Márcio Santilli, founding partner of ISA, analyzes the impasses in the National Congress regarding the regulation of the carbon market
*Opinion article originally published in the newspaper Valor Econômico, on 19/03/2024
The regulation of the carbon market faces an impasse in the National Congress. The president of the Senate, Rodrigo Pacheco (PSD-MG), prioritized the topic in 2023 with the intention of taking an enacted law to COP28, in Dubai. Some bills (PLs) were already being processed in Congress, but they were incipient proposals, not linked to the national goal of reducing emissions and the objective of tackling climate change.
Pacheco appointed senator Leila Barros (PDT-DF) as rapporteur, who promoted public hearings, welcomed proposals from the Ministry of Development, Industry, Commerce and Services (Mdic) and the National Confederation of Industry (CNI) and accepted the option of the ruralist bench (FPA) for not including agriculture among the sectors of the economy subject to reduction targets - despite the emissions generated in land use.
PL 412/22 was based on the National Climate Change Policy (Law 12.187/2009) and focuses on the industrial sector and projects to replace fossil energy with renewable energy. It also foresees REDD+ projects (Reducing Emissions from Deforestation and Forest Degradation) for the conservation and increase of forest carbon stocks, and for forest management, without setting quotas or prohibiting the access of public or private projects to the carbon market. Approved unanimously in the Senate, the PL reflected a balanced and coherent approach, although subject to adjustments. It was sent to the Chamber in time for analysis and return to the Senate, for eventual promulgation by December 2023, the date of COP28.
However, the project suffered an institutional maneuver granted by the Chamber against the Senate. Arthur Lira (PP-AL), president of the Chamber, appointed deputy Aliel Machado (PV-PR) as rapporteur, who introduced controversial items into the proposal, such as reserving a percentage of earnings for companies developing private carbon credit projects .
And it went further, by limiting market access to private projects, prohibiting the issuance of carbon credits for jurisdictional, federal or state projects. For these, the rapporteur created the figure of “non-market credit”. Quite a goat for the projects that several Amazonian states are negotiating with the Leaf Coalition, formed by the governments of the USA, the United Kingdom and Norway, and dozens of global companies that hope to access market credits by financing these projects.
The text produced by Aliel did not go through committees and was sent urgently for voting in plenary, with a final opinion presented hours before the vote, in the last week before the legislative recess. It favors project development companies and prohibits States from participating in the carbon market.
The market supports various types of projects in the areas of energy, sanitation, soil management and reforestation. In these cases, accounting for stocks, gains and losses in emissions is safer in local projects. However, local REDD+ projects, which aim to generate credits for avoided deforestation, are often based on accounting that is questioned even by international certifiers.
Jurisdictional projects are based on compensation for previously realized reductions in deforestation and proven through annual fees related to the jurisdiction. Measuring avoided emissions is much more precise at the state or country scale than at a local project.
The management of territories by indigenous peoples, quilombolas, extractivists and farmers is essential to contain deforestation and keep the forest standing, but it is the public authorities that can guarantee the continuous reduction of deforestation - which highlights the impropriety of their exclusion from this market .
The approval of Aliel's text surprised communities, companies and governments, especially those involved in jurisdictional projects. The Senate could correct the Chamber's changes, but a regulatory maneuver by this House determined that the oldest PLs, and not those already approved by the Senate, would be priority for processing, unilaterally changing the rule that has always prevailed in Congress and fatally wounding the power legislative initiative from the Senate.
Based on this trick, Aliel's report proposed a replacement for another project from the Chamber itself, older and with quite different content. Thus, the Senate PL received a contrary opinion and was archived. This means that it will not return for analysis of the changes made in the Chamber.
Now a new proposal will be subject to scrutiny by the Senate, but the Chamber will have the last word on any changes.
Will the Senate swallow the House's regimental maneuver and the unilateral annulment of its legislative initiative? Or will it respond to the Chamber in the same way, shelving what will come from it and replacing its previous proposal? The impasse postpones the promulgation of the law and maintains legal uncertainty, hindering the development and credibility of the market.
There are those who say that the carbon market can continue in its “voluntary” configuration, without regulation by law. And that negotiations between States and investors can continue. But in developing countries there are asymmetric rights and interests that the law should preserve and balance. National laws issued by other countries gave solidity to the market and security for investors.
REDD+ projects are long-term and involve political, technical and financial risks. They presuppose the stability of the social relationships that involve them. The chances of changing scenarios, occurrence of conflicts and new facts that affect them are high. The law could prevent or resolve them.
Congress, which should mediate conflicts present in the legislative process or between parties interested in the topic, is lacking mediation. Parliamentarians confront each other, retaliate against other powers and usurp their powers, whether to control funds or to restrict the STF's control of constitutionality.
The Chamber privileged a specific business segment and did not listen to the government or the States. Serious companies, the federal government, States, interested entities and scientists, as well as social movements and traditional communities that want to build their projects, must work together to pressure Congress to stop superimposing their differences on national needs, deepening the debate and promoting balance of the interests at stake.