By André Ricardo Passos de Souza for Money Times
The Federal Senate has just voted in the Environment Committee (CMA), the final substitute for Bill no. 412/22 (PL 412/22) regulating the carbon market in Brazil.
The text now goes to the full Senate for a vote and subsequent conversion into law.
As we have already had the opportunity to state here in this space, Bill 412/2022 is the result of several bills on the subject coming together to try to regulate and create market conditions, through a clear and consistent legal framework, to encourage the maturing and development of the carbon market in Brazil.
The differences between the carbon market in Brazil and the world
The carbon market in Brazil, unlike in some other countries, such as those in the European Union, for example, is totally “voluntary”, which means that market exchanges between polluters and conservationists using carbon credits, as established internationally through the Kyoto Protocol, are totally free, i.e. made under market conditions and by whoever wants and/or is willing to do so.
Despite this, we have various tools such as green CPRs, certified carbon credits and even transactions under environmental services legislation being carried out voluntarily between these market players.
With Bill 412/2022, the central idea of the National Congress – which was embraced by the Federal Government when the bill was being processed, as we have already pointed out here in this space – was to create another kind of regulation, a regulation more similar to that of other countries in which decarbonization targets would be set, the so-called “mandatory market”.
In this type of market, agents have fixed decarbonization targets to meet and therefore often need to go to the market to buy credits to meet these targets and/or – in the event that they fall short of their targets set for their industries – they could certify such compliance and “sell” their positive carbon stocks to “polluters”, creating a situation of regulated and necessary “exchange” between market agents according to parameters set by specific regulations.
Agribusiness in the PL of the carbon market
Under the amendment voted on Wednesday (4), agribusiness in general would be excluded from the so-called “mandatory market”, i.e. the mandatory decarbonization targets.
Thus, under the terms voted for today in the Senate, “primary agricultural and forestry activities and undertakings related to alternative land use developed within rural properties” are excluded from this obligation, which would not prevent them from continuing to preserve, as they already do, and trading their carbon credits on the voluntary market, through existing instruments such as the CPR-Green, for example.
On the other hand, according to what was approved in Bill 412/2022, companies and individuals who emit more than 10,000 tons of carbon dioxide equivalent (tCO2e) per year would be included in the Brazilian Greenhouse Gas Emissions Trading System (SBCE).
These operators must monitor and report their annual greenhouse gas (GHG) emissions and removals. Furthermore, according to the bill, anyone who emits more than 25,000 tCO2 must prove compliance with obligations related to greenhouse gas emissions, and these limits do not apply to agricultural, forestry and other producers.
Developments in Brazil
With the bill being unblocked and forwarded to the plenary, the most likely scenario is that it will be approved, which, strictly speaking, should then constitute the basic regulatory framework for the development of the carbon market in Brazil, enshrining the peaceful coexistence of two legal regimes within the best market practices: the voluntary market (which already exists) and the new regulated carbon market that is being created on the basis of the new legislation.
Thus, other instruments that were under discussion in Bill 412/22 and which were also approved, such as the creation of CBEs (Brazilian Emission Quotas) equivalent to 1 tonne of CO2 removed from the environment and the Verified Reduction or Removal Certificates (CRVEs), which can be traded in carbon equivalents on the market, could make a decisive contribution to the development of this market.
These transactions, like voluntary market transactions, will take place via the market and therefore through stock exchange transactions and will be overseen by the Securities and Exchange Commission (CVM). In addition, the regulations approved by the commission contain provisions that confer tax advantages on the holders, purchasers and generators of these “certificates”, which will be detailed later in this column.
What is worth noting at this point is the fact that the approval of Bill 412/22 in the Environment Committee of the Federal Senate is already capable of generating positive implications for the market in general and, why not, doubts – which still exist, of course – but which, with the approval and putting into practice of the rules and regulations brought in by the Bill, tend to give way to the legal certainty needed for market agents to act in an organized manner on this issue, resulting in very favorable market conditions for inserting Brazilian companies and rural producers more and more positively into global business chains.
Disponível em: How will agribusiness fare with the approval of the carbon market bill in the Senate? – Money Times