Given the unfavorable correlation, the vote could be considered a surprising victory for the government, which should use it as a trump card in international negotiations
*With information from the Chamber Agency and the Climate Observatory (OC)
The plenary of the Chamber approved, early in the evening of this Tuesday (19), and now goes to presidential sanction, the bill (PL 182 / 2024) that creates a formal carbon credit market with the aim of helping the country reduce its greenhouse gas emissions that cause the climate emergency.
To some extent, the result can be considered a surprising victory for the government, given the unfavorable correlation of forces in Congress, especially on the environmental agenda. Defended by the Planalto, the text coming from the Senate was fully approved (with the exception of a single point). by a large majority - 336 votes to 38. More radical than the average in the Legislature, a part of the extreme right ended up being isolated in the vote.
Despite this, until the end of Tuesday afternoon, the information was that Centrão and the opposition continued to defend the original wording of the Chamber, also considered worse by civil society. The opposition had already managed to postpone the voting on the project twice in the Senate, among other reasons to prevent the government from presenting the new law as a trump card at COP-29, the UN's international climate change conference currently taking place in Baku, Azerbaijan.
The fear was that the rapporteur, deputy Aliel Machado (PV-PR), would give in to pressure and go back on the agreement initially made with the government and the heads of the two legislative houses to maintain the proposal approved by the senators (Learn more). But that's not what happened.
Machado stated that, with the establishment of environmental restrictions on imported products, especially by the European Union (EU), the new law will prevent billions in losses for Brazilian exporters. “It is much cheaper to price emissions in Brazil than to wait for this to happen in importing countries,” he said.
“[It] is a great goal, which puts Brazil once and for all on the podium in tackling climate change and attracting resources to keep the forest standing, for sustainability,” celebrated the Minister of Institutional Relations, Alexandre Padilha, in a post on social media. He said that a “very strong action” will be taken to have the new legislation sanctioned by President Lula.
The bill creates the Brazilian Greenhouse Gas Emissions Trading System (SBCE), which will be overseen by the government. The proposal envisages setting emission limits for different economic sectors, to force companies to pay for pollution that exceeds permitted levels by purchasing carbon credits (read more below and in the table at the end of the report).
If everything goes well, the idea is that the economy will gradually decarbonize, that is, that companies will replace polluting technologies that use fossil fuels with cleaner ones based on biofuels, solar and wind energy, etc. The ultimate goal is to help the country meet its emissions reduction target agreed in the international climate change treaty.
Brazil's main source of emissions is deforestation, accounting for 46% of the total, while other agricultural activities account for 28%, according to the Greenhouse Gas Emissions Estimation System (Seeg) from the Climate Observatory (OC). Therefore, rural production is responsible for about 3/4 of national emissions. On the other hand, the large extension of the Amazon rainforest in the country makes it a great candidate for initiatives and policies to generate credits through conservation, in projects to maintain or expand forest carbon stocks.
What are carbon credits?
Carbon credit trading allows companies or individuals to offset greenhouse gas emissions that cause climate change, resulting from businesses and economic activities, by purchasing credits generated by projects to reduce these emissions or capture carbon from the atmosphere. An initiative to reduce pollutants from an industry, reforestation or conservation of an area with native vegetation are examples of this type of project. One carbon credit corresponds to one metric ton of greenhouse gases, such as CO2.
There are two types of carbon markets: voluntary and regulated. The first does not depend on legislation and sells certified credits to those who want to offset emissions voluntarily. The second operates based on national legislation that establishes emission limits for economic activities, allowing the purchase and sale of credits between those who pollute and need to offset emissions and those who can remove carbon, avoid or reduce emissions.
Indigenous and rural communities
Experts and civil society organizations that follow the issue assess that the Bill was improved throughout the process, although the final text is far from ideal. According to them, the provisions on the rights of indigenous peoples and traditional communities are among those that were improved (Find out more in the table at the end of the report.).
“It is better to have a law on the subject than not to have one. It is a political gain”, says the founding partner and president of Socioenvironmental Institute (ISA), Márcio Santilli. "Despite all the problems that the norm may have, its approval means an acknowledgement of the climate crisis, albeit from an economicist perspective, and a defeat of denialism in Congress, where it is very strong", he continues.
Santilli fears, however, that the new legislation will not be able to prevent undue pressure from companies on indigenous and traditional populations and the official bodies responsible for their protection. Hence the need for social movements and civil society organizations to mobilize to inform and support these communities in defending their rights. Many of them have been victims of dubious or fraudulent projects of forest carbon credits. Because they are better preserved, the territories of these groups are likely to host these initiatives.
Despite the government's victory, the ruralist bloc showed its strength once again: due to its pressure, agriculture will be exempt from regulation, according to the original text of the Chamber, but it will be able to benefit from voluntary carbon credit projects, including through the restoration or maintenance of Legal Reserves and Permanent Preservation Areas (APPs) on properties. The problem is that these areas are already required to be preserved under current legislation. Therefore, rural producers will be able to earn money to comply with the law. The proposals caused controversy because, in addition, the sector, including deforestation, is the largest contributor to national greenhouse gas emissions.
In the Senate, further modifications were made to the bill that still guarantee rural landowners a share in the funds generated by initiatives developed in jurisdictional markets (state or federal). The change displeased even the governors of the Amazon, who tried to reverse it, without success.
