Brazil to launch regulated carbon market

Brazil plans to launch a regulated carbon market with the aim of combating climate change, as Latin America’s largest economy looks to reclaim its credentials as a leader on the environment.

Lawmakers in Brasília are advancing a bill that would establish a “cap-and-trade” system, in which projects that would reduce or remove carbon dioxide from the atmosphere — such as tree planting — would sell tradeable permits for companies to cover emissions. Each represents a tonne of CO₂ or equivalent.

The objective is to push polluters to decrease greenhouse gas emissions over time, in line with national goals, or else buy these permits, known as credits or offsets.

The initiative is part of the green agenda of President Luiz Inácio Lula da Silva who, since assuming power at the start of 2023, has won international plaudits for a clampdown on destruction of the Amazon rainforest, following a rise under his far-right predecessor Jair Bolsonaro.

But green campaigners caution that the bill exempts livestock and primary agriculture — unprocessed goods directly from farms — which are together one of the country’s main sources of greenhouse gases (GHGs).

Lula’s leftwing administration has already faced censure from activists over plans to boost oil and gas production as his government walks a tightrope between environmentalism and economic development.

Similar emissions-trading schemes, or ETS, operate in the EU, China and California, though with a focus on emissions allowances rather than offsets. The idea is for market forces to set a carbon price and spur clean innovation. Brazilian officials also hope it will attract foreign investment. 

After initial votes in both the lower house and the senate, the bill needs secondary approval from both chambers, before it can be signed into law by Lula.

The International Chamber of Commerce in Brazil said that, in an optimistic scenario, the country could receive revenues of $120bn by 2030 from regulated and voluntary carbon markets.

Pedro Venzon, policy adviser at the Geneva-based International Emissions Trading Association, said Brazil had the potential to be “one of the most important domestic carbon markets in the world”.

“If Brazil manages to develop an efficient system with high integrity, this can set the tone for other countries like Indonesia and India,” he added. “This could create a new momentum for carbon markets, especially [in] the global south.”

But excluding agriculture may limit the environmental impact, critics said. Brazil is the world’s seventh-largest emitter of CO₂ equivalents, accounting for 3 per cent of global emissions, according to Climate Watch data for 2020. About half its emissions are from deforestation, some of which is carried out for farming purposes and much of which is illegal. This releases carbon stored in trees and plants. 

A quarter of emissions come from agriculture and livestock, according to the chamber of deputies. Scientists say contributors are land clearances, methane from cattle, and nitrogen fertilisers. “The regulated market is very important to advance solutions with the best cost benefit,” said Tasso Azevedo, co-ordinator at the non-profit MapBiomas.

“If we don’t include [agriculture], we will create a weak market that deals with a very small portion of emissions.”

Brazil’s farming lobby — among the top exporters of soyabeans, beef, cotton and corn — justifies its exclusion on the grounds that it is difficult to measure agricultural emissions. Activities such as food-processing plants and meatpackers would be covered by the rules. 

Farmers in the continent-sized country say they already preserve large tracts of native vegetation and are expected to be significant suppliers of credits.

“The primary Brazilian agricultural sector within the [farm] gate is the main national asset for offsetting greenhouse gas emissions from other polluting sectors,” said Pedro Lupion, leader of the parliamentary agricultural caucus. 

“No country in the world has [carbon] regulation of the agricultural sector due to a lack of scientifically verifiable references and metrics, in addition to increasing the price of food with taxes and other implementation fees.”

But environmentalists argue no other carbon market exempts the main sources of GHGs. New Zealand is expected to impose a world-first levy on methane from cows and sheep by 2030.

“We are excluding a big chunk of emissions that could be reduced,” said Bruna Araujo at sustainability consultancy WayCarbon. “There is also the issue of a proper methodology to measure agribusiness emissions.”

The planned rules will impose reporting requirements on companies or installations emitting above 10,000 tonnes of CO₂ equivalent annually. Those with emissions of more than 25,000 tonnes will be subject to compliance obligations. 

The text’s rapporteur in the lower house, federal deputy Aliel Machado of the Green Party, has suggested a longer transition period for the agricultural sector. 

“The political strength that agriculture has within the national congress [means] if it decides not to get on board, we will struggle to approve a law that includes it,” he told the Financial Times. “I believe that if agriculture doesn’t enter into this law now, it will do so soon.”

Additional reporting by Beatriz Langella

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