Carbon market faces technical and political obstacles in Brazil

The generation of carbon credits in Brazil reached 12% of world emissions in 2021, much more than the 3% recorded in 2019, according to a report by the International Chamber of Commerce (ICC Brasil) in partnership with Way Carbon. The revenue projection rose from US$ 100 billion (R$ 531 billion) to US$ 120 billion (R$ 637 billion) in 2022.

Despite the promising scenario, the study points out that this market faces technical, political, regulatory and economic barriers to consolidate itself in the country.

The carbon market was created in 1992, during the United Nations Framework Convention on Climate Change (UNFCCC), and established in 1997, from the Kyoto Protocol, for countries to commit to reducing greenhouse gas emissions. greenhouse effect. Every nation has goals to meet. In 2015, the Paris Agreement updated these policies.

Local agreements and regulations also act in the functioning of this market. Current logic establishes that reductions in greenhouse gas emissions generate credits that, in turn, have economic value.

One ton of carbon dioxide (CO2 ) is worth one carbon credit, which can be traded and sold. Countries with excess permitted emissions can sell their credits to those above the limit.

It is also possible to sign cooperation agreements and convert the reduction of other greenhouse gases, not just carbon dioxide, into credits. Companies can participate in this market.

Even though revenue is on the rise, Brazil lags behind other Latin American countries. Chile, for example, charges US$ 5 (R$ 26.60), since 2014, the ton of carbon emitted. Along with Mexico and Colombia, it has become a protagonist in carbon pricing, according to the Ecological Institute.

European Union, Canada, Japan and China have regulated carbon markets, supported by government policies, and comply with international agreements.

“If well regulated and used, the carbon credits market can have a relevant impact on the search for a more sustainable economy, a fairer society and a more balanced and healthy environment”, he says.

Ricardo Esparta, UNFCCC specialist and director of EQAO, an advisory focused on the carbon market.
According to him, the environment and sustainability are issues that go far beyond climate change and need to be considered more seriously by the federal government.

Esparta claims that some factors, such as the increase in emissions and illegal deforestation and the low effort in regulation, explain Brazil’s difficulties in the matter. The expectation is that the elected government, led by Lula (PT), will put the matter back as a priority.

Responsible for CT Climate, Energy and Sustainable Finance at CEBDS (Brazilian Business Council for Sustainable Development), Viviane Romeiro says that a regulated carbon market is strategic for the Brazilian productive sector.

“The risk is to be left behind. Any action in the opposite direction means loss of competitiveness, trade reprisals and damage to the national market, affecting employment and income”, he says.

Romeiro says that, for the country to have an effective carbon market, there must be predictability in investments and legal certainty in the trading of emission rights, with well-prepared contracts, in addition to robust governance arrangements.

In May, a federal decree laid the groundwork for regulation and expansion of the national market, but putting it into effect in practice should still take some time.

Marcelo Schmid, master in economics and forest policy and CSO of the Index group, says that Brazil has conditions to be the greatest environmental power in the world. “We can sell environmental quality to countries that don’t have such conditions, either through carbon credits or another type of environmental service”, he says.

“Agribusiness, especially the forestry sector, can create an additional source of income for the country by engaging with environmental problems”, he adds.

In the opinion of economist Rodolfo Coelho Prates, a regulated market is good for the economy, as it stimulates negotiation, creates favorable environments for innovation, encourages competitiveness and does not generate an increase in the tax burden.

The expert claims, however, that the sector needs practical actions by the government, which include, for example, encouraging sustainable and efficient initiatives.