Brazilian Greenhouse Gas Emissions Trading System

Law No. 15,042/2024 establishes the Brazilian Greenhouse Gas Emissions Trading System (Sistema Brasileiro de Comércio de Emissões de Gases de Efeito Estufa, SBCE). The SBCE aims to support the implementation of  “Law No. 12,187 – Brazilian National Climate Change Policy” and the achievement of the country’s climate targets. The law lays out the governance framework and the legal foundation for obligations by covered entities, with key design elements (such as scope, cap, and allocation) to be determined in the coming years. 

The ETS will impose compliance obligations on entities emitting more than 25,000 tCO₂e per year, with reporting obligations applying to those emitting more than 10,000 tCO₂e per year. Covered entities will have to surrender allowances for all their covered emissions (see ‘Compliance Period’ below). A priori, the ETS applies to all sectors of the economy – with the explicit exemption of agricultural activities, and with forestry activities expected to generate carbon credits. The extent to which some sectors will see entities covered by the SBCE will depend on whether participation thresholds will apply to individual sources or e.g., at company level, which is yet to be determined.  

The system will be overseen by the Interministerial Climate Change Committee, and operated by the SBCE management body, which will be supported by a technical consultative body. National Allocation Plans – to be published regularly – will set out the cap and its expected trajectory, allocation methods, the percentage of offset credits allowed for compliance, market stability provisions, as well as provisions to protect against reversals and leakage, among others. The cap is to be set in accordance with Brazilian climate targets. Revenues from the trade of allowances and offset credits will be subject to net gains and capital gains tax. Non-compliance will be punishable by fines and embargoes, among other penalties. 

Covered entities will be allowed to surrender domestic offset credits to meet part of their compliance obligation. Eligible activities are those that make use of methodologies accredited by the SBCE management body (to be determined); verified by an independent entity; and registered in the SBCE Central Registry. Once registered in the SBCE registry as Verified Emissions Reduction or Removal Certificates (Certificado de Redução ou Remoção Verificada de Emissões - CRVE), the offset credits will become eligible for use under the SBCE. The agriculture, land-use change and forestry sectors – responsible for more than 60% of emissions in Brazil – are expected to play a key role in the generation of CRVE. Provisions for REDD+ credits are included in the law. 

The law also explicitly defines the rights of indigenous peoples and traditional communities with regard to carbon crediting. This includes the right to commercialize offset credits generated on lands they traditionally occupy, as well as the compensation for any damages resulting from offset credit projects. Actors involved in offset credit projects would also have to adhere to a benefit-sharing regulation. 

The law also stipulates that CRVEs may be eligible for international transfers under Article 6 of the Paris Agreement, subject to authorization by a designated national entity. The SBCE registry will track both national and international transactions.

The implementation of the law will occur in five stages: 

• Phase I: government enacts regulations needed to implement the system (one to two years).

• Phase II: regulated entities operationalize emissions monitoring and reporting (one year). 

• Phase III: regulated entities face monitoring and reporting obligations (two years). 

• Phase IV: implementation of the first national allocation plan, with free allowance allocation. 

• Phase V: full operationalization of the SBCE, following the end of the first national allocation plan.