Article published on the Portal NeoMondo
Carbon pricing is already a reality among Brazilian companies in their investment decision-making processes, but much still needs to be done at the governmental level, starting with the establishment of a regulatory framework on the topic. This was one of the main conclusions of the International Meeting on Carbon Pricing, held in São Paulo, on June 19.
The event, the result of a partnership between the German Embassy in Brazil with the Climate and Society Institute (iCS), was carried out together with the Brazilian Business Council for Sustainable Development (CEBDS), the Carbon Pricing Leadership Coalition (CPLC) and the European Commission.
Throughout the program, emissions trading (cap and trade) and taxation were debated as the two most viable forms of carbon pricing currently. Broadly speaking, trading consists of trading securities in a market called Emissions Trading Systems (ETS), based on certificates sent to companies that establish a previously agreed emissions limit. The taxation system has as its principle the collection of tax charged from a fixed price on each unit issued by the company.
One of the most debated issues during the meeting was the report from the Federal Court of Auditors which revealed the granting of tax waivers of R$ 4.14 billion by the Federal Government to the energy sector. Of this total, R$ 740 million was allocated to thermoelectricity and R$ 666 million to liquefied natural gas. Another topic discussed during the debates was the reduction of the Economic Intervention Contribution (Cide) on diesel oil, as a consequence of the truck drivers' strike in May.
The topics were treated with concern among the speakers, mainly due to the risks of compromising emissions reduction targets in Brazil, based on the terms established under the Paris Agreement in 2016.
During the event, it was revealed that 42 national and 25 subnational governments already price carbon. In Brazil, pricing initiatives are led by companies, which apply the system internally. There was consensus, however, about Brazil's potential to develop a promising carbon market, similar to what is already occurring in Europe. The country occupies eighth place in the world ranking that measures installed wind energy production capacities, according to the Global Wind Statistics 2017.
“Brazil can only gain from carbon pricing. We have a clean matrix and advantages that put us ahead, and we cannot waste time. Companies, which are regulated, want pricing and know that this is irreversible”, said Marina Grossi, president of CEBDS and member of the Steering Committee of the CPLC. “Unfortunately, we still see subsidies that compromise emissions reduction targets. We expect more directive policy from the government in carbon pricing in Brazil. Even the World Bank recognizes Brazilian advantages.”
The president of CEBDS said that the organization, together with its associated CEOs, has a formal proposal to create a carbon market in Brazil, to be taken to the Ministry of Finance.
The executive director of iCS, Ana Toni, also demanded measures from the government sphere. “We cannot help but look closely at fossil fuel subsidies that are still granted.”
The general coordinator of Environment and Climate Change at the Ministry of Finance, Aloísio Melo, who took stock of the department's activities on pricing regulation in Brazil. The Ministry of Finance is responsible for coordinating the PMR Brazil Project, created in 2014 to conduct studies on the inclusion of carbon pricing.
“Although talking about taxation may seem efficient, simple and straightforward to implement, the fact is that we have a very complex tax framework. Talking about taxation involves the difficulty of political rejection, of changing a structure that impacts other entities in the federation and changing a very complex arrangement”, he pondered.
According to the coordinator of the Ministry of Finance, one of the challenges of this debate is the choice of a model that combines taxation and the carbon credit market, according to the specificities of each economic activity. One of the examples cited by Melo was the agricultural sector.
“There is a policy framework for land use. Whether it can be priced in the agricultural sector is something we are exploring. In fact, there is enormous room to improve instruments that already exist, such as rural credit and insurance policies. It is not trivial, but it is a way forward”, he stated.
The Executive Secretary of the Brazilian Forum on Climate Change (FBMC), Alfredo Sirkis, also drew attention to the legal and political difficulties for the carbon taxation model, but defended adjustments to the current system. One of the proposals defended by Sirkis is the creation of “Cide Carbono” as a short-term measure.
“To date, there is no survey or in-depth study of tax rate legislation in light of their carbon intensity. The creation of subsidies is part of this and is not discussed in light of the carbon tax”, he said.
ADVANCE
The general coordinator of Energy and Sustainable Development at the Ministry of Industry, Foreign Trade and Services, Gustavo Saboia Fontenele e Silva, defended greater progress in internal carbon pricing by companies.
“To get into a tax and market issue, you have to know the impact on the industrial sector. Internal pricing allows any sector to anticipate regulatory measures, outline possible scenarios and protect itself. Furthermore, it anticipates technologies and attacks more energy efficiency items, which in the industrial sector are very expensive and do not have proper monitoring”, he observed.
Silva drew attention to the heterogeneity of Brazilian industry as a whole, whose characteristics vary, including, depending on the reality of each location where it operates in the country.
“Speaking about internal pricing means taking into account some elements that have already been highlighted in the PMR Brasil diagnoses, such as the size of the supply chain, location of the industrial plant and the company's market power, among others. And this is very critical and sensitive for companies operating in the country”, he assessed.
STUDY – Professor Ronaldo Seroa da Mota, from the Department of Economics at the State University of Rio de Janeiro (UERJ), presented a study commissioned by CEBDS during the event, which recommends the implementation of the carbon market in Brazil gradually. To achieve this, the study suggests, an initial five-year commitment phase would be required, the granting of free allowances at the outset and a break-even ceiling price no higher than US$10 per ton of CO2. The idea would be to take into account the competitiveness of companies most exposed to the international market.
“Some models can determine which prices would lead to which levels of emissions reductions. This value of US$ 10 is a price at which costs would not be high, and is an initiation. Once the pilot period is over, the regulatory framework would have to say how we are going to do with the next target”, he explained.
The International Meeting on Carbon Pricing also had the participation and support of Carbon Disclosure Project (CDP), an organization that operates a global disclosure system for investors, companies and governments to manage their environmental impacts. According to Lauro Martins, executive director of CDP, companies are already preparing for the creation of the carbon market, as they carry out internal pricing.
“Carbon pricing in Chile completely changed the country’s energy matrix and drastically expanded the development of renewable energy,” said Martins.
For Marcelo Cerqueira, vice-president of Braskem, Brazil has played a positive role in the debate on emissions, and highlighted the company's support for movements that aim to implement a carbon market in the country.
“We decided to adopt carbon pricing internally a few years ago and it has been a very rich experience, and this discussion in the investment portfolio has been very important. It is an educational process, because people start to think differently. We are preparing for what comes and we are anticipating the movements”, he said.
The president and CEO of Siemens do Brasil, André Clark, said he was optimistic about the prospects for technological innovation resulting from carbon pricing in Brazil, especially with regard to the energy matrix.
“Carbon pricing and the low-carbon economy create new industries that prove to be robust, such as wind generators, which create new services, products, etc. The electrification of mobility is much more efficient due to the physics of the electric motor itself. The feeling is that the government's agenda on this subject should be
aspirational, indicative. Where will we be? The industry will be reinvented in Brazil and the country's development vision certainly involves a more competitive and low-carbon economy”, stated Clark, who reaffirmed Siemens' commitment to zero carbon emissions by 2030.
Engie's Vice President of Energy Transition, Philipp Hauser, stated that improving Brazil's competitiveness with energy efficiency depends on better economic regulation.
“Regulated pricing regime is more efficient than internal pricing. Internal pricing is essential, but none of this will be of any use if we do not promote effective carbon pricing, with regulation that meets the interests of society. The private sector and society are the biggest stakeholders”, said the executive.
