followed, interestingly, by Honda and LG Electronics, which operate factories in a tax-advantaged industrial district of Manaus.

The Urucu story isn’t without blemishes, of course. An Amazon river town called Coari collected a fortune in royalties—39.7 million reais, or about $22 million dollars last year alone. Corruption arose, and the mayor was recently driven out.

And, of course, burning all that oil and gas generates carbon emission, as do the barges moving up and down the river every day, and the helicopters used to move equipment around.

But until we are all driving electric cars, or powering our houses with wind or solar energy, we’re going to need oil and gas. Even, unlikely as it sounds, from the Amazon.

Environmentalists have labored for decades to protect the impossibly vast rainforests of the Amazon, which make up more than half of the world’s tropical forests. But until recently they had little to show for their efforts. (Ben & Jerry’s Rainforest Crunch doesn’t count.) Since the 1970s,  about 230,000 square miles of the Amazon have been lost to development, mostly cattle ranches, soy plantations and illegal logging.

Only lately has the rate of deforestation began to slow, thanks to more progressive government policies and corporate campaigns by NGOS, notably Greenpeace.  Just last week, there was encouraging news from a British think tank called Chatham House, which published a major report on illegal logging around the world. Fiona Harvey wrote in the Financial Times:

Illegal logging has fallen by 22 per cent worldwide in the past decade according to a report published on Thursday …

The assessment found that that in certain key countries the decline was even more dramatic, showing a fall of between 50 and 75 per cent in the Brazilian Amazon, 75 per cent in Indonesia and by about half in Cameroon.

The New York Times said:

In Brazil in particular, an overhaul of logging laws and a new zeal in enforcement have led to a significant drop not only in illegal logging but also in overall deforestation rates in the Amazon, according to satellite data from Brazil’s National Institute for Space Research.

Why should you care?

The big reason is that deforestation is a major cause of greenhouse gas emissions, accounting for as much as 20 percent of global emissions, scientists say. Preventing deforestation of the Amazon is incredibly complicated: It requires good government policy, effective local law enforcement, satellite monitoring and global cooperation because soy, beef and logs are shipped from Brazil to the U.S., Japan and Europe. Rich countries, NGOs and even some corporations  have been trying for years to find way to create market mechanisms or outright grants that would get money to places like the Amazon, so that trees  are worth more standing than cut down. (See Your parents were wrong and Marriott waves the REDD flag.)

Even oil and coal companies like this idea because preserving trees is low-cost way to generate carbon offsets and one of the very cheapest ways to fight climate change–much less expensive, say, than building solar or wind power.

Tropical forests are also storehouses of biodiversity that are the source of medicines, food and chemicals used worldwide.

Manaus has been the gateway to the Amazon since the 19th century. You can get here by plane or boat but no roads connect the city, which is home to about  2 million people, to the rest of Brazil. (In that regard, it’s a little like Juneau, Alaska, but hotter.) A half dozen or so reporters are taking this trip; this afternoon we took a brief tour of Manaus, which has its charms but has seen better days. Much better days, it turns out: The city boomed in the 1890s after Charles Goodyear invented vulcanized rubber and the John  Dunlop figured out how to make it into inflatable tires, creating enormous demand for the sap from Brazilian rubber trees. A relic of that period is the Teatro Amazonas, an opulent opera house, made with Italian marble and glass and Scottish cast iron imported from Europe. A very kind guard let us in (the place was closed) and we heard musicians practicing for a concert.

