'Businessmen's Nightmare'.

Chile's green economist holds industry accountable--by the numbers.

TO SUPPORTERS, MARCEL CLAUDE IS AN ECONOMIST WHO EXPOSES the environmental effects of big forestry projects. To detractors, he's the "Businessmen's Nightmare."

Claude, the head of a small but potent think tank, Fundacion Terram, wants to hold big business accountable--a mission he began in the mid-1990s when he headed the environmental research department at Chile's Central Bank. "Chile's economic growth has another facet that is being ignored--an important loss of natural capital and an increase in pollution," he says. "Those additional costs to society must be included in any profitability analysis."

But Claude has yet to convert industry leaders. Last year, El Mercurio, Chile's largest newspaper, dubbed Claude the "Businessmen's Nightmare." Executives quoted in the long article accused him of harming the national economy.

"These kinds of organizations only exist to generate conflict and to make life impossible for Chilean industries," says Jaime Dinamarca, head of environmental affairs for the powerful Federation of Chilean Industries. "Every time someone frustrates a Chilean project or damages the reputation of Chilean products, they are benefiting foreign industries."

Claude's debut as a political celebrity came in 1995 during his stint at the Central Bank, where he headed the "green accounts" department. That division, funded by the World Bank, evaluated the state of natural resources exploited by Chilean industries. It produced five preliminary reports on three key industries: forestry, mining and fishing. Only the mining sector escaped a resoundingly negative review. Central Bank officials, fearful of business leaders' reactions to the reports, went into a tizzy and were accused of trying to squelch the results.

"It wasn't in the government's interest to show the timber industry--one of the country's most important industries--degrading the environment," says Rodrigo Pizarro, one of the economists who worked on the three-year study. "It was clear that bank authorities never intended to release the report."

But a deluge of requests poured in from high-profile entities, including the Senate's Natural Resources Commission and the World Bank itself. After a three-month delay, the forestry report was finally released. It concluded that Chile's native forests were being overexploited, mainly because the timber industry was grinding old growth forests into wood chips for pulp and paper. Researchers estimated native forests would disappear within 30 years if timber operations continued unchecked.

After the report became public, the forestry industry demanded a meeting with Claude. He presented corporate officials with an analysis of the hidden environmental and labor costs of the wood chip industry. He showed them, for instance, how topsoil erosion and labor-intensive industries like tourism would be negatively affected. To their chagrin, Claude told industry representatives that "the manufacture of wood chips is Chile's worst business, and its disappearance tomorrow wouldn't move a single macroeconomic indicator in the country."

Flying solo. The subsequent release of a negative fishing industry report caused Claude's bosses to insist that the results represented the opinion of a single person--Claude--even though universities and outside organizations did the basic research. The remaining reports on forestry plantations and mitigation costs of industry-caused damage to the environment were never released.

The controversy cost Claude his job--although he insists he left voluntarily--and his sudden notoriety kept him from finding work for a year.

In 1997, Claude founded the nonprofit think tank Fundacion Terram, which today has an annual budget of US$400,000 and counts among its backers the Ford and McArthur foundations. With its small staff of journalists, lawyers and economists, Terram's ambitious goal is to change Chile's export-based economy into a model of sustainable development.

The foundation routinely publishes reports on the environmental impact of Chilean industries. It is also willing to sue to stop major polluters or to force government agencies to release information about suspect companies. Terram lawyers are currently involved in six such lawsuits. "Despite the monetary gains that these activities immediately produce, what are the long-term environmental and social consequences? Those are the questions we continually ask in our research," Claude says.

In 1998, a Terram report criticized a $180 million forestry project led by the U.S.-based Boise Cascade Corp. Claude's widely circulated study set a new standard for measuring environmental impact by placing an economic value on the hidden costs of the project. Those included the negative impact on industries such as tourism and salmon farming, as well as the cost of soil erosion and pollution. The report's bottom line: the price tag to restore the woodlands would be 26% higher than the value of the products produced.

"The proponents of these kinds of projects always insist they bring development," says Claude. "but if you contrast how much investment it brings and how much it destroys, you realize that it doesn't benefit anyone.

With the help of Terrain's legal team, an alliance of tourism operators, salmon farmers and environmentalists took the U.S. company to court to stop the project. It lost the case after a two-year battle but, in January, Boise-Cascade pulled out of Chile anyway. The company cited a change in market forces and criticized the government for allowing "environmental revisions because of the incessant demands of a small group of non-governmental organizations."

Poison valley. Not all business executives disagree with Claude. In fact, some consider him a savior. In 1999, vintner Cristobal Heroven asked the foundation for help after the Angelini Group, a powerful Chilean conglomerate, announced plans to install a $1.4 billion cellulose plant in the Itata Valley--10 kilometers upstream from his La Huerta vineyards. Heroven feared the Itata River, providing the water for his operations and those of area farmers, would be polluted by toxic chemicals released during cellulose production.

The Terram Foundation later released a report comparing the economic advantages of the cellulose industry with those of the wine industry. An extensive analysis of the chemical byproducts of cellulose production included the carcinogen dioxin. "What makes Marcel Claude so effective is that he speaks the same language as the business sector--economics--and on its own terms he discovers the failings in the system," says Heroven. "Because of that, they fear him more than the devil himself."

The Terram study showed that valley vineyards employ 3,000 people whose jobs would be at risk if the Angelini Group won the lawsuit, compared to 1,200 workers that the cellulose plant would need. The study also noted that even though the plant has yet to be constructed, it already had negatively affected the region's wine industry. The international vineyard Kendall-Jackson and several German investors reportedly dropped their plans to invest in the Itata Valley when they learned a cellulose plant might be built.

The cellulose project is now tied up in a Santiago court.

Claude is content with his foundation's efforts, but he's not satisfied with its results. "We have been successful in delaying projects in the courts, making them less profitable and encouraging them to leave," he says. "But in terms of our big objective, which is to change the development model, we are still failing. It is a process that takes years."