By Carolina Caiado, Renata Amorim, and Carolina Pazzoti
The carbon market in Brazil is currently undergoing consolidation with regulatory advances that are laying the basis for its operation. The recent enactment of Law 15.042/2024 is a significant step towards the regulation of the carbon market in the country. However, the measure represents the beginning of a broader and more complex process.
The Interministerial Committee on Climate Change (CIM) is currently the only existing structure in the Federal Government on the governance provided for in the law for the Brazilian Greenhouse Gas Emissions Trading System (SBCE). It is hoped that the regulation of the law, expected to take place within 12 months from its enactment, will complete the governance of the system, by establishing the Managing Body and the Permanent Technical-Advisory Committee of the SBCE.
As outlined in the previous edition of P&N (Public and Notorious, Campos Mello Advogados newsletter) in which we explained all about the SBCE, the Managing Body is the main structure of the system, considering it will be its normative, regulatory, executive, punitive, and appellate body. This will be similar to a regulatory agency, which is an essential pillar for operating the regulated carbon credit market in Brazil.
The Managing Body will be in charge of issues such as defining monitoring methodologies and regulating the reporting of information on emissions, emission reductions and removal of greenhouse gases (GHG); preparing and submitting a proposal for a National Allocation Plan to the CIM; creating, maintaining and managing the SBCE Central Registry, among several other assignments provided for in Law 15,042. Furthermore, the Managing Body will be responsible for issuing the Brazilian Emissions Quota (CBEs) and validating the Verified Emissions Reduction or Removal Certificates (CRVEs), which are the fungible and tradable assets of the SBCE.
Until the moment the regulated carbon market is fully structured and operational, the voluntary market will continue to play a crucial role, operating on already consolidated international standards.
Voluntary market
The voluntary market is based on spontaneous commitments to neutrality and is used by companies that wish to acquire carbon credits certified by international standards. These credits can be traded directly between sellers and buyers or through specialized platforms[1].
However, it is worth noting the guidelines and restrictions already provided for in Law 15,042 for the voluntary market. The law provides that voluntary offering projects must follow the methodologies of the regulated market. Since there is still no regulation on the methodologies to be accepted within the scope of the SBCE, it will be up to project developers to design their projects based on internationally recognized standards. These will certainly be adopted or will serve as a framework for the SBCE methodologies.
In this regard, the certification of credits by independent third parties are a key element to guarantee the integrity and reliability of carbon credit transactions in the voluntary market[2]. Certification entities play a central role in validating and certifying carbon projects by ensuring that they meet strict criteria for emissions reduction, environmental sustainability and social benefits. This thorough process provides an additional layer of protection for investors, while contributing to market credibility as a whole.
International standards used to certify carbon credits are crucial in this context. Models such as the Clean Development Mechanism (CDM), the Verified Carbon Standard (VCS) and the Gold Standard are widely acknowledged and adopted[3]. Each of these standards establishes detailed rules and procedures to ensure that the carbon credits generated actually represent verified and permanent emission reductions. Such standardization contributes to market consistency and transparency, as well as building trust among participants.
Certification through these international standards also facilitates the entry of foreign investors into the Brazilian voluntary carbon market, as it provides guarantees regarding the authenticity and quality of the credits traded[4]. Thus, the alignment with such standards not only strengthens legal certainty but also positions Brazil as a reliable and attractive destination for investments in sustainability projects.
Red flags
Developers and investors of projects developed within the voluntary market must be aware of the restrictions outlined in Law 15,042, which are already in full effect. Among the most relevant ones, it is important to highlight the original ownership of certain carbon credits by federative entities: (i) by the Federal Public Defender’s office, for credits generated on vacant lands and federal conservation units; (ii) by the States and the Federal District, for carbon credits generated in state and district conservation units; (iii) by Municipalities, for carbon credits generated in municipal conservation units.
Law 15,042 also guarantees the original ownership of Indigenous communities over carbon credits generated in their respective Indigenous lands; of extractives and traditional communities over carbon credits generated in their respective sustainable use conservation units that allow their presence; and of quilombola communities over carbon credits generated in their respective remaining lands of quilombola communities.
Notwithstanding the above, it is worth mentioning that the Law protects private property and third-party fruition, considering that many conservation units include private rural properties. In addition to the caveats made in the provisions that deal specifically with the original ownership of carbon credits of federative entities, there is a predicted provision to the effect that there is “original ownership of private owners or beneficiaries over carbon credits generated on privately used properties”.
Along these lines, the conduction of legal due diligence, especially from environmental, real estate and regulatory perspectives, is essential to guarantee the legal safety of projects under development in the voluntary market in Brazil.
Present and future
The recent enactment of Law No. 15,042/2024, which established the SBCE, represents a milestone for the country, aligning it with global efforts to mitigate climate change. The new law seeks to create an efficient and transparent system for reducing emissions by integrating international practices into the national context.
In this context, the SBCE is the basis of the carbon market in Brazil, being essential for its operation and effectiveness. The system will account for determining emission thresholds and establishing the framework for the negotiation of carbon credits.
However, the enactment of the law is only the beginning of the regulation of the sector, which may take, at least, 5 years to be completed, according to the timeline described by the law. Until then, the voluntary market will continue to play a vital role, operating based on already consolidated international standards.
In this context, to connect one of the world’s largest carbon markets to a broader international marketplace, B3 S.A. – Brasil, Bolsa, Balcao, the largest financial exchange in Latin America, has recently entered into a partnership with ACX (AirCarbon Exchange), a global digital exchange focused on the carbon market, for the development of a platform for integrating the B3 registration system with ACX’s platform. Through the platform, carbon credit issuers will be able to negotiate with companies that wish to reduce their impact on the environment and adapt to ESG practices.
The platform will be the first one in Brazil to register projects generating carbon credits.
Carolina Caiado is partner in the Public Law and Government Affairs practice at Campos Mello Advogados in cooperation with DLA Piper
Renata Amorim is partner in the Mergers & Acquisitions, Private Equity, Corporate and Venture Capital practice at Campos Mello Advogados in Cooperation with DLA Piper
Carolina Pazzoti is a legal assistant at Campos Mello Advogados in cooperation with DLA Piper
[1] https://selvaflorestal.com/certificacao-de-creditos-de-carbono-e-sua-seguranca-entenda/
[2] https://selvaflorestal.com/certificacao-de-creditos-de-carbono-e-sua-seguranca-entenda/
[3] https://credcarbo.com/carbono/certificacao-de-creditos-de-carbono-tudo-que-voce-precisa-saber/
[4] https://selvaflorestal.com/certificacao-de-creditos-de-carbono-e-sua-seguranca-entenda/
Any opinions expressed in this commentary reflect the views of the authors and not of Carbon Pulse.
