Brazil bill sets up 'interoperability' of ETS, VCM: developer
Quantum Commodity Intelligence – Brazil's draft bill to create a national carbon emissions trading scheme (ETS) will pave the way for the creation of the largest carbon market in Latin America and facilitate the "interoperability" of voluntary and regulated carbon markets in the country, according to Brazilian nature-based solutions developer Biofílica Ambipar.
Brazil's Chamber of Deputies, the lower house of the country's National Congress, approved a draft bill last week that establishes the national carbon ETS, moving the country one step closer to having a fully operational carbon market following months of intense debate.
"Since the sanction of the National Climate Change Policy in 2009, there has been a legal provision in Brazil for the creation of a regulated carbon market," Biofilica said.
"It's been a long 14 years of waiting, a period in which we missed great opportunities to position ourselves at the forefront of the world as a leading country in creating innovative solutions that drive economic growth in a sustainable manner."
The approved text institutes an EU-style emissions trading scheme for heavy industry, named "Brazilian Greenhouse Gas Emissions Trading System" (SBCE).
Under the new scheme, companies will receive a Brazilian Emissions Quota (CBE) for free initially.
But they will have to pay for those allowances once the system has been operationalised over a period of four to five years, with complete implementation expected by 2028 at the latest.
Companies that emit more than 25,000 tonnes of carbon dioxide equivalent (tCO2) a year will be included in the SCBE and they will have to either reduce emissions or cover them with CBEs and annually report their emissions.
"It is estimated that there are around 5,000 companies in Brazil that emit more than 25,000 tonnes of CO2e. Thus, the Brazilian Regulated Market, when implemented, will be the largest carbon market in Latin America," Biofilica said.
Companies that emit more than 10,000 tCO2 a year must also submit an annual "monitoring plan" detailing their carbon footprint, however, they will not have to compensate for their emissions.
Those thresholds could be changed in the future.
Moreover, voluntary projects that reduce or remove emissions and that are developed under SCBE's approved methodologies – to be defined at a later date – will be able to issue a Certificate of Verified Emission Reduction or Removal (CRVE).
These CRVE can either be used by companies included in the SBCE to offset their emissions, or they can be transferred internationally under the Paris Agreement's Article 6 mechanism as long as this is approved by "national authorities".
Both CBE and CRVE will need to be under the custody of SBCE's online central registry to prevent the double-counting of credits.
"As in Brazil more than 50% of greenhouse gas emissions are the result of deforestation, forest degradation and land use change, the proposed law is in the right way establishing interoperability between voluntary and regulated markets," through the CRVE system, Biofilica said.
The draft legislation establishes legal certainty on points such as the ownership of credits, in which it was defined that, while the current status for voluntary carbon credit remains, when a carbon credit is transformed into a CRVE, it will be interpreted as a "market asset," the company noted.
Despite being approved by the Chamber of Deputies, the Senate now need to review the bill even though the upper house has already voted on similar legislation, PL 412/2022.
The fact that the Senate has already approved material that was used as the basis for the bill approved by the Chamber "should speed up the legislative process," Biofilica said, but noted that the bill "has suffered several modifications that need to be discussed."
Should Senators agree with the text, the bill will be sent to President Lula to be signed into law.