Brazil has a great opportunity to increase productivity and generate jobs and income in the transition to a low-carbon economy. One of the most efficient mechanisms for leveraging our competitive advantages is the creation of a regulated national carbon market.
This has been a banner of the Brazilian Business Council for Sustainable Development (CEBDS) since 2016, and is even included in the agenda developed by companies for presidential candidates in the 2018 and 2022 elections. Therefore, the business sector welcomes the progress made on this topic in recent months, with the participation of the Legislative and Executive Branches.
Since last year, the Chamber of Deputies has been discussing the issue more robustly by analyzing, via a bill, the conditions for the construction of this regulated market. This process had the participation of several segments of the productive sector, the government and experts, producing consensus on very relevant points, with broad participation from society.
On May 18, the federal government announced the publication of a decree to regulate the carbon market in Brazil, anchored in the National Policy on Climate Change (PNMC, law 12.187/2009). The text could be a starting point for the pricing of greenhouse gases in Brazil, but it needs to be improved both in its proposals and in terms of the direction of a bill from the federal Executive.
The text addresses issues relevant to the carbon market bills currently being processed in Congress, such as the definition of sectoral targets and the creation of the National System for Reducing Greenhouse Gas Emissions (Sinare) as a centralized registry of emissions mitigation projects, carbon credits and the resulting transactions.
Sinare will also accept, without the need for credit certification, the registration of carbon footprints, carbon from native vegetation, carbon in the soil, blue carbon and carbon stock units. These records include activities that are also the subject of carbon credits, but the decree does not specify how such records would participate in the emissions trading system.
Sinare will also accept, without the need for credit certification, the registration of carbon footprints of national products, processes and activities; carbon from native vegetation; carbon in the soil; blue carbon; and carbon stock units. However, it does not specify how such processes and activities would participate in the market system, allowing their registration without the need to generate certified carbon credits.
The decree establishes the Brazilian Emissions Reduction Market (MBRE), already provided for in the 2009 PNMC, as an instrument for complying with sectoral mitigation plans through the trading of carbon credits. However, the decree does not establish a “cap & trade” system, used by countries where the carbon market is more consolidated, where the targets defined by the regulator are met with emission licenses and not only with carbon credits.
Furthermore, the decree has many open questions, including deadlines, and does not make clear the mandatory participation of the economic sectors that will be regulated by the market or whether there will be consequences for failure to meet the targets. These are gaps that imply challenges and uncertainties for the effective implementation of a regulated market.
Furthermore, the creation of a carbon market regulated by decree may imply legal uncertainty, since it can be easily changed by the unilateral will of the federal Executive, without the need for parliamentary debate and public consultation with society. A regulatory framework by decree does not have the predictability and stability necessary to encourage the long-term investments needed for the decarbonization process and may even inhibit the actions that are already being taken by the productive sector.
A specific law ensures that the regulated carbon market is a State policy and not a government policy, with greater resilience and the legitimacy of the democratic approval process in the Legislature.
In short, the decree places Brazil on a unique pricing strategy, with complex technical issues and gaps that need to be better clarified. On the other hand, it clearly indicates that the federal government understands the importance of carbon pricing with market systems so that the country can meet its greenhouse gas emissions reduction target, the NDC, and so that the country can play its leadership role in the new global economy, based on decarbonization.
Given the density and complexity of the subject, CEBDS continues to debate the regulatory conditions for a carbon market. We are holding a series of workshops on the regulated and voluntary markets, bringing together leading experts and our companies to discuss and prepare the productive sector for this important tool. We also continue to dialogue with the Executive and Legislative Branches, using the knowledge acquired since 2016.
We understand that there is a consensus among all stakeholders involved in this discussion: regardless of any ideological or political bias, the regulated carbon market is an attractive and strategic issue for Brazil. We are one of the countries with the greatest potential for selling carbon credits, which could generate net revenues of up to US$1.4 billion by 2030, according to estimates by the Environmental Defense Fund – money that could stimulate innovation in the productive sector and finance the transition to a competitive and inclusive green economy.
However, for this to happen, it is essential for CEBDS that the regulatory proposal incorporates contributions from the regulated sectors, experts and civil society: a market ecosystem, including a registration system for the voluntary market and a “cap & trade” system for the regulated market; gradual implementation; protection of business competitiveness and national sovereignty; predictability and legal certainty; and good governance, with an effective carbon pricing system and transparent rules and procedures.
We cannot miss the timing: it is important that Brazil urgently approve and regulate a national regulated market, following the example of what has been done with more advanced and mature models of our trading partners – such as the European Community, Mexico, South Korea, the United Kingdom, China and several states in the US and Canada. By establishing a robust regulated market system, we will be aligned with a government policy to combat climate change, with great opportunities for international cooperation, attracting investment, creating jobs and achieving climate justice. The Brazilian business sector is making its contribution and wants to be part of the solution.
