Chamber approves project that regulates carbon market – 12/21/2023 – Market

The Chamber of Deputies approved this Thursday (21), by 299 votes to 103, the bill that regulates the carbon market, one of the Lula (PT) government’s priorities in the environmental area. The text now goes to the Senate, which had already approved a similar project on the topic in October.

The regulated carbon market stipulates limits on greenhouse gas emissions for companies, which will need to submit emissions reports to the managing body, linked to the federal government. Those companies that do not meet their targets may suffer penalties, such as fines.

The project determines that all companies that emit more than 10 thousand tons of carbon per year will be subject to the regulated market. Emission limits will be stipulated for companies that emit more than 25 thousand tons. Other floors will be stipulated for solid waste management companies, and agriculture, as in the project approved by the Senate, will not enter the market.

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

This Thursday, even before the proposal was approved in the Chamber, the Brazil Climate, Forests and Agriculture Coalition, which represents more than 350 representatives from the private and financial sectors, academia and civil society, issued a note asking for the vote to be postponed.

The entity complains about the lack of discussions about the project in committees in the House. As the PL has been processed urgently since the Senate approved a matter on the topic, in October, the proposal went directly to the plenary.

The initial expectation, from both the federal government and the president of the Chamber, Arthur Lira (PP-AL), was that the project would be approved even before COP28, which began at the end of November – which did not happen.

“The regulated carbon market is super important and that is precisely why we advocate that the proposal be discussed in an appropriate time, going through committees. With all the changes made, the ideal would be to have more time for debate”, says Gabriela Savian, director -deputy for Public Policy at Ipam (Amazon Environmental Research Institute), an entity that is part of the coalition.

Among the issues assessed as negative by the coalition is the section that removes agriculture from the market. In other words, the sector will not be required to meet greenhouse gas emissions targets, even though it is the country’s main emitter.

On the other hand, due to pressure from the ruralist group, primary agricultural activities, such as cattle raising or sugarcane planting, may generate carbon credits on the voluntary market. One credit is equivalent to one ton of carbon that is no longer emitted into the atmosphere.

The rapporteur in the Chamber, Aliel Machado (PV-PR), even made a proposal to include agribusiness within the regulated market, providing the sector with a series of special conditions and a longer period to adapt to the new rules, but there was no agreement.

During the session, the deputy argued that the project was widely debated, and tried to defend himself from criticism: “The project has been discussed for a long time. We had more than 200 meetings. All sectors that contacted us had hearings.”

Savian also complains about what he calls excessive regulation in the project, including issues linked to the voluntary carbon market (which is not under the government’s purview). The text, for example, determines a series of actions that private owners or indigenous communities that want to be outside the jurisdictional markets must take.

This last topic, in fact, was the main obstacle to the project’s progress in recent weeks. The governors of the Legal Amazon pressured Machado to include in the report the possibility of states selling carbon credits on the voluntary market based on reducing deforestation in their territories.

The deputy, however, was against the inclusion of private properties in the scope of state projects – in the end, an agreement was reached so that owners could choose whether or not to be part of state programs.

In practice, the change in the report allows the functioning of jurisdictional markets, assessed by the governors of the Legal Amazon as essential for raising resources for environmental policies.

As several of the conservation units in the Amazon are not yet regularized, the states argue that, if Machado’s report were approved as it was initially, the states would not be able to raise anything from the voluntary market.

Gustavo Pinheiro, partner at Triê consultancy, evaluates the proposal approved this Thursday as positive. For him, the main advance in relation to the project approved by the Senate is the creation of a body responsible for governing the Brazilian Greenhouse Gas Emissions Trading System, as the regulated market will be called in Brazil.

“In the PL approved by the Senate, the Interministerial Committee would be responsible for this function, but this would be very difficult because it is a body that meets once a year and this would make the functioning of the market impractical”, he says. However, it has not yet been defined which body will be responsible for issuing each company’s targets and monitoring compliance.

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 period of testing — to start operations and monitor emissions, still without penalty — and, from then on, the implementation of the plan.

The carbon credit market is a way of reducing emissions into the atmosphere, by establishing reduction targets and the possibility of selling excess amounts.

Using a fictitious example, regulations may determine that a company that produces 40 thousand tons of carbon dioxide must, in one year, reduce this level to 38 thousand, hypothetically.

Assuming that, after 12 months, issuance increases to 50 thousand, it would have to compensate for this increase of 12 thousand through quotas. Buying 10 thousand from one or more companies that have reduced their emissions and another 2 thousand through the voluntary market.

“It is opportune for the legislature to approve the carbon market at the end of the year because this sends a positive signal in environmental terms given the recent setbacks, such as the overturning of vetoes on the time frame, the auction of oil blocks and the announcement that Brazil OPEC+ will enter”, says Pinheiro.