Brazil trades in the voluntary carbon credits market, however, the perspective of creating a regulated carbon market would position the country as a major global player in the sector, based upon the regulation of Article 6 of the Paris Agreement; Congress is expected to vote on the bill while the federal government has already issued a decree regarding the matter
Regulated carbon credits market creates opportunities for Brazil
The creation of a regulated market for carbon credits in Brazil is seen by experts as a great opportunity to attract financial resources to the country, with the potential to generate a large volume of credits in projects related to forestry, agricultural activities, replacement of fossil fuels by renewable alternatives and restoration of native vegetation.
Do you know how the carbon credit market and its first regulations came about? It all started with the Kyoto Protocol, an agreement signed in 1997 during the 3rd Conference of the Parties of the United Nations Convention on Climate Change, the COP3. It was the first international treaty aimed at curbing greenhouse gases and came into effect in 2005, however, it did not impose reduction targets for developing countries, only for the richest nations, which historically account for the highest emissions.
A relevant new initiative established by the Kyoto Protocol was the global trade of certificates of emission reductions (CERs). This was the first draft of a global carbon credit market, where, as a rule, developed countries, with greenhouse gas reduction targets, purchased these credits from developing countries, under the Clean Development Mechanism (CDM). According to this model, CDM projects were approved by the appointed entity of each country which, in the case of Brazil, was a commission composed of representatives from 11 ministries.
As a result of the 2008 U.S. mortgage crisis, the market suffered from price instability. The evolution of climate change negotiations itself changed the scenario, so that developing countries also began to make commitments to reduce their emissions. Thus, the Kyoto Protocol lost its validity and was substituted by the Paris Agreement, signed in 2015, where the more than 190 signatory countries began to adopt emission reduction targets.
This development has given new impetus to emissions trading systems - also known as 'cap and trade' or ETSs (Emissions Trading Systems). In ETSs, governments define the sectors of the economy and entities that will be regulated and set a quantitative limit (the 'cap') on the organizations' emissions. Emission permits are created that are compatible with this limit, so that the price of these emissions can be adjusted in the market (the 'trade').
Paris Agreement Article 6
In addition to establishing the goal of preventing global temperatures from rising more than 1.5ºC above pre-industrial levels, the Paris Agreement also determined, through its article 6, the regulation of a global carbon credit market. This market has not yet been established, although there are more than 65 countries or regions with carbon pricing mechanisms. Article 6 provides for the regulation of various financial instruments, which could generate, according to an estimate by the International Emissions Trading Association*, a global trade of US$ 197 billion a year by 2030.
Where Brazil stands
Currently Brazil deals only in the voluntary market for carbon credits, as the country has not yet approved its own regulated market for carbon credits. This does not mean that Brazil has remained on the sidelines of this business: credits are traded directly between buyers and sellers or through intermediary platforms, also known as traders. MyCarbon is one of the participants in this market, positioning itself as a major player in the segment in South America.
There is a lack of consolidated data regarding the activity of the voluntary market in Brazil, given that there are no official records - only data compiled by international certifiers, which indicate the credits certified by them on an individual basis.
The regulation of the global regulated carbon credit market would offer immense opportunities for Brazil, in terms of both [TA2] forest restoration, reforestation, and forest conservation projects, as well as projects for carbon sequestration and retention in the soil, through the restoration of degraded pastures and integrated productive systems. In other words, in addition to promoting the low carbon economy, the development of a regulated market would provide conditions for Brazil to position itself internationally as a major player in this market.
The National Congress is discussing guidelines for the creation of a regulated carbon market, with PL No. 2148/2015 being one of the initiatives. The project proposes an ecosystem of markets, including a registry system for the voluntary market and a cap and trade system for the regulated market. At the federal government level, Decree Nº 11.075/2022 was issued in May 2022, which aims to regulate the carbon credit market in Brazil, under the National Policy on Climate Change (Law 12.187/2009).
The timing of both initiatives is opportune and expected to drive the development of projects that meet this profile. Companies, sector entities and governments agree on one point: the time to organize a regulated carbon market is now: thus, the country will be primed for the increasing demand for projects that generate a positive impact on the reduction of emissions, earning revenue, and foster a favorable environment for the achievement of its own targets under the Paris Agreement.
Here at MyCarbon, we are prepared to service both the voluntary and regulated markets. We are able to develop projects and offer credits resulting from transparent and audited projects, with certified reduction of greenhouse gases in accordance with international standards, focusing always on sustainability and positive impact for all those concerned.