Our tour also took us to an unfinished bridge that will soon span the Negro River, connecting Manaus to towns to the south. Right now the only way to cross the river is by ferry. Roads remain a contentious issue in the Amazon region, we were told. Lots of local people want them, to get better access to markets, education and health care, but more roads means more development, opportunity for logging and deforestation. (We’re interviewing Brazil’s environment minister later this week, and I’ll ask her about this.) Here’s a look at the bridge, with the ferries at left:

Tomorrow (Monday, July 19), we’ll take a 90-minute flight into the Amazon to see an an oil and gas plant operated by Petrobas, one of the sponsors of this trip; we’re told they’ve taken steps to preserve habitat. On Tuesday, we’ll fly to Santarem, a city on the Amazon River, for meetings with the Brazilian Institute of Biodiversity and then to see a sustainable development project in the Tapajos National Forest. My week will conclude with visits to Brasilia and Sao Paulo. By Saturday, I will have taken 11 flights in eight days. I hate to think about my carbon footprint this week.

Disclosure: My trip is being organized by APEX Brazil, a government-backed agency that promotes trade and development, with financial support from Petrobras, Eletrobras and Banco do Brasil.

It’s a big deal because the government is by far the nation’s largest single buyer of goods and services: It occupies nearly 500,000 buildings, operates more than 600,000 vehicles, employs more than 1.8 million civilians, and purchases more than $500 billion per year in goods and services. The General Services Administration, which is more or less the government’s purchasing department, buys more than 12 million products and services–an astonishing number, when you stop and think about it. And almost 600,000 companies are registered to do business with the government. Yes, 600,000!

In any event, although they won’t be required to disclose their greenhouse gas emissions, and although it’s not clear when or how or even if the government will give preference to companies or products with a lower carbon footprint,  you can be sure that many, if not most, of those 600,000 companies will soon think seriously about counting carbon. Once they do, they’ll begin to look at opportunities to curb their energy use–by operating more efficiently, opting for greener offices, promoting tele-community, whatever.

To learn more about how this might work, I spoke by phone with Steve Leeds, who is the Senior Counselor to the Administrator for the U.S. General Services Administration as well as the GSA’s senior sustainability officer. He is

leading GSA’s efforts under Executive Orders 13423 and 13514 to fulfill GSA’s responsibilities and opportunities under those EOs as well as assisting GSA’s Federal agency customers with solutions to help them integrate sustainability throughout their agencies and achieve their sustainability goals.

His job of greening GSA’s supply chain is complicated by the fact that

The procurement of goods and services by the U.S. Government is a unique activity that is governed by a web of specialized rules, regulations, statutes, and policies outside of the realm of commercial contract law. These rules arise out of the nature of the Government as a contracting party and the distinctive forms and procedures used in the procurement process. The rules governing this process are contained in statutes, regulations, and decisions, many of which are designed to protect the public‘s interest and assure fair treatment of companies that enter contracts with the Government. Most of these rules apply to all agencies, but some are specific to a certain agency.

Unhappily, this is the language that your government speaks. Fortunately, Steve, who is 64 years old and a real estate lawyer from Atlanta, speaks English, so I was get some sense from him of what is really going on.

Last October, President Obama signed an executive order on sustainability that set ambitious goals for the government’s operations. It requires agencies to meet energy, water and waste reduction targets, among them:

30% reduction in vehicle fleet petroleum use by 2020;

26% improvement in water efficiency by 2020;

50% recycling and waste diversion by 2015;

95% of all applicable contracts will meet sustainability requirements

But, of course, the devil is always in the details, and so the White House asked GSA to look into what it feasible and practical under Section 13 of the order, which is about “Vendor and Contractor Emissions,” i.e., the government’s supply chain.

“This is a real opportunity for the federal government to look at everything we do through the lens of sustainability,” Leeds says. The government will re-examine workplace design, video conferencing and tele-commuting, among other things.

What the government buys–cars, computers, office furniture and supplies, lighting, construction materials and the rest–obviously matters a lot, too. “One of the primary ways for the government’s greenhouse gas emissions to be reduced is for us to acquire goods and services….whose emissions are lower than in the past,” Leeds says.

GSA has now reported back to the White House and, Leeds tells me, has made a couple of key decisions.

