Unlocking Green Potential: Brazil's New Regulated Carbon Market

In late 2024, Brazil saw the enactment of Federal Law No. 15,042/2024, which established the Brazilian Greenhouse Gas Emissions Trading System (SBCE), marking the country's entry into the regulated carbon market. The law aims to implement a "cap and trade" system, where specific sectors have set CO2 emission targets. If these targets are not met, companies are required to purchase credits to offset the excess emissions. On the other hand, those emitting less than the established limit can trade their surplus credits.

Previously, Brazil only operated a voluntary market, where companies could buy credits to meet internal sustainability or carbon neutrality goals without regulatory mandates. The SBCE introduces two primary types of assets for structuring and trading: 

1. CBE (Brazilian Emission Allowance): This represents the right to emit 1 ton of carbon dioxide equivalent (tCO₂e). CBEs will be allocated by the managing body, either free of charge or through paid mechanisms, to regulated sources.
2. CRVE (Certificate of Verified Emission Reduction or Removal): This certifies the effective reduction or removal of 1 tCO₂e of GHG emissions.

The sectors most affected by the new regulation are those with installations emitting more than 10,000 tons of CO₂ equivalent per year. For installations emitting more than 25,000 tons of CO₂ equivalent per year, the SBCE will impose additional obligations, such as monitoring plans and GHG emission and removal reports. Companies involved in waste management and liquid effluent treatment that use technologies to neutralize emissions will be exempt from compliance with established limits. 

Additionally, insurance companies, pension funds, capitalization companies, and local reinsurers subject to the rules of CMN Resolution No. ,994 of 24, 202, which deals the allocation of resources in the country to guarantee the obligations of admitted reinsurers and the portfolio of Individual Scheduled Retirement Funds (Fapi), must allocate at least 0.5% of their annual resources from their technical reserves and provisions, in carbon credits or investment fund shares of these environmental assets.

The first phase of implementing the regulated market is taking place in 2025, focusing on initial regulation, the creation of the managing body, and defining the sectors to be regulated. This phase, which may extend until the end of 2026, will establish the operational details and legal foundations for the market's functioning. 

Stay tuned for more details on the regulation, the characteristics of the carbon market in Brazil, how the market currently operates, and the changes expected with the SBCE in our upcoming articles.

Author: Daniela Mota - danielamota@felsberg.com.br