IBAMA regulates the direct conversion of fines into environmental services and establishes a standard procedure for project approval

IBAMA Ordinance¹ No. 163, of August 14, 2026, established the Administrative Procedure for Project Approval (PAAP No. 01), setting forth the guidelines and criteria for the preparation, submission, review, and approval of environmental projects aimed at the direct conversion of environmental fines imposed by the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) into environmental services. The measure standardizes a procedure that had been addressed only in limited detail under Federal Decree No. 6,514/2008 and IBAMA Normative Instruction No. 21/2023, while also providing greater predictability for companies and other sanctioned parties interested in replacing the payment of fines with the implementation of environmental services.

Direct conversion of fines into environmental services

The conversion of fines into environmental services is a mechanism that allows parties sanctioned for an environmental violation to replace the payment of a monetary sanction with the implementation of environmental preservation, improvement, and restoration services. These services may include the restoration of degraded areas, the protection and management of native flora and wildlife species, environmental quality monitoring and development of environmental indicators, climate change mitigation or adaptation measures, environmental education initiatives, and support for Conservation Units.

Through direct conversion, rather than the fine amount being paid into public coffers, sanctioned parties undertake the obligation to invest their own financial resources in an environmental project whose cost is equal to or greater than the amount of the fine to be converted.

In direct conversion, which is the subject of the new ordinance, sanctioned parties are responsible for preparing and implementing the project. This differs from the indirect conversion modality, under which sanctioned parties join a project previously selected by the public authority.

Both forms of conversion provide for discounts on the amount of the fine. In the case of direct conversion, the discount is 40% if the request is submitted together with the defense, and 35% if submitted before the filing of final arguments.

Key highlights of the new regulation

PAAP No. 01 establishes a uniform procedure for direct-conversion projects, which must now be prepared and submitted exclusively through the IBAMA Project Preparation System (Sistema de Elaboração de Projetos – SISPRO) at the executive-project level, with proof of submission attached to the conversion request filed with the sanctioning authority.

If the project is not submitted on the date of the request, the adjudicating authority may grant an additional period of up to 60 days for its submission. Projects are subject to specific technical and financial requirements, including:

• total cost equal to or greater than the amount of the fine to be converted;
• appointment of a qualified technical professional;
• minimum and maximum implementation periods and approval through a scoring-based review process, including a minimum score and disqualifying criteria, such as the submission of a budget compatible with market prices.

The regulation also expressly prohibits projects involving certain areas and purposes, such as rural properties that do not have an active Rural Environmental Registry (Cadastro Ambiental Rural – CAR), as well as projects intended to fulfill environmental licensing obligations or to remedy damage resulting from the underlying environmental violation.

Once the request has been granted and the project approved, the conversion is formalized through the Environmental Fine Conversion Commitment Agreement (Termo de Compromisso para Conversão de Multa Ambiental – TCCM), suspending the enforceability of the fine and requiring the sanctioned party to waive its right to administratively appeal the conversion request.

The definitive cancellation of the fine, however, will occur only after proof of the project’s effective implementation and its subsequent approval by IBAMA. Until then, the sanctioned party remains subject to ongoing monitoring and reporting obligations. In any event, the obligation to fully remedy the damage resulting from the environmental violation remains in force.

Practical implications for companies

For companies involved in administrative enforcement proceedings or subject to federal environmental fines, the ordinance provides a clearer and more predictable pathway for converting penalties into environmental projects implemented through their own means. The standardization of criteria and the requirement for an executive-level project, budget quotations, and a qualified technical professional are expected to reduce uncertainty regarding what will be accepted by IBAMA, while at the same time increasing the level of technical planning and procedural rigor required from the sanctioned party.

It is important to distinguish the legal possibility of conversion from its effective approval: opting for the mechanism does not, by itself, guarantee that the request will be granted. The process involves the timely filing of a request, acceptance by the adjudicating authority, technical approval of the project, and execution of the TCCM, with the conversion being completed only at the end of the process, upon demonstration and validation of the project’s implementation.

The decision to opt for the mechanism also carries important strategic implications, since execution of the TCCM requires the waiver of administrative appeals and subjects the sanctioned party to obligations that may be judicially enforced in the event of non-compliance.

The conversion does not replace the obligation to remedy the damage resulting from the underlying violation, nor does it satisfy environmental licensing obligations. Furthermore, all costs associated with preparing and implementing the project must be borne by the sanctioned party, without any reimbursement from IBAMA.

Demarest’s Environmental team is available to provide any additional clarifications that may be required.

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[1] Published in the Brazilian Federal Official Gazette on August 17, 2026.