“Reporting will be voluntary, not mandatory,” he said. It will be phased in over the next few years. (No surprise there.) Like Wal-Mart, Underwriters Laboratories and others, the government will need to develop reporting standards and deal with questions about verification. (See The Business of Rating Business.)

If all goes according to plan, companies or products with lower carbon footprints will be be favored as suppliers over those who pollute more, although Leeds hedged a bit when I asked him if this is the ultimate goal of the effort.

“We are on a journey at this point,” he replied. “I can’t say definitely. But it’s safe to say that if it can be done, and if we can meet the other requirements that we have laid out—bringing around small businesses, making sure the guidelines are understood—yes, this is a goal.”

Those of you who do business with Uncle Sam can learn a lot more from a 72-page GSA report (warning: much of it is almost unreadable) that was issued in April called “Executive Order 13514 Section 13: Recommendations for Vendor and Contractor Emissions.” This week, the White House Council of Environmental Quality, which is coordinating the effort, gave that report its endorsement, if I understand the process correctly.

Process is the key word here. There’s an enormous amount of it and properly so. The government has a lot of power, Leeds said, and must be careful to exercise it prudently. Small businesses, for instance, should be not be disadvantaged by the new rules, he said.

One way to get a sense of why this matters is to look at a couple of things the government has already has done. According to Caren Auchman, a GSA spokeswoman, the agency was given $5.5 billion in stimulus funds last year to green buildings. One result:

By Labor Day, under the Recovery Act, GSA will be building 31 solar energy projects across the nation that will generate a total of 12 megawatts of renewable solar power capacity – enough to power 1,600 homes, and equivalent to removing 2,500 cars from the road.

On a federal building in Lawrence, Indiana, for example, GSA not only installing solar panels, but adding a small array of four alternative photovoltaic systems, so they can be compared to one another,  with help from the Department of Energy and the Sandia National Laboratories. GSA’s demand for panels, Caren told me, made it possible for Kyocera to open a new photovoltaic manufacturing plant in San Diego, CA, and for Sharp Solar to double its workforce in Memphis.

Besides that,  GSA spent $300 million in recovery act money on 17,246 fuel-efficient vehicles, including 8,739 hybrid vehicles and 40 advanced-technology buses, five of which are powered by compressed natural gas and five of which are hybrid-electric buses, the agency said.

So there’s no doubt that the government’s spending can have impact. The question is, how long will it take to get things going? Not months, certainly, but hopefully not too many years.

“Things take time,” Leeds admitted, “but everybody is absolutely committed….This is going to get done.”

When BP’s oil rig in the Gulf of Mexico exploded on April 20, the company was a major holding of the Dow Jones Sustainability Index–which calls itself an index of “the leading sustainability-driven companies worldwide.”

BP was also held by Pax World Funds (“sustainable investing is a better smarter, way to invest”), by the MMA International Fund, which is part of a fund group that is “guided by Christian values,” and by the Legg Mason Social Awareness Fund, which, as of March 31, had BP as its single biggest holding.

These are not anomalies. When Cary Krosinsky, an editor of a book called Sustainable Investing: The Art of Long Term Performance, tallied up the holdings of about 350 socially responsible investment (SRI) funds from around the world, he found that at the end of 2008, BP was the second biggest holding, in terms of how much money the funds had collectively invested. The five biggest holdings were Royal Dutch Shell, BP, Nokia, Vodafone and HSBC Holdings.

Does this look "sustainable" to you?

What’s more, BP and Shell aren’t the only oil companies held by the social funds. The biggest holding of a mutual fund called the Sentinel Sustainable Core Opportunities Fund–which says it “screens for fundamentally strong, well-managed companies with sustainable business models and a commitment to corporate responsibility”– was, as of March 31, believe it or not….Transocean, the world’s largest offshore drilling contractor, which operated the Deepwater Horizon rig for BP.

