After more than a decade of waiting, the new regulation of the Brazilian carbon market was enacted last May by Federal Decree No.11,075/22, which establishes the procedures for the drafting of the Sectoral Plans for Mitigation of Climate Change, institutes the National System for the Reduction of Greenhouse Gas Emissions (Sinare) and amends Decree 11,003/22 (which institutes the Federal Strategy for the Incentive of Sustainable Use of Biogas and Biomethane).

The decree is part of the discussions on the consolidation of a low-carbon economy initiated by Federal Law No.12.187/09, which instituted the National Policy on Climate Change (PNMC).

According to the PNMC, it would be up to the Executive Branch to establish the Sectoral Plans for Mitigation of Climate Change, in order to meet the gradual goals for the reduction of greenhouse gas emissions, which was disclosed during the Global Carbon Market – Decarbonization & Green Investments Congress, held in mid-May by Banco do Brasil and Petrobras, with support from the Ministry of the Environment and the Central Bank. The event was attended by representatives of the most diverse sectors of the economy and authorities involved in the matter.

In general terms, the decree does not present details on the regulation of the carbon markets and still does not offer the necessary legal security. The document addresses the matter in a very superficial way, through generic concepts and devices or very similar to those already in existence, especially with regard to Bill No. 2,148/15, which is advanced proceedings in the House of Representatives.

Main aspects of the decree

The new decree defines what would be the Sectoral Plans for Mitigation of Climate Change , which should be understood as the sectoral instruments of governmental planning for the achievement of climate goals. This definition highlights the relevance of sectoral instruments for the establishment of climate goals.

In the approved text, it is noted that the decree does not bring any forecast on  the definition of climate goals or any direction in relation to their establishment, but only the procedures for the drafting of the sectoral plans.

Proposals to reduce greenhouse gas emissions may be submitted by sectoral agents (members of the sectors of generation and distribution of electric power, urban public transport and interstate cargo and passengers transport modal systems, manufacturing and durable consumer goods, fine and basic chemical industries, pulp and paper industry, mining industry, construction industry, health services and agriculture).

The competence for proposing the Sectoral Plans for Mitigation of Climate Change, however, will fall to the Ministry of the Environment, the Ministry of Economy and related sectoral ministries, if any. The plans will be approved by the Inter-ministerial Committee on Climate Change and Green Growth, established according to Decree No. 10,845/21.

This is a measure of implementation of a "baseline-and-trade" systematic for the carbon market, in which performance goals will be set for each economic sector.

The absence of climate goals may indicate some flexibility regarding the carbon reduction goals since sectoral instruments will enable the discussion and establishment of such goals with the participation of sectoral agents.

The decree also enabled differentiated treatment for sectoral agents, according to the category of the company and/or rural properties and their characteristics (such as billing, emission levels, characteristics of the economic sector and region of location), a measure that reflects the different realities of a continental country such as Brazil.

Sector agents will have a period of 180 days – extendable for an equal period – to submit their propositions for the establishment of greenhouse gas emissions reduction curves.

The long-term goal of climate neutrality agreed in the United Nations Framework Convention on Climate Change, through Nationally Determined Contributions (NDC) – a commitment assumed by Brazilin order to collaborate with the objective of limiting the increase of global temperature must be observed. To this end, a goal was set to be achieved by the public sector, in various spheres, and by the private sector.

There is no provision in the decree regarding the establishment of a sectoral mitigation plan if no sectoral instrument is signed. The hypothesis was left open and it is not known what may happen if such instruments are not signed.

Despite the lack of predictability, some sectors have already signed a protocol of intentions to collaborate in the drafting of Sectoral Plans for Mitigation of Climate Change.

In addition to providing the procedures for the drafting of such plans, the decree instituted Sinare, whose purpose is to serve as a single data center for the registration of emissions, removals, reductions and compensation of greenhouse gases and acts of trade, transfers, transactions and retirement of certified emission reduction credits.

The institution of a single central registry is extremely relevant to the extent that it will concentrate all transactions in the Brazilian carbon market, which can help preventing greenwashing practices.

The decree provides that the emission reductions and removals registered in Sinare that are added to the goals established for sector agents will be recognized as certified emission reduction credits, if they meet the system's certification standard.

Carbon credit comprises the financial, environmental, transferable and representative asset of reduction or removal of one ton of carbon dioxide equivalent, which has been recognized and issued as credit in the voluntary or regulated market.

Carbon footprints of products, processes and activities, carbon from native vegetation, soil carbon, blue carbon (captured by coastal ecosystems) and carbon stock units may also be registered in Sinare, without the need to generate certified emission reduction credits.

With the enactment of the decree, a step– albeit small – has been takens towards the implementation of an effective carbon market in Brazil. Despite the fact that the decree is broad and does not define specific goals for the reduction of greenhouse gas emissions or the methodology for Sinare’s operation, there was progress, considering the establishment of relevant aspects for the beginning of the maturing of a regulated carbon market.

The long-awaited legal security on the matter, however, will only come with the enactment of a specific law on the matter. This is what is sought with Bill No. 2.148/15 and others that arose over time and were attached to it. The regulation of the aspects that remain open in the decree – such as the operationalization of the implemented system – will also be essential.

It is necessary to closely monitor the next steps of the regulation of decarbonization in Brazil – which is beginning to move forward – and hope that sustainable development can be achieved, with the necessary balance for the protection of future generations.