How does the Carbon Market work in Brazil?

Responsible researcher: Angelo Cruz do Nascimento Varella

Article title: WHAT IS THE CARBON MARKET AND HOW DOES IT OPERATE IN BRAZIL?

Article authors: Fernando B. Meneguin

Location of intervention: Brazil

Sample size: Not applicable

Sector: Environment, Energy & Climate Change

Type of Intervention: Qualitative analysis of Brazilian participation in Emissions Trading

Variable of Main Interest: Not applicable

Assessment method: Others

Policy Problem

The international carbon credit market is a global agreement that aims to achieve environmental sustainability and reduce global greenhouse gas (GHG) emissions. Essentially, it is an electronic certificate that is issued when there is a proven reduction in the emission of these polluting gases, so that the person responsible for the reduction can transact credits, effectively exchanging their reduction for funds in the financial market, when negotiating the sale of their credits. of carbon.

In fact, carbon credits are considered commodities , which are goods traded at international prices, established according to demand and competition. The aim is to reduce global collective emissions through initiatives aligned with the Kyoto Agreement.

Assessment Context

The Kyoto Protocol was signed in December 1997 by 55 countries that were responsible for more than half of the greenhouse gas emissions that occurred in 1990. The agreement, which came into force in February 2005, established three innovative mechanisms with the objective to implement effective sustainability solutions.

In addition to the first mechanism, Emissions Trading, the Kyoto Protocol also created the Joint Implementation system, which aims to assist developed countries in which economies are transitioning to more sustainable systems, and the Clean Development Mechanism (CDM) , whose objective is to contribute to increases in environmental preservation in developing countries, such as Brazil.

Policy Details

Since the intention of Emissions Trading is to reduce global GHG emissions, the credit is issued to economic agents that are proven to be able to reduce this polluting factor, so that other countries and institutions that are unable to do so, or that do not have the intention to adapt the emission of their greenhouse gases, they pay for the credits. In this way, polluting agents finance the activities of those who reduce their harmful emissions, contributing to the economic viability of projects with a sustainable focus.

Each unit of carbon credit is equivalent to a ton not dissipated in the Earth's atmosphere, so that in 2011, 10.3 billion credits were traded, equivalent to a global market worth around 176 billion dollars, a growth of 11% in compared to the year 2010.

Methodology Details

The researcher carries out a qualitative analysis of adherence and the Brazilian regulatory and normative environment for the insertion of sustainable projects, applicable to CDM concepts, in accordance with the Kyoto Protocol. The main objective of the analysis is to argue in favor of the implementation of projects with environmental viability in order to take advantage of the existence of international benefits destined to initiatives with an environmental bias.

Results

The researcher's analysis demonstrates not only the beneficial potential of the participation of Brazilian agents in the Kyoto Protocol and the carbon credits market, but also in the creation of projects with proven sustainability, arguing in favor of the economic and environmental viability of this type of initiative.

The author also highlights, as a positive example, the case of the Bandeirantes Landfill, located in Perus, in the metropolitan region of São Paulo. The initiative, which covers 1.4 million square meters, received around 36 million tons of solid waste, generating 170 thousand MWh of electricity per year, from the capture of biogas. The author highlights that the batch of just over 808 thousand carbon credits was transacted by the São Paulo City Council for 34 million reais.

Public Policy Lessons

Investing in sustainability constitutes an opportunity cost. Economic production, especially industrial production, contributes to the emission of greenhouse gases, which have negative global externalities. By proposing solutions that increase economic incentives, the Kyoto Protocol created a system of opportunities for developing countries, such as Brazil, to foster sustainable enterprises.

Therefore, with regard to public policies, it is interesting to take advantage of the economic and financial mechanisms consolidated by the international agreement, with the aim of implementing initiatives that seek improvements to the environment, improving the global greenhouse effect and other problems resulting from the unrestrained exploitation of natural resources.

Reference

MENEGUIN, Fernando B. What is the carbon market and how it operates in Brazil. Brazil economy and government, v. 28, 2012.