Co-authorship: José Brito, Advogado da MoselloLima Advocacia 

The green agenda represents the priority agenda of the economic sectors and public authorities for the coming years, both in the sphere of the Legislative Power, through deliberations regarding the new carbon, hydrogen and green heritage market, as well as in the Judiciary and the Executive, with special emphasis on controversies related to the interpretation and full application of the Brazilian Forest Code, on the legal uncertainty associated with the implementation of the Rural Environmental Registry, on the delimitation of ecological identity for the purposes of applying economic instruments, among others.

In this context, there is a strong focus on structuring and implementing the Brazilian carbon credits market, notably after the approval in the Federal Senate of Bill 412 of 2022, which aims to establish the Brazilian Green Gas Emissions Trading System Greenhouse, through rules that apply to activities, sources and installations located throughout the national territory that emit or have the potential to emit Greenhouse Gases.

In practice, the market dynamics follow the logic of emissions compensation, in which those agents who exceed the legally established limit must reduce their emissions or buy carbon credits from those who have a surplus, being able to sell their quota as a compensation creditor the emission of Greenhouse Gases.

In this conception, a carbon credit is a unit of measurement that corresponds to a ton of carbon dioxide equivalent, whether sequestered or not emitted into the atmosphere.

The proposal defines that economic sectors will be subject to regulation and the incidence of taxation, if they emit more than 25,000 tons of carbon dioxide equivalent per year, conditioned on full compliance with the obligations listed by the legislator, such as presentation of a monitoring plan and reporting of emissions and removals, which will be regulated by Federal Decree.

Despite the undeniable relevance of the decarbonization process, both for Brazil and for the global context, it must be recognized that the final text of the approved project still lacks time and in-depth discussions, aiming for greater technical and legal maturity and, above all, operational tangibility of the market.

Among the main challenges identified is the expensive incidence of tax burden, particularly with regard to Income Tax, as well as the high cost linked to the requirements for issuing reports and certification, which in our view represents a contradiction to the idea of marketing incentive.

Another point that deserves to be highlighted concerns the fragility of the management and governance system, with an excessive concentration of the conduct, direction and regulation of the imminent market under the competence of the Federal Executive, aggravated by the low participation of the private sector and civil society in the proposed system, with participation only in a technical group with a purely advisory nature.

Furthermore, the vagueness of Section 4, of Chapter 3, which deals with infractions and penalties, especially regarding the applicability metrics of the onerous fines listed, is noteworthy, with no definition of the agent responsible for the specific administrative process for applying the sanctions. This must be reviewed and treated with caution by the interested sectors.

In this context, greater technical depth is imperative in internal discussions, in the promotion of more public hearings and debates involving the various economic sectors, public authorities and civil society.

Thus, the issue can be addressed in a responsible manner, solving gaps and legal insecurities in the text, and offering, through regulation, a more robust marketing environment, with transparency in the methodologies to guarantee the quality of credits.

This implies the structuring of a solid management and governance system, in order to avoid falling into the ditch of greenwashing and avoiding the issuance of so-called “bad credits”, in addition to the need for greater clarity in operationalization and incentives for the new market to develop with credibility and induce opportunities at national and international levels.

Bill 412 of 2022 was approved at the beginning of October, unanimously in the Federal Senate's Environment Committee, including some amendments presented, such as the exclusion of the agricultural sector (primary production), from market regulation, Therefore, it does not exempt agro-industries.

Next, as per the procedure, the matter was forwarded to the Chamber of Deputies, to be submitted to a new round of public hearings and technical debates to further mature the topic, including the possibility of receiving new amendments and adjustments to the text.

Upon reception in the Chamber, the proposal was attached to Bill 528 of 2021, which regulates the Brazilian Emissions Reduction Market, in turn attached to Bill 2148 of 2015, which establishes tax reductions for products suitable for the green economy low carbon. As these are similar matters, it is ready to enter the voting agenda in the Plenary on an urgent basis, under the rapporteurship of Deputy Aliel Machado (Green Party of Paraná).

The projection is that there will be a kind of “slicing” and updating of the bills, so that the regulatory frameworks for the Brazilian carbon market can be established, both in the regulated modality and in the voluntary modality. In this context, it is important to mention that in the voluntary market, carbon credits are called Voluntary Emission Reductions, and demand is driven by corporate commitments and environmental, social and corporate governance strategies.

In the absence of legal obligations, the programs have rules defined by the third sector, in which carbon neutral or Net Zero commitments are established by the companies themselves, in accordance with international climate governance standards. For this arrangement, credits are audited by an independent entity, but are not subject to registration by the United Nations and, therefore, are not valid as a reduction target for countries that are part of the international agreement.

In the regulated market, in turn, demand is established by legislation defined by a government and creates an environment of legal security and investment reliability, above all, by defining goals and metrics for measuring, reporting, verifying and monitoring emissions and removals of greenhouse gases in the atmosphere, in order to help countries achieve their Nationally Determined Contributions, through a new market mechanism that stimulates the development of economic activity in a manner compatible with climate policy.

According to an estimate from the 2022 Report of the International Chamber of Commerce, Brazil has the potential to supply up to 28% of global demand in the regulated carbon market and 48.7% in the voluntary market by 2030, generating revenue of around 120 billion dollars.

It is important to say that this process involves the joint participation of several economic sectors, such as the energy and ethanol sectors, which have actively participated in discussions and the advancement of instruments that contribute to the country's energy transition process.

An example is the recently launched Fuel of the Future Bill (Bill 4516 of 2023), which brings a set of initiatives to catalyze the decarbonization of the transport energy matrix, for the industrialization of the country, and to increase energy efficiency of vehicles.

In parallel, relevant mention of Bill 725 of 2022, recently approved by the Federal Senate's Environment Committee, which regulates the insertion of hydrogen as an energy source in Brazil and establishes incentive parameters for the use of sustainable hydrogen.

Under the proposal, which will now be analyzed by the Infrastructure Services Commission in a final vote, the National Agency for Petroleum, Natural Gas and Biofuels is responsible for regulating and supervising the entire hydrogen chain.

Furthermore, the proposal stipulates the integration of hydrogen production and distribution operations into the economic fuel supply sector in the country, which represents a significant step in the search for new energy alternatives, diversifying our options and promoting the development of the sector.

Therefore, it is clear that the green agenda approach represents the point of convergence between the objectives of preserving the environment and economic growth associated with low greenhouse gas emissions, with the purpose of contributing to social, environmental and sustainable economy, in order to position Brazil on the strategic radar of service and solution providers that bring together the links in the chain, as well as occupy the deserved place of protagonist that belongs to it on this front, based on taking advantage of the advantages that are organic to it .

To this end, the integration of the various economic sectors is essential for effective and coordinated participation, with active involvement in discussions, public hearings, thematic meetings and working groups established within the scope of the maturation of regulatory frameworks highlighted on the public environmental agenda, in order to present its proposals and sectoral perspectives, in order to avoid an imposing regulatory scenario, the emptying of the new market under construction and to endorse our power as allies of environmental preservation and the fight against climate challenges.