While no mutual fund manager could have foreseen the oil rig explosion, you’ve got to wonder how a fund with the word sustainable in its name could have as its biggest holding an offshore oil drilling company. I emailed Sentinel to try to probe their reasoning a bit. You won’t be surprised to hear that they declined to be interviewed.

So what does the BP-SRI connection tell you? At the very minimum, it suggest that any investor in a mutual fund that calls itself socially responsible, sustainable, green, blue or any other color would do well to dig deep beneath the magazine ads and website fluff to understand what the fund is really all about. (Disclosure: I’m a small investor in Calvert and Domini Funds, and a believer in the SRI idea.) Some SRI funds still focus on feel-good, negative screens that shield investors from weapons, tobacco and alcohol, and don’t get much more analytical than that. (See Socially Responsible Investing’s Silly Screens)

As Cary Krosinsky, who now works for Trucost, a research firm that focuses on environmental risks, told me: “The SRI world in the U.S. developed largely around social issues, and it’s still largely focused on values. Some funds don’t look as closely at the environment.”

The other reason why many SRI funds bought BP is that they want to track stock-market indices, and so they seek exposure to the oil and gas sector. Otherwise, when oil company stocks boom, the performance of these funds will suffer.

For social funds that want to buy oil-and-gas stocks, BP and Shell were the obvious choices because they have had more progressive policy positions on climate change and they invested in renewable energy.

Bennett Freeman, senior vice president for sustainability research and policy at Calvert, says that BP under its former CEO, Sir John Browne, in the late 1990s and early 200s, was a pioneer in its approach to corporate responsibility. “It’s easy and appropriate and necessary to criticize them now,” Bennett says, “but these were the guys who broke the crockery in the industry on climate change. The same on human rights.”

Interestingly, Calvert never held BP in its traditional mutual funds, which invest only in companies that meet all of its environmental, social and government standards. But Calvert did own BP in a large-cap value fund which is one of its SAGE funds. SAGE stands for “Sustainability Achieved Through Greater Engagement.” The theory is that by engaging in shareholder advocacy, Calvert will try to to improve the social, environmental and financial performance of its SAGE holdings, which include ExxonMobil, Walmart and Duke Energy. Shareholders in SAGE funds, in other words, cannot expect purity or anything close. Even so, Calvert sold BP in June, explaining its reasoning in this thoughtful and strongly-worded statement.

By contrast, Pax World held BP in one of its traditional SRI funds. As Joe Keefe, Pax’s president and CEO, told me by email: “BP had been on Pax’s approved list prior to the spill and our research indicated that historically it had a good environmental record, good disclosure, etc. vs. its industry peers.” True enough.

But, even prior to the spill, BP had run into some very well-publicized problems: a fire and explosion at a Texas oil refinery in 2005 that killed 15 workers, injured 170 and led to an OSHA fine and censure, serious pipeline problems in Alaska that led to oil leakage and date back to 2006, and civil and criminal charges that BP engaged in price-fixing in the propane market that led to a $303 million settlement with the U.S. government in 2007.

In his email, Joe says that Pax World had put BP on its watch list because of safety problems and decided earlier this spring to sell its shares. Pax divested on April 29–nine days after the spill. “Our process was working,” he writes. I disagree–no socially responsible fund should have held BP after the events outlined above–but I will reprint Joe’s email below so that you can decide for yourself. He deserves credit for his willingness to explain the fund’s thinking.

More credit, though, should go to the social funds managed by Domini and TIAA-CREF, which never held BP at all.

Nor did a relatively small number of funds that focus not on “less bad” companies but instead seek to invest in businesses that are trying to solve environmental or social problems. I’m thinking here about funds like Portfolio 21 and Paul Hawken’s Highwater Global Fund. (See Paul Hawken’s winning investment strategy.)

Because the bottom line for the SRI funds that held BP is this: They owned  a company that turned out to be bad for the planet, bad for their reputation and, at least lately, a very bad investment, too.

