Brazil excludes the sector that pollutes the most from the carbon market – 10/04/2023 – Market

The bill on the carbon market that was approved this Wednesday (4) by the Senate left out the economic sector that emits the most greenhouse gases in Brazil: agribusiness.

A change in the final report agreed between the federal government and the FPA (Agricultural Parliamentary Front) freed the activity from the possibility of having to measure and control its carbon emissions in the same way that industry, energy production and other segments must do.

The proposal must go directly to the Chamber, where it may undergo changes. However, with 300 deputies on the ruralist bench, it is unlikely that the sector’s reinclusion in the regulated market will occur.

According to Seeg (Greenhouse Gas Emissions and Removals Estimation System), an arm of the Climate Observatory, agriculture is responsible for 25% of the country’s greenhouse gases.

This proportion, however, could be even higher, since the main cause of emissions in the country is deforestation (change in land use), which is also linked to agriculture. Together, the two activities are responsible for 74% of Brazilian emissions.

The goal of a regulated market is to reduce carbon in the atmosphere. In practice, the government limits the amount of greenhouse gases that certain economic sectors can emit and grants “licenses” to companies.

To pollute above the “budget”, companies need to buy quotas, which are sold by the regulatory body or by organizations that have managed to cut their emissions.

The idea is to establish a system of pressure and incentive for economic activities to reduce their environmental footprints.

The project approved this Wednesday creates the Brazilian Emissions Trading System, responsible for controlling the sector, and defines that the National Allocation Plan will be developed.

All companies emitting 10 thousand tons of carbon dioxide or more per year are subject to the new law, with those producing more than 25 thousand being obliged to be more rigid in monitoring their activities.

The approved text maintained the government’s suggestion that failure to comply with the law’s rules — or failure to submit periodic emissions reports — could result in a fine of up to 5% of gross revenue.

The system will be applied gradually. The government will have up to two years, after approval of the text, to regulate the market, then three years for a testing period — still without penalty. As a result, the plan will only be implemented at the end of the decade.

In Brazil, the creation of the system had been foreseen since 2009, in the National Policy on Climate Change, but it was never operationalized.

Experts point out the country’s delay in this agenda, which has gained global weight in recent years, but has been parked amid the anti-environmental policy of Jair Bolsonaro’s (PL) administration.

Therefore, the approval of the measure in the Senate is seen with enthusiasm, although the exclusion of agribusiness from the scope is considered negative.

The report by senator Leila Barros (PDT-DF) says that the decision reflects what is observed in the main regulated carbon markets, in which agriculture is not included “above all due to the importance of the sector for food security and the many uncertainties that still exist in the methodology for estimating the sector’s emissions inventories”.

In fact, no country with an implemented carbon market has agriculture on the list of regulated activities. But there are also few places where the main impact on the climate comes from this sector. In China, the United States and Europe, the main emitters are industry and energy generation.

Tasso Azevedo, coordinator of MapBiomas, says that the bill had everything to be good, but was completely diminished by excluding primary agricultural production from the regulated market.

“Nowhere in the world does this exclude the main issuing sector from the regulated market, it doesn’t make any sense. The market will be born dwarfed, super-reduced”, he states.

In his assessment, Brazil could have one of the most innovative markets in the world if it included agriculture. “But no, you write a bill that had the potential to be something incredible and kill it in the first article. It really doesn’t make sense,” he says.

According to Ronaldo Seroa da Motta, professor at UERJ (State University of Rio de Janeiro), and one of the main experts on the subject, the PL’s trade mechanisms are equal to the best practices in the world, but “it’s a shame” that agro has not entered the pricing system.

Seroa considers that this is a sector whose emissions are more complex. In industry, for example, greenhouse gases are concentrated in some processes, while in agriculture they are more dispersed — including on thousands of rural properties.

However, this would not justify exclusion. “It’s a fact, but it’s not a reason,” she says.

In his assessment, due to these peculiarities, the sector could enter the project in a more gradual way.

“Even for agriculture, it would be good, because they could say abroad: ‘We are the only agricultural sector in the world within a carbon market’. They missed a huge opportunity to have an environmental seal”, he says.

One of the questions about the carbon market format approved in the PL is how effective the system will be in decarbonizing the economy — as it should only cover the segments responsible for a fraction of our emissions.

According to Seroa, although agriculture has been left out, there is room for companies in the sector to participate in the voluntary market.

This is because the project foresees that some segments offer credits, as long as they are calculated using accredited methodologies. In this scenario, agriculture would have incentives to participate.

He cites the example of a property with a legal reserve surplus, which may find it more interesting to sell the carbon credits that this area provides than to deforest to produce something.

Gustavo Pinheiro, coordinator of the low-carbon economy portfolio at ICS (Instituto Clima e Sociedade), considers the project to be positive, which reflects the maturity of the debate — although it is not perfect.

“It is not a surprise that agriculture was left out of the regulated sectors. The surprise would be if the opposite had happened, since no market instrument in other jurisdictions regulates the agricultural sector”, he says.

For him, the participation of agriculture in the market can still be better defined in the debate in the Chamber of Deputies, which will depend on a lot of alignment, since the ruralist bench has around 300 votes in the House.

Coordinator of the Environmental Policy and Economics Program at FGVces (Center for Sustainability Studies at Fundação Getúlio Vargas), Guarany Osório also says that starting to price carbon is a positive step for Brazil.

He considers that there is greater difficulty in measuring emissions from the agricultural sector accurately, but says that the previous version of the bill had more appropriate wording, which did not make a starting sectoral definition.

“Agriculture could be eligible. Possibly in the regulation, [o setor] I wouldn’t go in right from the beginning — because an important criterion is that everyone is able to measure, report and verify emissions with an established methodology —, but I would leave the door open to discuss in the future, with the more mature market”, he states.

João Gabriel collaborated