The government of Brazil has finalized a proposal for the establishment of a cap-and-trade carbon market in a move to curb greenhouse gas (GHG) emissions and help the administration of President Lula da Silva reach its emissions reduction targets, Dow Jones Newswires has reported.
The bill, which has been discussed within the government for months, is expected to be sent to Congress in the next month or so.
“We need resources to finance investment in environmental policies,” Guilherme Mello, secretary for economic policy with the Ministry of Finance, was quoted as saying, adding that the carbon market is one of several adequate financial instruments for helping Brazil achieve its ecological goals.
If approved by Congress, the market would take about three years to become operational, according to Mello.
Under the Paris Agreement, Brazil, which is Latin America’s largest economy, has pledged to curb its emissions by 37% from 2005 to 2025.
According to some estimates, the regulated carbon market in Brazil could be worth some 100 billion Brazilian reals (approx. $20.1 billion) by 2030.
Brazil plans to cap companies’ annual emissions at 25,000 metric tons, which would impact some 4,000 companies, Mello said. Although farms and ranches would be exempt from the regulation due to the complexities involved in measuring their emissions, this figure would include some large meatpackers, he added.
According to a 2023 report by local forest protection nonprofit Observatório do Clima, as cited by Dow Jones, Brazil’s greenhouse emissions are growing, with 49% of emissions in 2021 coming from deforestation activities, including tree cutting and burning, and 25% — from cattle raising.
The proposed emissions cap is expected to drive up investment in reforestation as a way of offsetting excessive pollution. Given its vast territory, Brazil has big reforestation potential, and tree planting initiatives have been very popular in the so-called voluntary carbon markets.
The planned cap-and-trade market is expected to lead to a general increase in the value of carbon credits, where each credit equals 1 metric ton of carbon dioxide (CO2) removed from the air.
Other environmental initiatives being considered by the government of President Lula da Silva include strengthening enforcement against illegal deforestation and issuing debt tied to sustainability projects, according to Mello.