Carbon market: government wants US$ 120 billion and targets – 06/23/2023 – Market

After decades of discussion and little progress, the government of President Lula (PT) is betting on the regulation of the carbon credits market –a proposal currently being discussed in Congress– to help conclude the trade agreement between the European Union and Mercosur, in addition to attracting investments in the order of BRL 120 billion by 2030.

The government even wants to create a national measurement system to issue its own carbon certificates and not depend on foreign organizations.

The carbon credit market is a way to reduce emissions into the atmosphere, with the establishment of reduction targets and the possibility of selling the excess amount.

It would work like this: a company produces 40 thousand tons of carbon dioxide. In a year, it will have to reduce to, hypothetically, 38 thousand. Assuming that, after 12 months, the emission increases to 50 thousand, it will have to compensate this increase of 12 thousand through carbon credits. As? Buying 10,000 from one or more companies that have reduced their emissions and another 2,000 through the voluntary market.

This is a fictitious case described to the Sheet by the secretary of green economy of the Ministry of Development, Industry, Commerce and Services, Rodrigo Rollemberg, on how the carbon market in Brazil should work once regulated.

The quantities and deadlines are hypothetical, he says, but they illustrate the direction that the government intends to give to the theme.

The parameters for the functioning of this market are, precisely, the next step in the process of creation and regulation of the carbon market and involve the creation of an authority, which will be responsible for defining the targets and monitoring them.

Currently, the government already has a draft law ready to regulate the issue, which was conducted by the Treasury with the help of other ministries such as Mdic, Environment and Mines and Energy. The text undergoes review by the respective legal departments.

The intention is for the proposal to be ready and approved by Congress before COP 28, which takes place in December of this year.

The estimate, based on a study by WayCarbon together with the International Chamber of Commerce, is that an extra revenue of US$ 120 billion (R$ 564 billion) can be generated —which, according to vice president Geraldo Alckmin, has potential to boost the Brazilian GDP (Gross Domestic Product).

The government is now debating the best way to send the carbon market regulation project to Congress: whether through a bill from the Executive, supporting the proposal, or articulating with some of the proposals already being processed in the Legislative —there are two in the Senate and one in the Chamber of Deputies.

The decision must be made by President Lula’s political council.

The current project provides for the creation of an authority, says Rollemberg, subordinate to a larger body.

“The management [do mercado] will be carried out by the Interministerial Council on Climate Change, which will define the strategies and approve the National Allocation Plans. Who will do the accreditation and the process called ‘monitoring, reporting and verification’, and the preparation of the plan itself, is the authority. And she submits it for board approval,” he says.

“The ideal is that the implantation is gradual”, he says.

In practice, therefore, it will be this authority that will define the targets for reducing carbon emissions, the measurement methodology and the accreditation process for companies in the market.

One of the secretary’s concerns is that a national measurement system be created, in order to be able to issue its own carbon certificates and not depend on an international certifier, which takes longer to analyze and issue the document and is more expensive, not being accessible to projects of medium or small size.

The authority will also be responsible for defining the percentage of the total carbon credits owed that can be purchased on the voluntary market —which, according to Rollemberg, should be around 20%.

“This will also stimulate this voluntary market, encourage carbon sequestration activities, reforestation processes and carbon capture and storage technologies”, he says.

The composition of such authority will be discussed after the enactment of the law, in the regulatory process. Whether it will be a government-linked body, an agency, or some other format remains to be seen.

The regulation will only affect companies that emit more than 25,000 tons of carbon —mainly, industries such as chemicals, cement, steel and aluminum.

The government’s project is in line, for example, with a proposal published by the CNI (National Confederation of Industry), with whom the Executive spoke during the drafting of the regulation.

The government still intends that the national parameters be equated with those used internationally, for example in the European Union, so that Brazil can negotiate credits with these other countries.

There is also great interest from China, evidenced in Lula’s last trip to the Asian country, in negotiating Brazilian carbon credits. Brazil is seen as a world power in this sector.

“Ideally, it should be a gradual implementation using internationally recognized methodologies so that Brazil can transact internationally. This opens up a great opportunity, because we have a matrix here [de produção] of low carbon”, says the secretary.

Another concern is that the creation of the market will help Brazil not only to reduce emissions and, therefore, meet the goals established in the Paris Agreement, but also that it can help — along with other initiatives such as green hydrogen and energy production. clean—unlocking trade agreements, such as the European Union, which has been making strict environmental demands in order to sign the treaty.