–

Here’s Joe Keefe’s email to me on PAX and BP:

As you know, many of the ESG/SRI funds owned BP based in part on its reputation as an environmental leader.  I believe it was at one time, and perhaps still is, the largest investor in alternative/renewable energy in the world.

BP had been on Pax’s approved list prior to the spill and our research indicated that historically it had a good environmental record, good disclosure, etc. vs. its industry peers.

In 2009, however, BP was fined $120 million for a Texas refinery explosion that killed 15 workers.  (The explosion actually took place in 2005 but the outcome of the proceedings and fine were apparently rendered/levied in 2009.)  In October 2009, during our annual review of the company, we put the company on a watch list due to safety management concerns, and pursuant to our watch list procedure, we started reviewing BP on a monthly basis.

In March of 2010 we learned that the company had been fined again by OSHA for over 60 safety violations at an Ohio facility.  We therefore put the company under full review again for safety management concerns, a review it ultimately failed, meaning that it no longer met our ESG criteria and was not eligible for investment.  While that review was actually underway, the Gulf Oil explosion/spill occurred.  The company was only held in one of our 11 funds at the time, and the portfolio manager sold the company almost immediately – all 8,000 shares were sold on April 29 – due to concerns over the costs of clean-up, remediation, etc.  (The decision to sell at that point was still optional but would have been mandated a short time later when our company review was complete.)

So, although we owned the company on the date of the spill, my view is that our process was working: we identified a pattern of safety management issues – which the Gulf explosion/spill was an example, really the ultimate example, of – that caused us to put the company on a watch list in October 2009, and then under full re-review in the spring of 2010, which review the company ultimately failed.  Obviously, it just so happened that the BP spill occurred during that re-review – but it could have occurred at any time.  A traditional money manager or mutual fund company that didn’t look at ESG issues and didn’t care about workplace safety issues would not have had a basis for divesting the company, as we did (albeit after, not before, the spill – but again, the spill could have occurred anytime).  My point is, I think our process was working.  It cannot perfectly forecast or avoid all company blow-ups, but I think it helps us to avoid them.  In this case, it is plausible if not likely that we would have divested later – and our shareholders would have lost more value – but for our attention to ESG issues.

Fred Morse

In 1969, the Nixon White House asked a young assistant professor of engineering at the University of Maryland whether solar energy made sense for America. Absolutely, he replied.

Four decades later, Fred Morse is still trying to persuade the government to put its muscle behind solar. Last week, he scored a big victory.

In his weekly radio address on July 3, President Obama announced that the Department of Energy had awarded a $1.45 billion loan guarantee to Abengoa Solar — a Spanish company where Morse is senior advisor for U.S. operations — to build one of the largest solar power plants in the world near Gila Bend, Arizona. Obama said:

Once completed, this plant will be the first large-scale solar plant in the U.S. to actually store the energy it generates for later use – even at night.  And it will generate enough clean, renewable energy to power 70,000 homes.

What he didn’t say is that the plant, called Solana, has been in the works since 2007, when Abengoa bought an old alfalfa farm on which to site the plant. If all goes well, it will begin to make electricity in 2013. That’s right–six years, at least, to build a power plant with mostly proven technology.

You’re a patient man, I told Fred Morse when we spoke the other day by phone. “I have to be,” he replied. Forty years waiting for an industry to be born will do that to you.

Fred is a neighbor of mine in Bethesda, Md., and we belong to the same (green) synagogue, Adat Shalom Reconstructionist Congregation, so we’ve chatted occasionally about solar. I’ve been struck by the time that’s required to bring big solar plants that require public subsidies to market, so when the news broke that Abengoa’s plant had cleared a big hurdle, we arranged to talk again.

