The bill that establishes the Brazilian Greenhouse Gas Emissions Trading System was approved in November in the Chamber of Deputies and the Senate, guaranteeing the government's victory
President Luiz Inácio Lula da Silva sanctioned, this Wednesday (11/12), the Law 15.042 / 2024, which establishes the Brazilian Greenhouse Gas Emissions Trading System (SBCE), thus regulating the carbon credit market in the country. The new legislation was sanctioned without vetoes, in line with the expectations of parliamentarians and civil society organizations that followed the proposal's progress in Congress.
After years of debates on various rules and criteria for the functioning of the carbon market, the final vote on the bill took place on November 19th in the Chamber of Deputies. Before that, the matter had been voted on November 11th by senators, who approved the opinion of senator Leila Barros (PDT/DF).
Learn more: House approves and sends bill to presidential sanction that creates carbon credit market
Senate approves bill that creates formal carbon credit market in the country
Both votes took place while the 29th UN climate change conference, COP-29, was taking place in Baku, Azerbaijan. Both the Senate and the Chamber of Deputies prevailed in favor of the most central points defended by the Planalto. Therefore, the result was considered a victory for the government, which has faced challenges due to the efforts of ruralist parliamentarians to approve proposals unfavorable to the environmental agenda.
The proposal defines a regulatory framework for the sale of carbon credits from environmental preservation and climate change initiatives. The main objective is to help meet Brazil's climate goals by establishing emission limits for the various economic segments and limited trading of emissions offsets among the largest polluters (Find out more in the table at the end of the report.).
The main source of emissions in Brazil is deforestation, accounting for 46% of the total, while other agricultural activities account for 28%, according to the Greenhouse Gas Emissions Estimation System (Seeg) of the Climate Observatory (OC). Therefore, rural production is responsible for approximately 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?
The trading of carbon credits allows companies or individuals to offset greenhouse gas emissions that cause climate change, resulting from businesses and economic activities, by acquiring credits generated by projects to reduce these emissions or capture carbon from the atmosphere.
An initiative to restrict 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 traditional populations
Experts and civil society organizations that follow the issue assess that the PL was improved throughout the process, although the final text is far from ideal.
“This law will guarantee indigenous peoples and traditional communities, through their representative entities, and those settled in agrarian reform projects, the right to commercialize removal certificates and carbon credits generated based on the development of projects in the territories they occupy, subject to compliance with socio-environmental safeguards,” highlights Ciro Brito, climate policy analyst at Socioenvironmental Institute (ISA).
Brito also explains that throughout the legislative process, civil society organizations worked to remove provisions from the bill that required traditional communities to develop carbon credit projects within Conservation Units to be included in the management plan in advance. Provisions that required agencies responsible for managing public areas to grant prior permission to communities wishing to develop carbon projects in their territories were also removed.
“In both cases, there was a great deal of interference in the autonomy of the communities. Because they had ownership of carbon credits, but they would not have the right to develop projects if the management plan did not authorize this in advance,” he points out (find out more in the box at the end of the report).
According to the analyst of the ISA, one point of criticism of the new law is that, during the bill's passage through Congress, the agricultural sector was excluded from the obligations regarding the greenhouse gas emission limit. “It is not the law's prerogative to exclude any sector from the system. This would need to be done through regulation, based on the characteristics of each sector and the evolution of the SBCE. Therefore, there would be no reason for the agricultural sector to have been removed from the emission limit, especially considering its major contribution to greenhouse gas emissions in the country,” emphasizes Ciro Brito.
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 bodies - 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 case where the area is 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, for possible monitoring, 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
Law 15.042/2024 guarantees communities the right to 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 for avoided 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 law 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?
The new law 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 will be able to participate in the SBCE: those that emit between 10 and 25 tons of CO2 equivalent (tCO2e) per year will not have a reduction target, but will have to report their emissions and establish an emissions reduction plan; companies that emit more than 25 tCO2e 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 that each market operator will be entitled to. 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 can meet their targets under 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.
How will the Law be regulated?
According to the rules set out in the text of the new law, the SBCE will be implemented over a period of six years, after following all the regulatory steps. Organizations representing traditional peoples and communities and environmental entities from civil society must monitor the regulatory steps to ensure that the law is applied and that socio-environmental safeguards are complied with.
Implementation steps:
1. It will be valid for 12 months from its entry into force, renewable for the same period. The scope, inclusion thresholds, nature of the limit, monitoring rules and reporting of emissions for greenhouse gas removals will be defined by presidential decree.
2. Up to a year to that operators organize instruments for reporting emissions.
3. Two more years, when operators must submit the monitoring plan and presentation of reports on greenhouse gas emissions and removals to the SBCE management body.
4. The first National Allocation Plan comes into effect, with the non-onerous distribution of Brazilian Emission Quotas (CBE) and the implementation of the SBCE asset market.
5. Full implementation of the SBCE, at the end of the validity of the first National Allocation Plan.
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