What experts think of a federal bill designed to regulate Brazil’s carbon credit market

A federal bill aimed at creating a regulatory framework for the carbon credit market in Brazil is making a positive impression on local experts. 

If approved, the legislation could directly impact energy companies and industrial players that have to compensate for their greenhouse gas emissions due to local regulations or which are voluntarily interested in mitigating their carbon footprint. 

Being debated in the national congress, the proposal from former senator Chiquinho Feitosa with senator Tasso Jereissati of the Ceará state PSDB party as rapporteur, sets rules for the Brazilian market to reduce emissions. 

Shigueo Watanabe, a researcher at the local non-profit climate change information institute ClimaInfo, claims that, unlike previous bills on the matter, Jereissati’s proposal establishes that the carbon credit market must be aligned with the country’s emission reduction goals.  

“The bill makes a connection with the Paris Agreement and proposes the allotment of targets among the major emitters and then proposes an allocation plan,” he told BNamericas. 

The project provides that if any company reduces emissions by more than its commitment, its surplus credits can be sold to those that have failed to meet their targets. 

"This means that the goal can be achieved at the lowest possible cost for [energy or industrial] production and with the least impact on consumers' pockets," Watanabe said. 

Maria Furtado, a partner at the Trench Rossi Watanabe law firm, considers that the bill is an interesting, comprehensive proposal that establishes the nature of carbon credits as financial assets. 

“A legislative framework is needed to give security to the operations, both in relation to the credits that are issued, guaranteeing that the activity was neutralizing or that there was a reduction of emissions,” she told BNamericas. 

She highlighted that countries like the United Kingdom, Canada, the US (California), Japan, China, Australia, South Africa, and Germany have operating carbon credit markets – either regulated or voluntary. 

“This perplexity regarding the nature of carbon credits is not exclusive to the Brazilian experience and in some countries it has been addressed through legislative initiatives,” Furtado said.

The lawyer said that there are aspects of the bill that could be improved, in order to establish that income tax imposed on the results of the carbon credits’ transactions is levied on the corresponding financial revenue rather than on associated gains and income. 

Earlier this year, the federal government published a decree to create a carbon credit market, but it was considered lacking in content by local experts. 

“The decree is garbage, it delays any policy to create a carbon market to achieve the targets,” Watanabe said. 

RIO REGULATION

Meanwhile, Rio de Janeiro legislators are discussing a bill that establishes benefits for the carbon market, reducing to 2% the rate of ISS service tax for taxpayers based in the city and providing ancillary services to the carbon credit market, creating a fiscal incentive of up to 60mn reais (US$11.3mn) for the sector. 

“It’s a bill of an eminently tax nature, creating incentives to attract companies operating in the carbon credit market. By not treating the transfer of credits as a service in itself, the proposal provides legal security for taxpayers,” Furtado said. 

Leader of the government at Rio city hall, councilman Átila A. Nunes highlighted the leadership role that the city can have in the sector. 

"We have an opportunity before us again. This is a worldwide trend. There is the possibility of attracting not only a market that involves significant values, but also significant jobs and income," he said in a public statement.