Learn about how the system of carbon trading began and why the voluntary market for carbon credits represents opportunities for companies that are seeking to reduce their emissions. Brazil has begun to take steps in regulating this market. The time is now to get ahead of the curve with the right platform: MyCarbon
You may have heard of the voluntary carbon credit market. However, have you ever stopped to think about how it started and how it actually works?
There are two possible options when it comes to the carbon credit market: there is the regulated market, whereby governments - be they national, state or regional - establish pricing systems for greenhouse gas emissions, which include targets for sectors considered carbon-intensive. On the other hand, in the voluntary market, companies offset their emissions without the obligation to meet imposed reduction targets, acting for the sake of goodwill and to meet the needs of consumers and investors.
The Origin of Carbon Markets
Both carbon credit markets share the same origin, but have evolved in different ways. Looking back in time, we come to 1992, when Brazil hosted the United Nations Conference on Environment and Development in Rio de Janeiro, which became known worldwide as Eco-92 or Rio-92. The United Nations Framework Convention on Climate Change* (UNFCCC) was established at this time, which led to the promotion of climate summits, the COPs (Conferences of the Parties).
One of the most important summits was held in 1997 in Kyoto, Japan. There, the UN members decided that countries should take on more stringent commitments to reduce greenhouse gas emissions, giving rise to the Kyoto Protocol, ratified in 2004. The Kyoto Protocol established, for the first time, the Emissions Trading mechanism, where countries could trade securities called certificates of reduced emissions (CERs); and also the Clean Development Mechanism (CDM), which allowed the trading of these securities between developed and developing countries.
A global regulated market then emerged, where only developed countries had emission reduction targets and thus could buy credits from developing countries through CDM projects, such as reforestation projects, energy substitution, or carbon capture in landfills, and so on. In parallel and inspired by this regulated market, the voluntary carbon market was created, where companies could negotiate carbon credits in a bilateral relationship not subject to regulation.
How it works
In the voluntary market, companies offset carbon emissions in an effort to meet climate neutrality targets, as well as reputational interests, such as pressure from stakeholders who have become increasingly aware and more demanding in relation to the issue of climate change. Net zero commitments have driven the demand for credits in the voluntary market which, according to the World Bank, will generate US$ 1 billion in 2021**.
Voluntary market carbon credits can come from initiatives that capture, offset, or reduce greenhouse gas emissions. Renewable energy projects, industry energy substitution, reforestation and forest restoration, agricultural projects, and forest conservation are eligible.
The voluntary carbon credits market is still small on a global scale, representing about 1% of what is traded in the regulated markets. But the potential for growth is significant, given that more and more companies are seeking to neutralize their greenhouse gas emissions through this strategy in order to meet climate neutrality (also called net zero) targets. And when we look at Brazil, a country that has large areas devoted to forests and agricultural projects, in addition to a predominantly renewable energy matrix, the opportunities abound.
Brazil takes first step in regulating the carbon market
Aware of these opportunities, Brazil took the first step towards fostering a carbon credit market with the publication of the federal government's decree Nº 11.075/2022** in May 2022, which addresses the matter of commercializing carbon credits for companies and countries that need to offset their emissions. The decree establishes the eligibility of nine sectors for emission reduction plans, among them being power generation and distribution, health services, agribusiness, manufacturing industry, and civil construction, among others.
The article foresees the possibility, for instance, to incorporate areas equivalent to 280 million hectares of native forests that are protected by law into the carbon market, enabling rural producers and companies from all over the country to generate financial assets through conservation. It also includes the carbon present in coastal, marine and river ecosystems, including mangroves. The decree also foresees the development of mechanisms to enable integration with the regulated international market, which will in turn, introduce Brazil into global commercialization strategies.
For MyCarbon, which has organized its operations with the objective of becoming a global player in the carbon credit market, this is a moment that offers great opportunities. The company offers the market the opportunity to source carbon credits through environmental preservation and restoration projects in the field, carbon sequestration in the soil, and other mechanisms. Get to know our platform and be part of the movement towards a low carbon economy.