Brazil pushes forward on efforts related to the carbon market

The country has been updating its laws and putting measures in place to boost the trading of carbon credits

By Marluci Azevedo

Brazil is regarded as having great potential to meet the global demand for carbon credits, and the country has taken some important steps in this direction throughout this year. Although the topic has been part of the agenda for sustainable development for over a decade, the scenario has seen new developments in 2022.

Needless to say, there are still many gaps to be filled, especially when it comes to clarifying taxation issues.

Carbon trading plays an important role in reducing greenhouse gas emissions and meeting the goals to combat climate change. And as in any country, progress depends on the joint action of the government and the private sector.

Check out below some of the latest regulatory and government measures that address the issue:

Regulation of the carbon market

Decree No. 11,075/2022 regulated the carbon market, with a focus on exporting credits, especially to countries and companies that need offsets to reduce their net carbon footprint and meet their commitments for net-zero carbon emissions.

Notably, the document introduced the definition of carbon credit in the Brazilian legal environment. The term was defined as:

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

The regulation establishes procedures for designing Sectorial Policies for Climate Change Mitigation and strengthens the operationalization of the carbon market in the country. Another important development is the creation of a single registry for carbon emissions and trading, as well as other related processes.

Carbon credit accounting records

In November 2022, the Central Bank of Brazil (BCB) published BCB Normative Instruction No. 325, providing financial institutions with new instructions on how to register carbon credits and other environmental assets.

Standardization will help the Central Bank monitor assets held by these institutions in their investment portfolios while keeping track of the market’s behavior.

The regulation created specific accounting items for registering investments made in environmental assets, which includes certificates of Carbon and Decarbonization Credits.

The new rule takes effect on January 1, 2023. As of this date, accounting balances related to environmental assets, which used to be recorded under other accounting items, must now consider the new classification.

Carbon credits with the Brazilian Development Bank

The National Bank for Economic and Social Development (BNDES) launched the "BNDES Carbon Credits" program at COP27, the climate event held in Egypt last November.

Through public calls, the bank will provide security and certainty so that more companies can plan and develop projects to generate these credits. Learn more here.

Bill No. 528/2021

Bill No. 528/2021, which establishes the Brazilian Market for Emission Reductions (MBRE), is expected to regulate carbon credit trades in Brazil. It is worth keeping an eye out to see whether the bill will be signed into law, as this will provide more legal certainty for those operating in the carbon market.

Read more:Taxation in a world amidst energy transition

Support to keep pace with a shifting market

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