On December 11, 2024, Brazil enacted Federal Law No. 15,042/2024, establishing a regulatory framework for the country’s carbon market. This legislation can be crucial for aligning Brazil with global climate commitments, introduces mechanisms to price carbon emissions, delineates obligations for high emitters, and integrates governance and safeguards to ensure effective implementation. The law’s provisions underscore Brazil’s commitment to addressing climate change while accommodating national economic and social realities.
Carbon Pricing Mechanism
Federal Law No. 15,042/2024 adopts a regulated market model for carbon pricing similar to frameworks in other jurisdictions such as the European Union Emissions Trading System (EU ETS). The central feature of this mechanism is the use of tradable instruments—Cotas Brasileiras de Emissões (CBEs) and Certificados de Redução ou Remoção Verificada de Emissões (CRVEs). CBEs represent allowances for emissions, while CRVEs are credits generated from verified reductions or removals. Both instruments can be traded in financial and capital markets, classified as securities under Brazilian law. This design incentivizes cost-effective mitigation by allowing market dynamics to identify the most efficient reduction opportunities.
Obligations for Major Emitters
The law imposes stringent monitoring, reporting, and compliance obligations on large emitters, specifically entities exceeding 10,000 tCO2eq/year or 25,000 tCO2eq/year. These operators must periodically monitor and report their net emissions and reconcile them with allocated CBEs or acquired CRVEs. The phased implementation of these obligations allows businesses to adapt to the new regulatory environment progressively. This transition phase reflects Brazil’s acknowledgment of the economic and operational challenges inherent in large-scale decarbonization.
To support compliance, operators can offset a portion of their emissions using CRVEs generated through methodologies approved by the relevant regulatory authorities. This approach not only facilitates compliance but also stimulates investment in projects that generate verified reductions or removals, such as reforestation or clean energy initiatives.
Phased Implementation of the SBCE
A key feature of the law is the phased rollout of the Brazilian Greenhouse Gas Emissions Trading System (SBCE) over a six-year period. This implementation is divided into five distinct phases:
- Regulatory Framework Development: Within the first two years, extendable by an additional two years, the government is tasked with defining the rules governing the SBCE.
- Emissions Measurement: Companies are required to measure their greenhouse gas emissions accurately.
- Reporting and Planning: Companies must report their emissions and present comprehensive monitoring and reduction plans.
- Market Operation Initiation: The trading market becomes operational, and the first National Allocation Plan is implemented.
- Full Operationalization: The SBCE reaches full operational status, with all mechanisms and compliance measures in effect.
This structured approach allows for the gradual adaptation of industries to the new regulatory environment, ensuring a smooth transition and effective compliance.
National Allocation Plan
The National Allocation Plan is a cornerstone of the regulatory framework, defining the total number of allowances allocated to operators within the system. The plan also establishes the percentage of emissions that may be offset using CRVEs, providing flexibility while maintaining the integrity of the overall emissions cap. By limiting the extent of offsetting, the plan ensures that entities prioritize direct reductions, thereby fostering genuine decarbonization efforts rather than over-reliance on offsets.
Safeguards for Indigenous Peoples and Traditional Communities
Federal Law No. 15,042/2024 incorporates robust safeguards to protect the rights of Indigenous peoples and traditional communities. These groups retain ownership of carbon credits originating from their territories, ensuring that any revenues generated directly benefit their communities. The inclusion of these safeguards aligns with Brazil’s commitments under international conventions and promotes equitable participation in the carbon market.
Transfer of Mitigation Outcomes
The law facilitates the international transfer of mitigation outcomes (ITMOs) under Article 6 of the Paris Agreement. CRVEs intended for international transactions must be tracked through the Sistema Brasileiro de Controle de Emissões (SBCE) and authorized by the relevant authorities. These transactions are subject to adjustments in Brazil’s national emissions inventory to prevent double counting, thereby maintaining the environmental integrity of the carbon market.
Governance Structure
The governance of the carbon market is structured to ensure transparency, efficiency, and stakeholder participation. The SBCE is managed by an interministerial committee, supported by a permanent technical advisory committee that includes private sector representation. A regulatory affairs chamber linked to this structure oversees compliance and market operations. This inclusive governance model fosters collaboration between public and private stakeholders, ensuring that the system evolves in response to emerging challenges and opportunities.
Integration with Voluntary Carbon Markets
The law allows the voluntary carbon market to operate alongside the regulated system, enabling non-regulated entities to participate in carbon trading. Voluntary credits may be absorbed into the regulated market, creating pathways for broader engagement in climate mitigation efforts. This integration enhances market liquidity and provides additional incentives for businesses and organizations to invest in sustainability projects.
Transaction of Carbon Assets
CBEs, CRVEs, and carbon credits are recognized as financial securities under the law, enabling their trading in financial and capital markets. This classification ensures robust regulatory oversight, promoting market confidence and protecting investors. By embedding carbon assets within established financial systems, the law facilitates the development of a dynamic and transparent carbon market.
Penalties for Non-Compliance
To ensure adherence, the law imposes penalties for non-compliance, including fines of up to 3% of the offending entity’s gross revenue in the fiscal year preceding the administrative process. These penalties underscore the seriousness of the regulatory framework and serve as a deterrent against non-compliance, reinforcing the integrity of the carbon market.
Sectoral Exclusions and Inclusions
Recognizing the unique characteristics of certain sectors, the law excludes primary agricultural production and basic sanitation from emissions limitations. These exclusions aim to protect industries vital to national development and social welfare while encouraging voluntary mitigation efforts within these sectors. However, the law also encourages participation by these sectors in voluntary carbon markets, ensuring their contributions to national climate goals without imposing excessive burdens.
Avoiding Greenwashing
By embedding stringent monitoring and reporting requirements, the law addresses greenwashing—the practice of misleading stakeholders about environmental actions. The phased implementation, robust governance, and reliance on verified methodologies ensure that emissions reductions are genuine and transparent. Furthermore, the inclusion of safeguards for Indigenous and traditional communities guarantees that sustainability claims are underpinned by equitable practices. The integration of CRVEs into international mechanisms also upholds Brazil’s credibility in global climate governance.
Conclusion
Federal Law No. 15,042/2024 establishes a robust framework for Brazil’s carbon market, aligning national efforts with international climate commitments while addressing the unique social and economic realities of the country. By requiring large emitters to account for their emissions, incentivizing verified reductions, and integrating governance mechanisms, the law lays a foundation for an effective and transparent carbon market. Its provisions balance environmental goals with protections for vulnerable communities and critical sectors, demonstrating a nuanced approach to sustainable development. However, it is important to mention that the law is still very raw, the reason why the implementation progress might be slow and full of amendments to the original law.
REFERENCES
https://www.in.gov.br/en/web/dou/-/lei-n-15.042-de-11-de-dezembro-de-2024-601124199
