FEATURE: Brazil hopes to step up efforts to launch compliance carbon market by COP30

Brazil’s plans to establish a regulated carbon market have been hit by lengthy political delays along with pushback from its powerful agribusiness and heavy emitting sectors. But industry and political sources expect the government to approve a legal framework for a domestic compliance carbon market before the 30th UN Climate Change Conference, which will take place in November 2025 in the Amazonian port city of Belem, located in northern Brazil.

The government is keen to introduce a compulsory cap and a trade emissions trading system for companies in certain sectors, including steel, aluminum, cement and agriculture, involving the purchase of emissions allowances where necessary.

Rules for introducing a carbon market and limiting emissions have been under Brazilian parliamentary debate and discussion since 2009.

A bill to regulate carbon emissions was approved by the chamber of deputies in December 2023, since when it has been under consideration by the country’s senate.

Currently, the text approved by the chamber of deputies establishes legal controls on any activities emitting more than 10,000 metric tons of CO2 annually, but excludes from formal regulation certain agribusiness sectors including those that produce raw materials like fertilizers.

Federal deputy Arnaldo Jardim, a prime mover in Brazil's environmental legislation, was hopeful the carbon market law would complete passage through senate by year end, but noted a recent delay due to the current municipal election process, to be completed late October.

“With this law, Brazilian companies will have to adhere to compulsory carbon emissions targets: it will no longer be a question of voluntary negotiation of carbon credits,” Jardim said at the annual forum of Brazilian Biogas Association (ABiogas), which took place in Rio de Janeiro on Oct. 2-3.

Any changes made by senate to the bill’s wording will however require it to return to the chamber of deputies for further consideration.

Industry pushback

The country’s agribusiness sector has been “reticent” in signing off on the carbon markets bill, partly due to difficulties calculating its net emissions, according to Raphael Niemeyer of Sao Paulo-based law firm Stocche Forbes.

“Regulation of the carbon market is at least a year late,” said Niemeyer, also on the sidelines of ABiogas annual forum. “The goal is now to do this by COP30”.

Food production in Brazil, a major beef and grains exporter, and related deforestation for farming, accounted for as much as 74% of the country's greenhouse gas emissions of an equivalent of 2.4 billion t of CO2 equivalent in 2021, according to Brazil’s Climate Observatory, an environmental pressure group, and statistical agency Statista.

Efforts to reduce deforestation under the current government may have reduced that percentage more recently.

The introduction of a carbon market is the missing link in Brazil’s current attempts to move forward with the legal framework for a broader energy transition, according to Jardim.

Brazil, which is South America’s largest economy, aims to reduce its greenhouse gas emissions by 50% relative to 2005 levels by 2030 and reach net-zero by 2050.

Clear and flexible

Brazil’s proposed carbon markets law is said to be similar to the EU’s Emissions Trading System.

The EU’s ETS is considered an effective and economic way to reduce greenhouse gas emissions and a number of governments are starting to recognize the integral role of carbon pricing in their climate and energy policies.

Carbon taxes and pricing systems help provide a source of revenue for the government while helping companies assess the impact of climate change on their operations and investments. But so far, the number of countries or regions using such instruments remains quite small.

Analysts at S&P Global Commodity Insights said that developing and agreeing clear legal framework that is flexible and learns from international experience will be crucial for effective ETS implementation in Brazil.

"Engaging with a wide range of stakeholders, including industries, environmental groups, and Indigenous communities, is vital for gaining broad support and ensuring the system addresses local environmental and social priorities," they said in a recent note.

"It is anticipated that Brazil will consider the experience of the EU ETS and other programs concerning the allocation of allowances and a gradual tightening of emission caps to drive meaningful reductions."

Carbon prices currently vary significantly on a country-to-country basis as there is no global carbon price. Carbon permits under the EU ETS are almost six times more expensive than compliance prices in China, the industrial powerhouse of the world.

Platts, part of S&P Global Commodity Insights, assessed EU Allowances for December 2024 at Eur63.01/tCO2e ($68.42/tCO2e) Oct. 17. This compares with China's compliance emissions price, which was valued at Yuan 100.95/tCO2e ($14.27/tCO2e) on Oct. 11, according to the Shanghai Environment and Energy Exchange.

Brazil is also very active in the voluntary carbon market, home to several carbon projects notably in the forestry and agriculture sectors. Brazil's voluntary carbon market is expected to see a further boost with new legislation possibly enabling domestic credits for ETS compliance.