One reason why the government agencies involved are taking such a long look at the Solana plant is its size, Fred explained. The plant is expected to cost as much as $2 billion, it will create about 1,600 jobs during construction and generate up to 280 megawatts of power (30 of which will be needed to run the plant itself.) Solana will need about 900,000 mirrors, which will be made near Phoenix, and about 97,000  receivers, which will be made by a German firm called Schott Solar in Albuquerque.

“The amount of steel in the structure, to hold the mirrors, is enough to build a second Golden Gate bridge. It’s big. It’s very very big,” Fred said.

The plant uses a technology known as Concentrating Solar Power (CSP) or solar thermal technology, which uses parabolic mirrors to focus the sun’s heat on a fluid which then heats up 700 degrees, heating water to create steam to run turbines. Here’s an artist’s rendering:

Size tends to be a good thing when building power plants; economies of scale keep costs down. But the regulatory agencies whose approval is needed–they range from the Arizona Department of Transportation to the White House Office of Management Budget–tend to take a closer look when people start talking about billions of dollars.

For example, Arizona Public Service, the utility company that has agreed to buy the electricity generated by Solana, had to get approval from the Arizona Corporation Commission to build the plant. Even after federal subsidies are factored in, the power will cost about 19% more, according to this 2008 blog. (Natural gas prices have dropped since then, so the differential is probably even greater.) APS has agreed to buy $4 billion worth of electricity from the plant over the next 30 years, in part because to comply with a state law requiring utilities to generate  at least 15% of their electricity from renewable sources.

You’d think that with a 30-year $4-billion revenue stream that Abengoa, a well-established company with more than $4 billion euros in revenue last year, could obtain financing for the project on the private market … but no. By the fall of 2008, when state regulators okayed the project, the credit markets had frozen. “It was clear that it was going to be very difficult to finance Solana without a federal loan guarantee,” Fred said.

The DOE and OMB analyzed the application for more than a year before giving last week’s  conditional okay. Under the provisions of the Energy Act of 2005, the source of the financing, Abengoa had to demonstrate that  the plant was innovative, which it is, because it will include new technology enabling energy to be stored for up to six years. But they also had to assure DOE and especially OMB, which tends to be risk-averse, that the storage technology would work because the government is wary of putting its money behind risky schemes. This is the kind of fine line that companies have to negotiate to obtain tax money.

Fred, who worked for DOE for 13 years, understands the dynamic well.

“As a taxpayer, I don’t want to see a big project die in the field and waste a lot of money,” he said. “On the other hand, you want to encourage projects that are innovative and new, and Congress appropriated money to cover some of that risk.”

Another two dozen or so Concentrating Solar Power projects are in various stages of development, most requiring loan guarantees. Morse is rooting for them to succeed, and fast. “We have to build more because you cannot get your supply chain all cranked up, and then have to stop,” he said.

Abengoa wants to build a second large U.S. plant in the Mojave Desert, for which it has a signed power purchase agreement with PG&E Corp.  It’s also building plants in Spain, Algeria, Morocco and Abu Dhabi.

This is all encouraging news, but none of it is happening fast enough. We don’t have another 40 years to wait around for this industry to get going.

—–

On a related note, I will be moderating The Energy Collective’s next webinar, “Is There Hope for Solar? Examining the prospects for scaling up solar energy” on July 14th at 1pm ET.  Joining me will be Michael Jungreis, business development manager for Siemens Concentrated Solar Power Ltd. and investigative reporting and solar expert Osha Gray Davidson.

The strawberries on your cereal. Your laptop, cell phone, and TV. The coal that’s burned to power them. The car you drive. The roof over your head. We may work in a knowledge economy, but Madonna had it right: We live in a material world.

