By Paulo Trevisani
Brazil's government has finalized a bill creating a cap-and-trade carbon market expected to help Latin America's largest economy curb greenhouse gas emissions.
The bill is expected to be sent to Congress within the next month or so. It has been discussed inside the administration of President Luiz Inácio Lula da Silva for months. The regulation is part of the administration's plan to achieve emissions reduction targets.
"We need resources to finance investment in environmental policies," said Guilherme Mello, the Finance Ministry's economic-policy secretary, who was involved in the discussions. To achieve Brazil's ecological goals, "we need adequate financial instruments, and the carbon market is one of them."
Mello estimates the market would take about three years to start operating after it is approved by Congress. Local media has reported that House Speaker Arthur Lira plans to focus on environmental legislation in the second half of this year.
The carbon market is meant to help Brazil meet its goal in the Paris Agreement of reducing emissions by 37%, based on 2005 levels, by 2025. By some estimates, regulated carbon trade could represent a 100-billion-Brazilian-real ($20.4 billion) market by 2030.
Mello said the proposed framework includes language allowing Brazilian carbon credits to be traded in cap-and-trade markets overseas and vice-versa. Diplomats from various countries have been discussing common standards to make international carbon trade possible, but this goal has been elusive so far.
"We had the intention to build something that could interact" with foreign carbon markets, Mello said. "Of course, it doesn't depend only on Brazil."
He said the government also plans to beef up enforcement against illegal deforestation and issue debt tied to sustainability projects, among other environmental initiatives.
The carbon market is meant to be similar to those already operating in the E.U., California, China and other jurisdictions.
The Brazilian plan caps emissions at 25,000 metric tons a year per company. It would impact around 4,000 companies, including some large meatpackers, Mello said. Farms and ranches won't be subject to the regulation because of the complexities involved in measuring their emissions, according to Mello. However, Brazil's agribusiness, among the country's top exporters, is likely to be affected eventually, as the food industry is forced to curb emissions across its supply chain.
A 2023 report by Observatório do Clima, a non-profit focused on forest protection, estimated that Brazil's greenhouse emissions are growing, reinforcing calls for a cap-and-trade program. The report said that 49% of the country's emissions in 2021 came from deforestation--a process that includes tree cutting and burning, both of which release CO2 into the atmosphere--and 25% from raising cattle.
The industries that would be directly impacted by the new regulation are responsible for a smaller fraction of total emissions, but the regulation is expected to help keep forest cover from shrinking too fast.
Polluters will be allowed to offset emissions during a transition period. Officials and people involved with carbon projects expect the emissions cap to drive up investment in reforestation as a way to offset excessive pollution. Tree planting generates carbon credits because the plants suck CO2 from the air and store it for as long as they live. Brazil's vast territory, larger than the continental U.S., offers ample reforestation opportunities, experts say.
In an indication of Brazil's reforestation potential, Mombak Gestora de Recursos, a local startup created to attract private investment on tree planting in the Amazon and profit from the resulting carbon credits, has received funds from U.S.-based Bain Capital Partnership Strategies and a fund controlled by France's AXA, among other investors.
Another carbon credit supplier, Biofílica Ambipar Environment, announced last month a BRL300 million investment from British drugmaker AstraZeneca to plant 12 million trees in Brazil's most industrialized state, São Paulo, where most native forests have long been replaced by crops and pastures.
These and other projects have been thriving in the so-called voluntary markets, where companies buy credits to reduce their carbon footprint, regardless of mandatory caps. Brazil's planned regulation is expected to increase the value of carbon credits in general. Each credit equals 1 metric ton of CO2 removed from the air.
"Any tree planted in Brazil is additional," said Biofílica co-founder Plinio Ribeiro, using the carbon markets' jargon for actions that reduce greenhouse gasses in the atmosphere that wouldn't happen without the possibility to sell offsets. "A carbon market is one of the tools needed to expand forest restoration."
(END) Dow Jones Newswires
08-08-23 1026ET
