Carbon credit revenues could generate US$100 billion to Brazil by 2030, according to a study by the Brazilian representation of the International Chamber of Commerce (ICC Brazil). By the end of the decade, the agribusiness, forest and energy sectors can avoid the emission of 1 billion tons of co2 equivalent.

In the next decade, the country has the potential to supply up to 37.5% of the global demand of the voluntary carbon credit market and up to 22% of market demand regulated by the United Nations (UN). However, there is still a long way for Brazilians to take advantage of every opportunity.

For now, in practice, the European market accounts for about 90% of the world's entire carbon credit trading. The main voluntary carbon markets are located in India (23.1 million tons of CO2 equivalent), the United States (14.4 MtCO2e) and China (10.2 MtCO2e). Brazil ranks only seventh, with 4.6 mtCO2e.

What is carbon credit?  

A carbon credit is a digital certificate that proves that a company or an environmental project (forest conservation projects, reforestation of devastated areas, clean energy, biomass, etc.) prevented the emission of 1 ton of CO2 (carbon dioxide) in a given year.In other words, carbon credits are intangible assets.

The concept emerged in 1997, when about 180 countries signed the Kyoto Protocol. The agreement required countries to reduce their greenhouse gas (GHG) emissions between 2008 and 2012 to 5% below 1990 levels in order to reduce climate change caused by global warming.

In 2005, the Paris Agreement, signed by 195 countries, reinforced the need to reduce GHG emissions and create an international carbon credit compensation market. Meanwhile, trade regulation only took place in 2021 during the negotiations of the United Nations Climate Change Conference (COP-26).

How the carbon market works 

A compensation credit is an instrument for governments and companies to meet the carbon reduction targets set by the Paris Agreement. As GEEs blend globally into the atmosphere, it doesn't matter where exactly they are reduced.

Individuals or companies wishing to offset their own greenhouse gas emissions can purchase these credits through an intermediary or those that directly capture carbon. Every process is certified by independent entities or linked to the UN.

Commercialization of credits 

In theory, the commercialization of carbon credits is simple. In the case of a farmer who plants trees, the owner receives money and the corporation pays to offset its emissions. The middleman, if any, can profit along the way.

Carbon credits can be generated from deforestation and degradation emissions reduction (REDD) or clean development mechanism (CDM) projects. Securities can be traded directly between buyer and seller or indirectly on the secondary market regulated by the stock exchange.

In practice, however, the elaboration of these projects requires the hiring of environmental professionals to calculate the GHG reduction generated by the initiatives. A specialized consultancy may also be necessary to help in the commercialization of the asset, since there are still no clear rules for the Brazilian market.

Bill No. 581/21, which creates the Brazilian Market for Emission Reduction (MBRE), intends to regulate the purchase and sale of carbon credits in the country, with transparent rules aimed at developing the potential of the voluntary market. The proposal is being proceeded as a matter of urgency in the Chamber of Deputies.

Source: Canal agro