That’s why the Union Pacific railroad, No. 164 on the Fortune 500, has played a vital role in the U.S. economy since 1862. With $14.1 billion in revenue last year, the UP, which is based in Omaha, is America’s largest railroad. Close behind is its chief rival, the Burlington Northern Santa Fe (BNI) (2009 revenues: $14 billion), headquartered in Fort Worth, which was acquired this year by Warren Buffett’s Berkshire Hathaway (BRK.A) for $26.4 billion. The deal put a spotlight on the often troubled railroad business — in a good way. “It was a vote of confidence in the industry,” says Jim Young, the 53-year-old chairman and CEO of Union Pacific. “He sees the long-term value in the rail franchise — how unique it is in America.”

The story goes on to talk about how Young led a turnaround at the railroad, which suffered from lousy service, not once but twice–in the late 1990s after its merger with the Southern Pacific and again in 2004-2005 when the company cut back too deeply on equipment and staff and wasn’t prepared for a burst of economic growth. As Young told me: “We were the best marketing arm of our competitor.” The UP’s competitors include the Burlington Northern, which also operates in the west, and, interestingly, long-haul trucks.

In its battle for market share with trucks, the railroad industry is touting its environmental advantages. They are real. While my FORTUNE story didn’t get into much depth on the topic,  Young and his colleagues spent a fair amount of time telling my why the UP is an environmentally-friendly way of moving goods around the country. On its website, under the headline A Green Railroad, the company says:

Did you know that railroads are one of the most environmentally friendly modes of freight transportation? It’s true. Freight trains are almost four times more fuel-efficient than over-the-road trucks and have less impact on greenhouse gas emissions than trucks.

The UP has gone to great lengths to cut down on its fuel use, as I reported in the magazine:

The Union Pacific has also become more efficient. Trains are longer — on average, 5,800 feet, or more than a mile long — and instead of just pulling the freight cars, locomotives are distributed throughout the trains so that they push as well. Information technology helps too: Locomotives with GPS track the fuel efficiency of every engineer, and those who use the least fuel get a share of the savings, between $200 and $400 a month.

That has enabled the Union Pacific, with the rest of the railroad industry, to tell a nice-sounding environmental story: The rail industry as a whole carries about 43% of all freight (as measured in ton-miles), but trains consume just 7% of the energy used to move freight. Trucks, by contrast, move 31% of the tonnage but use 66% of the energy. UPS,  a big customer of Union Pacific, uses trains rather than trucks to move ground packages that travel 750 miles or more. “The economies of steel on steel are better than rubber on concrete,” says Kelley Anderson, general manager for rail at UPS.

There’s much more to UP’s greening. The locomotive in the photo at the top of this blog, known as a Genset, was designed by the railroad for use at its yards. Mike Iden, UP’s director of freight car and locomotive engineering, who has led many of the efficiency efforts told me: “It’s an ultra low emitting yard-switching locomotive.” It’s based on technology developed by the U.S. Department of Energy to improve diesel truck emissions.

So what’s wrong with this green story? Well, the UP carries a lot of coal, America’s dirtiest fuel–as much as 10% of the coal burned by utilities, by one estimate. You can’t really blame the railroad for this–no company can be expected to turn away its most important customer.

But the Union Pacific also has opposed legislation to cap greenhouse gas emissions and put a price on carbon. This is interesting because anything that raises the cost of fossil fuels will give the railroad a competitive advantage over less efficient trucks. So that’s the problem with the climate change bills, I asked Young. He told me he was worried about the effect of the legislation on coal, the economy and jobs:

I’m concerned about what it means to coal, long-term, and what it could do to the cost of electricity in America, and moving jobs offshore.

The Midwest has some of the lowest costs of power in America. Google built a new data center right over here on the Missouri River. They did it because the cost of power is so low.

Coal’s got to be part of the energy equation, long term…The cost of the renewables? You’ve seen the math.

Well, yes, I’ve seen the math and the EPA estimates that the Senate legislation to regulate carbon emissions would cost an average family about $79 to $146 a year. This seems like a reasonable price to pay to offset the potential costs of global warming. Young obviously disagrees, as do many people in the coal-dependent heartland. Which is why it’s so hard to get Washington to act on climate change.