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PTWill the regulated carbon market work in Brazil?
Will the carbon market work in Brazil? This is the question that motivates the eighth episode of the WayCarbon Talks videocast, which featured guests Henrique Pereira (COO) and Isabela Aroeira (Carbon Business Development Manager), as well as Lauro Marins (Head of Digital Solutions and Consulting) from WayCarbon.
The conversation addressed the sanction of the carbon market in the country, ocurred on December 12, 2024, which presented the structure for implementing this instrument. All activities and companies that have emissions greater than 10,000 tons per year are included in the system, except those belonging to the agricultural industry, which faces methodological difficulties in measuring.
Law 15.042 includes the principles and characteristics of the Brazilian Emissions Trading System (SBCE), its governance and its assets: the Brazilian Emission Quota (CBE) and the Verified Emissions Reduction or Removal Certificate (CRVEs). The law also defines the elements that will need to be established in the National Allocation Plan, in the SBCE Central Registry, in the accreditation of methodologies to be accepted and in the allocation of resources.
Next steps
Experts explain that three macro stages of implementation can be considered: the initial phase of data collection and submission of inventories, a pilot operational phase and a third stage, with the market actually operating. The complete roadmap can be found on the gov.br portal. “Our expectation is that the Brazilian market will work, yes, but we still need some decrees and tools for it to operate in a transparent and integral manner”, says Isabela Aroeira.
Henrique Pereira agrees and emphasizes that the next steps and milestones for implementing the law are the most important to ensure that this carbon market has liquidity and a price signal that can transform the Brazilian economy. “The period is long; we are talking about almost six years for a fully functional market. Therefore, important decisions about goals, transaction processes and market infrastructure still need to be made”, he says.
Market goals
When talking about the carbon market, there is a mistaken perception that everyone can profit from this mechanism, but that is not the objective. Experts explain that the regulation aims to reduce emissions in the country, in addition to complying with the requirements of international markets and making Brazilian products competitive in global trade. “The focus is to reduce emissions through an instrument that internalizes a carbon price so that investment decisions incorporate this variable”, explains Pereira.
In practice, when a company is regulated by an environmental asset market, its investment equation becomes: how much is carbon worth on the market and what is my carbon cost to reduce emissions? This exercise is known as relative pricing. “This is the dynamic that generates supply and demand in the market. Because companies that can reduce emissions in a more cost-effective way, within market rules, will be able to sell this reduction, but organizations that have a slightly higher cost may choose to buy permits from a third party, initially, and plan to reduce internal emissions in the longer term,” says Pereira.
Carbon market versus taxation
The National Climate Change Policy (PNMC), established in 2009, already mentioned the market as an instrument for implementing Brazil’s decarbonization goals, but that does not mean that there are no other mechanisms. “There is no ‘silver bullet’ in this case. No carbon pricing model meets the needs and challenges of decarbonization in all countries,” explains Lauro Marins.
In addition to regulated markets, carbon taxes or fees (such as the European Union’s CBAM) are the most widely used models. “In economic theory, both instruments work the same way. The difference is that when you tax carbon, the signal to the market is via price, whereas in regulated markets, regulation is based on volume. The market limits emissions within the economic system,” says Pereira.
To watch the full episode (divided into two parts), visit WayCarbon’s YouTube channel and enable English subtitles.
