COP29: Brazil moves a step closer to setting up compliance carbon market

Brazil has taken a significant step toward launching a regulated carbon market, with the Senate passing a bill that outlines a national emissions trading system and the integration of voluntary carbon credits. This development coincides with Brazil's submission of updated Nationally Determined Contributions at the UN Climate Change Conference in Baku, running from Nov. 11-22.

The country has committed to reducing emissions by 59%-67% by 2035, building on a prior goal of 53% by 2030, as it prepares to host COP30 in Belem in November 2025. The Senate's approval, announced on Nov. 13, followed extensive discussions, with Senator Leila Barros emphasizing the bill's dual purpose -- "combating climate change" and safeguarding Brazilian exports from potential EU carbon border taxes.

The legislation establishes the Brazilian Greenhouse Gas Emissions Trading System, or SBCE, which will oversee compliance for entities emitting more than 10,000 mt of CO2 annually, excluding the agribusiness sector.

Companies exceeding this threshold will be allowed to trade SBCE allowances and utilize carbon credits from specific projects.

The bill will now proceed to the Chamber of Deputies for further approval before reaching President Luiz Inacio Lula da Silva. Discussions on carbon market regulations have been ongoing in Brazil since 2009.

Carbon pricing mechanisms

Modeled after the EU's Emissions Trading System, Brazil's proposed law aims to effectively reduce greenhouse gas emissions while providing a revenue source for the government.

Platts, part of S&P Global Commodity Insights, assessed EU Allowances for December 2024 at Eur66.29/tCO2e ($69.78/tCO2e) Nov. 13.

Carbon taxes and pricing systems provide funds 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.

The bill also includes measures to expand the scope of the carbon credits in Brazil.

The country is already active in the voluntary carbon market, particularly in forestry and agriculture, and this legislation might enhance domestic credits for ETS compliance.

Brazil, the largest economy in South America, seeks to cut its greenhouse gas emissions by 50% relative to 2005 levels by 2030 and achieve net-zero emissions by 2050.