New Bill of Law regarding the creation of a regulated carbon market in Brazil

On 21 August 2023, senator Leila Barros, rapporteur for Bill of Law No. 412 of 2022 (Bill 412/2022) presented a report to the Environmental Commission of the Senate for the approval of that bill with a replacement text.

In the new version of the text, Bill 412/2022 establishes a regulated national carbon market through the creation of the Brazilian Greenhouse Gas Emissions Trading System (in Portuguese, Sistema Brasileiro de Comércio de Emissões de Gases de Efeito Estufa – SBCE). In other words, it creates a governance structure by law that makes it possible to impose mandatory limits on greenhouse gas emissions. The adopted model is the system known as Cap-and-Trade.

It is the one that, on the one hand, defines caps (emission limits) for certain industries through the distribution (remunerated or not) of emission allowances. And, on the other hand, allows companies compulsorily included in this system to meet their targets by offsetting part of their emissions by purchasing a Verified Emissions Reduction or Removal Certificate. Installations and sources considered to be major emitters will be subject to the emission ceiling, under the terms defined by law.

The Cap-and-Trade system is a mechanism already known and tested in the world, with emphasis on the European market (ETS) and has been considered an important element to encourage different sectors to reduce their emissions in an economically sustainable way.

Among the various bills of law on the subject that are being currently discussed both in the Senate and in the Chamber of Deputies, Bill 412/2022 is the most robust and complete so far. It institutes a clear governance structure, with well-defined competencies, in addition to providing for a transition period until its full operation.

It is worth noting that the bill of law is silent on strategic aspects which will need further regulation, such as the form and costs of distribution of emission allowances, the limits of emissions compensation for the acquisition of a Certificate of Reduction or Verified Removal of Emissions, among other points that impact different sectors of the national industry.

If Bill 412/2022 is approved in Congress, the SBCE still depend on the effective creation of its management body and other structures to effectively come into operation, in addition to the publication of the regulations indicated in the text of the bill of law. Therefore, the time required for structuring, combined with the transition period provided for in the text of the Bill 412/2022, will allow industries to organize themselves for this new scenario in which the limitation of emissions from their facilities will become a reality.

Our team is available for further information on carbon markets regulation in Brazil.

Main Contacts:

Alexandre Calmon
Sócio | Partner
E: acalmon@cmalaw.com

Fabiano Gallo
Sócio | Partner
E: fabiano.gallo@cmalaw.com

Marcelo Frazão
Sócio | Partner
E: mfrazao@cmalaw.com