How the carbon market approved by the Chamber works – 12/22/2023 – Market

Approved by the Chamber this Thursday (21), the regulated carbon market stipulates limits on greenhouse gas emissions for companies in various sectors in the country. The text now goes to the Senate, which in October approved another bill on the topic.

Understand the main points of the text approved by the Chamber.

What is the regulated carbon market

The system, formally called the Brazilian Greenhouse Gas Emissions Trading System, provides limits on greenhouse gas emissions for companies and industries that emit more than 10 thousand tons of carbon equivalent per year.

The text approved by the Chamber defines that those companies that emit more than 25 thousand tons will need to find ways to meet their goals, whether by investing in green technologies or buying shares in companies that manage to emit less than the limit stipulated by the government.

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

Assuming that, after 12 months, issuance increases to 50 thousand, it would have to compensate for this increase of 12 thousand through quotas.

The forecast is that there will be a limit on how many shares can be purchased for compensation, but this amount must be defined in the law’s regulations.

Who will manage the regulated carbon market

The project approved by the Chamber creates the Superior and Deliberative Body, linked to the Interministerial Committee on Climate Change. This body will be responsible for: 1) establishing general market guidelines; 2) approve the National Allocation Plan, which defines the trajectory of emission limits and marketing rules; and 3) approve the application plan for resources raised from the market.

It is not yet certain, however, which body will be responsible for evaluating companies’ carbon emissions offsets, nor the one responsible for selling the quotas.

And what does this all have to do with the voluntary carbon market

In the voluntary market, at least until now, there is no government management. In it, companies get in touch with landowners or indigenous communities and traditional peoples and measure how many tons of carbon that area captured from the atmosphere or how much avoided deforestation helped with this capture.

In this case, a ton that is no longer emitted becomes a carbon credit. These credits are sold to companies that want to voluntarily offset their emissions.

The project approved on Thursday provides that these credits can also be used to offset emissions required by the regulated market. However, the limit of this use is not defined.

What was approved in the Senate in October

More than two months ago, the Senate approved another project that regulates the carbon market. In the Chamber, however, the president of the House, deputy Arthur Lira (PP-AL), chose to attach it to another project created in the Chamber. Thus, the project approved this Thursday now needs to go to the Senate and, if changed there, return to the deputies for analysis.

What are the main changes with the text approved by the Senate

There are important changes in relation to the text approved in the Senate. The main one concerns governance. In the Senate project, the functions now attributed to the Superior and Deliberative Body would be with the Interministerial Committee on Climate Change, made up of 18 ministries. This body, however, meets very few times a year, which would make the market impractical.

Thursday’s text also creates jurisdictional markets, where states will be able to develop carbon credits in their territories based on the amount of deforestation avoided in recent years. This was the main obstacle to the project’s progress in recent weeks. This is because the rapporteur, deputy Aliel Machado (PV-PR), 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.

What continues

As in the text approved by the Senate, agriculture will not be part of the regulated carbon market. The sector claims to be very diverse and that today there are no methodologies capable of detecting the emission balances of all its activities.