Opinion – Why? Economese in good Portuguese: COP26 and the Brazilian economy

In recent days, newspapers have brought several news about COP26, the “Climate Conference”, which annually brings together representatives from different countries, NGOs, companies and others to analyze and discuss progress in the implementation of climate goals, in addition to negotiating commitments national emissions and other mitigation mechanisms. This year’s conference kicked off in Glasgow (Scotland) on October 31st and is scheduled to run until Thursday (11).

The COP is one of the most important forums on the climate crisis, as it is directly linked to national strategies for mitigating climate change. The meetings agree on national plans to cut or reduce emissions, which directly influence the formulation of public policies in all countries. Unlike other international conferences, the opinions and concerns of the poorest countries have equal weight with those of the largest economies such as the United States and China. Furthermore, the agreement can only come by consensus at the COP.

COP26 is especially relevant for three reasons:

1. This year, all countries need to submit their long-term emissions targets, so charging for ambitious commitments related to the global climate emergency will be high on the agenda.

2. It is less than ten years to 2030, the deadline stipulated by the Paris Agreement for achieving the goals stipulated by each country. So the COP will need to reach a consensus on how the Paris Agreement will be implemented to drive global climate action.

3. There are issues that were not resolved at COP25, and it is expected that COP26 will resolve all outstanding issues.

Mainly with regard to the last topic, this year’s COP is extremely related to economic issues. In particular, a big question expected to be resolved at the conference is: what should the price for carbon emissions be?

There is a lot of pressure for the COP26 negotiations to revolve around the establishment of a market for carbon credits, pending COP25. In this context, there are still many questions that need to be answered by countries: how will a global carbon market be organized? What is needed for this to be facilitated?

These questions will be explored in more detail by Why? in a series on green economic recovery and environmental economics. But it is interesting to say that this topic has come into evidence in recent years, and decisions around this market will have a significant impact on the Brazilian economy.

At the 2019 COP, Brazil, represented by the then Minister of the Environment, Ricardo Salles, was marked as one of the countries against the most ambitious targets for emissions. This is to be expected, as developing nations in recent years have been reluctant to increase their emissions reduction targets without further financial support from rich countries. More than that, however, Brazil also made negotiations on carbon credits more difficult, leaving this point pending for this year’s conference.

Brazil was accused of trying to institute a double counting of national forests, in order to have the forest cover to meet the emission cut commitments agreed in Paris and also to sell to other countries the carbon credits received for maintaining its forests in foot. A double counting could occur if both the seller (Brazil) and the buyer of the carbon credits (other nations) record the reduction as their own. For the correct functioning of the market, this cannot happen.

Some argue that if Brazil stops polluting by selling its carbon credits to other countries, then it should record the emission rights sold as if it were an increase in its own emissions. The idea is that only the country that buys the credits registers a reduction in its emissions, thus ensuring that the total global carbon emissions is not doubled and the global balance of reduction remains representative of reality. However, individual countries want to take credit for reducing emissions, which makes this topic controversial.

Another of the main points of conflict is to allow the use of credits generated in the Kyoto Protocol of 1997. Brazil was one of the main countries for emission reduction projects under the extinct CDM (Clean Development Mechanism) and, in the past, it argued that all of these credits should be allowed to offset pollution cuts after 2020.

This established an ongoing dispute on this point (Article 6 of the Paris Agreements, which provides for the creation of a voluntary carbon credit market). Brazil has a lot of influence on the decision: the Amazon Forest —one of the largest carbon reserves in the world— would generate a significant amount of credits in any global offsets market supervised by the United Nations.

However, Brazil recently indicated that it might be willing to reduce its demands and facilitate the creation of this global market for carbon offsets managed by the United Nations. This is mainly due to pressure from private sectors (businessmen and investors) for the government to resolve the Article 6 debate so that they can participate in the market.

Therefore, in this edition, the COP brings the possibility of rehabilitating Brazil’s international image, which in recent years appeared as a great “climate villain”. Restoring international confidence in Brazil, becoming a country serious about climate goals and favorable to carbon credits, could be the beginning of a green economic recovery plan that could ultimately work around our financial crisis. However, the position of the country and how it will be received by international agents is still uncertain.

From a political point of view, it seems unlikely that Brazil will be able to reverse the negative image (considering both the impact of past Brazilian positions on the environment and the fact that President Jair Bolsonaro will not be present at the conference). However, the relative presence of Brazilian business at the conference this year is a positive sign, in addition to the creation, a few days ago, of a “National Program for Green Growth” by the Ministries of Economy and Environment. This illustrates how the private sector has increasingly bet on the so-called green economic recovery of the country, and demanded articulation of the public and private spheres.