Other LOBBY The powerful force that was present at the last minute was the financial market. According to the only change made to the Senate text, with the resumption of the wording of the Chamber, insurance companies and some pension and capitalization companies will be able to buy a minimum of 1% per year of “environmental assets” traded on the market to make up their technical reserves and provisions. The wording approved by the senators provided for a percentage of 0,5%.
COP-29
The vote in the Chamber takes place days after the delegates attending COP-29 pre-approve some rules to enable an international carbon market managed by the UN, after years of impasse. They only concern the basic principles and criteria of the methodology for accounting for carbon removal between countries. Due to the differences that still exist between countries, a series of topics were left to be deliberated at the next conferences. The start of the new market's operations, therefore, will still take some time. The mechanism was provided for in the Paris Agreement, an international treaty on climate change signed in 2015.
The holding of a vote on the issue on the first day of the conference, with little time for discussion, drew criticism from some countries and civil society organizations. Furthermore, some of them do not believe that carbon trading is an alternative to reducing global emissions. This is not Brazil's position.
“One of the priority points for the Brazilian delegation was precisely the advancement of negotiations on the carbon market”, informs the climate policy analyst at ISA Ciro Brito. He was in Baku and explains that Brazil supports the advancement of negotiations on this point because the future international market could allocate investments both to the national market and to some global forest conservation funds, which could finance projects in the country, but whose operation is also still under discussion at the UN.
What about the rights of indigenous peoples and traditional communities?
Authorization and consultation
The development of carbon credit projects in indigenous and traditional territories will depend on the consent and free, prior and informed consultation of the populations involved, in accordance with Convention 169 of the International Labor Organization (ILO), under the terms, where applicable, of a protocol or consultation plan. The costs of these processes will be borne by the interested company, ensuring the participation and supervision of the responsible official body - the Ministry of Indigenous Peoples (MPI), the National Foundation for Indigenous Peoples (FUNAI) and the Federal Public Ministry (MPF).
Ownership of credits; approval of official bodies
Ownership of carbon credits will be held by those who have the usufruct of the land, which guarantees this prerogative to these communities in principle. In the event that the area is in the public domain and the usufruct belongs to them, in order to develop a carbon project it will be necessary to notify the responsible public body in advance, so that possible monitoring can be carried out at the request of the populations. If the domain and usufruct are public, the initiative will depend on the consent and monitoring of the official body involved.
Participation in benefits
Bill 182 guarantees that communities will receive and participate in the management of financial resources generated by carbon credit projects carried out in their territories. They will be entitled to 50% of the credits in the case of conventional greenhouse gas removal initiatives and 70% of the credits in the case of projects to prevent deforestation and forest degradation, conservation and forest management (REDD+).
Part of the resources may be allocated to sustainable productive activities, social protection, cultural appreciation and territorial and environmental management, under the terms of the National Policy for Territorial and Environmental Management of Indigenous Lands (PNGATI) and the National Policy for Sustainable Development of Traditional Peoples and Communities (PNPCT).
Indemnity
The project ensures compensation for collective, material and immaterial damages resulting from carbon credit generation projects and programs (this safeguard also applies to agrarian reform settlers).
How will the carbon market work?
Bill 182 defines a regulatory framework for the sale of carbon credits, including the creation of the Brazilian Greenhouse Gas Emissions Trading System (SBCE). The SBCE will have a management body, a deliberative body and a permanent advisory committee. The details of the governance rules of these bodies will be regulated directly by the government later.
The new rules cover local and jurisdictional (state and national) programs based on Greenhouse Gas (GHG) Emission Reduction and environmental preservation projects, such as avoided deforestation and forest degradation, conservation, management or increase of forest carbon stocks (REDD+).
Two types of companies may participate in the SBCE: those that emit between 10 and 25 tons of CO2 equivalent (tCO2e) per year they will not have a reduction target, but they must report their emissions and establish an emissions reduction plan; companies that emit more than 25 thousand tCO2and they will have to comply with these obligations and will also have to reduce their emissions mandatorily.
The so-called national allocation plans must provide for gradual targets and the trajectory of emission limits for each period of emission reduction commitment provided for in the law. In each period, a new plan must provide for the volume of Brazilian Emission Quotas (CBEs) and the maximum percentage of Verified Emission Reduction or Removal Certificates (CRVE) admitted to the market.
CBEs are the amount of CO2 equivalent to which each market operator will be entitled. They can be purchased by those who do not meet their emission targets. CRVE is another tradable asset that will be generated when there is a reduction in emissions. It can also be traded so that countries meet their targets in the Paris Agreement, that is, in international transactions. Each CBE or CRVE represents 1 ton of CO2 equivalent.
Companies that have more difficulty reducing emissions will have to buy quotas to pollute and certificates that attest to the capture of carbon in the atmosphere to zero net emissions (gross emissions minus removals and reductions). At the end of each commitment period, companies will have to make a survey of net emissions and, upon confirmation, will be entitled to a certificate that will allow them to cancel an emission quota.
When carried out in the financial and capital markets, credit trading will be subject to regulation by the Securities and Exchange Commission (CVM), but there may also be a separate private transaction, without such regulation, in the so-called voluntary market.
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