For years, the need to reduce greenhouse gas emissions has gained notoriety, driving public policies and business actions around the globe. On the one hand, the Paris Agreement and the reduction commitments presented by Countries have demanded a new climate governance structure. On the other hand, corporate targets voluntarily imposed by several companies also indicate the need for reliable emissions mitigation and compensation mechanisms.

It is in this context that initiatives are advancing in the Brazilian Congress to implement a national emissions trading system. Specifically, the approval of Bill 2148 of 2015 in the Chamber of Deputies, in December 2023, brought greater notoriety to the topic, with the proposal to create the Brazilian Greenhouse Gas Emissions Trading System.

In general terms, the aforementioned system establishes a cap on greenhouse gas emissions for regulated sectors and a mechanism for trading carbon credits.

By stipulating this emissions limit, a dynamic is created in which more polluting sectors need to seek less carbon-intensive technologies and processes, or offset their emissions by purchasing bonds. The model is governed by the “polluter pays” principle, aiming to encourage and guide economic agents and public authorities.

The envisaged rule requires that companies, with emissions above 10 thousand tons of carbon dioxide equivalent per year, must implement a system for monitoring and reporting their condition annually. For companies in regulated sectors with emissions above 25 thousand tons of carbon dioxide equivalent per year, in addition to the need for monitoring and reporting, there will be a requirement for periodic reconciliation of obligations in the regulated carbon market.

This market will be made up of two securities: (1) Brazilian emission quotas, a title acquired through sale or assignment carried out by the State and (2) certificates of verified reduction or removal of emissions. Each verified emission reduction or removal quota or certificate represents one ton of carbon dioxide equivalent.

The project also provides for the possibility of fungibility of carbon credits issued by other activities or programs, in a format similar to that already implemented in several world markets (European ETS, cap-and-trade system California, among others).

Although, at this moment, the proposal excludes the primary production activity of agriculture, the suggested policy imposes participation in the Brazilian Greenhouse Gas Emissions Trading System of agro-industries that exceed the expected emission limit. Thus, for the sugar-energy industry, this initiative is another movement to reinforce the need to expand production with less carbon intensity.

The opportunity brought by carbon valuation has already been known by the sector since 2020, which actively participates in the sale of decarbonization credits.

This is a market that generated more than 7 billion reais by the end of last year and foresees greater issuance of credits by plants that sell biofuel with a reduced carbon footprint.

In the same vein, the environmental recognition of biofuel is also already observed as a mandatory requirement for companies that export ethanol to California. This link between the lower carbon intensity of ethanol and the price premium obtained is also present in the Japanese program for the use of ETBE and in the ongoing regulation for the manufacture of sustainable aviation fuels.

For industries in general, the need to reduce emissions is seen as an additional cost that must be minimized. This logic even gave rise to a tool known as the Marginal Carbon Abatement Curve in the business world.

As can be seen in the highlighted figure, this curve graphically represents the relationship between the cost of implementing additional measures to reduce carbon emissions and the amount of emissions avoided as a result of these measures. In other words, the curve indicates how much a company would have to spend to reduce an additional unit of carbon emissions given the various possible projects.

In the bioenergy production industry, however, this concept appears to be incomplete and should be revisited by company administrators. For those who sell renewable energy, any carbon valuation should be seen as an opportunity to make the business profitable and not as an effort to minimize costs.

This seemingly simple change has transformative implications for company dynamics. What was a topic addressed by the sustainability, finance and controlling areas in view of the cost to be minimized in the traditional view of the Marginal Carbon Abatement curve is now being addressed by the sustainability and new business areas as an investment to obtain greater results and access new markets in the future.

In other words, for an industry that offers decarbonization services, carbon pricing brings new possibilities for results. The traditional Marginal Carbon Rebate curve needs to give way to a marginal profit curve associated with lower greenhouse gas emissions. This change in perspective will be fundamental for the consolidation of tropical bioenergy in the global challenge posed by climate change.