Regulatory Framework for the Carbon Market in Brazil: Benefits, Challenges, and the Exclusion of the Agricultural Sector
- Working Heroes
- Dec 13, 2024
- 3 min read
Updated: Dec 17, 2024
The approval of the Senate’s substitute amendment to Bill 182/2024 by Brazil’s House of Representatives marks a significant step forward in the country’s climate policy. The legislation, awaiting presidential sanction, establishes the Brazilian Greenhouse Gas Emissions Trading System (SBCE), regulating the carbon market in Brazil. However, one notable exclusion in the regulatory framework has sparked attention: the agricultural sector, responsible for a substantial share of national emissions, is not included in the initial regulation.
Exclusion of the Agricultural Sector: A Significant Gap
While the SBCE imposes obligations on companies emitting more than 10,000 tons of CO2 equivalent (CO2e) annually, the agricultural sector—the second-largest emitter of greenhouse gases in Brazil, trailing only land-use change and forestry—remains outside the scope.
“The primary argument for excluding the sector is the lack of sufficiently accurate metrics for its inclusion in the carbon market.”
This stands in stark contrast to the growing global demand for enhanced climate responsibility across all production chains. The exclusion is particularly critical given the agricultural sector’s significant contributions to emissions of greenhouse gases with high global warming potential.
Agriculture and land use account for approximately 55% of Brazil’s emissions, according to the GHG Protocol.
Without including the agricultural sector, there’s a risk of creating a major gap in efforts to achieve the country’s climate goals. Additionally, this exclusion could harm international perceptions of Brazil’s commitment to sustainability and its transition to a low-carbon economy.
On the flip side, including agriculture could unlock immense potential, with the sector projected to generate up to $13.7 billion in carbon credits annually by 2050 (according to BloombergNEF). Focusing on practices like soil carbon sequestration and input management, agricultural carbon credits often provide additional social and environmental benefits, such as improved soil health and food security, setting them apart from industrial carbon credits that may lack such co-benefits.
The Carbon Market: Benefits and Challenges
The expanded carbon market in Brazil creates opportunities for advancing sustainable initiatives. However, it also faces challenges that could hinder its effectiveness.
Benefits of the Carbon Market
• Incentivizing Emission Reductions: Carbon credits drive investments in renewable energy and sustainable practices, aligning with the goals of the Paris Agreement. Companies can use credits to offset emissions while implementing energy transition measures.
• Funding Climate Projects: Revenue from credit sales supports initiatives like reforestation and clean energy projects, fostering environmental solutions with positive social and economic impacts.
Challenges and Limitations
• Insufficient Emission Reductions: Critics argue that carbon credits often allow companies to continue polluting without significantly reducing real emissions.
• Integrity and Fraud: Fraudulent credits or overstated benefits undermine the credibility of the market.
• Market Manipulation: The lack of standardized regulation can lead to inconsistent practices in credit issuance and verification, weakening the system’s reliability.
Resource Allocation and Inclusion of Traditional Communities
The SBCE framework allocates 15% of revenues to its maintenance, 75% to the National Climate Change Fund, and at least 5% to compensate Indigenous peoples and traditional communities. This provision acknowledges the vital role these populations play in conserving native vegetation and providing ecosystem services.
Opportunities for Improvement
The implementation of the SBCE is a crucial milestone, but its success will depend on future adjustments. Including the agricultural sector will be essential to ensure Brazil meets its climate commitments comprehensively. At the same time, measures to enhance transparency and standardization in the carbon market can mitigate risks of fraud and inconsistency, bolstering its global credibility.
Transitioning to a regulated carbon market offers Brazil an opportunity to lead in climate action. However, its success will rely on an integrated approach that encompasses all emitting sectors and adheres to best governance practices.
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