Sustainable Industry

Carbon Market

Carbon pricing and adoption of a cap-and-trade market will encourage investment in clean technologies

The regulated carbon market is more suitable than taxation mechanisms because it is conducive of a business environment, innovation and competitiveness without increasing the tax burden. This regulatory model is based on the creation of an emissions trading system under the cap-and-trade model, where companies that emit less than their allowances can sell their unused portion to those that release a greater amount of greenhouse gases in the atmosphere. Permits are provided free of charge or via auctions, and can be traded between companies.

A study by the National Confederation of Industry (CNI), Mercado de Carbono: análise de experiências internacionais (Carbon market: an analysis of international experiences), discusses initiatives from the European Union, Mexico, the Western Climate Initiative (WCI) in Canada and California, Japan, and South Korea. The study reveals common elements in these systems that can be useful for the design of the governance of a carbon market in Brazil.

According to another study conducted by the CNI, A Precificação de Carbono e os Impactos na Competitividade da Cadeia de Valor da Indústria (Carbon Pricing and the Impacts on Competitiveness in the Industrial Sector’s Value Chain), there’s a strong correlation between compliance with the Paris Agreement in Brazil and the control of illegal deforestation rates.

A key finding is that the effectiveness of the carbon market in Brazil will be quite limited if it is not accompanied by a broader strategy to fight climate change, such as controlling illegal deforestation, expanding renewables and strengthening the national policy on biofuels. In addition, the study showed that the carbon market has less significant macroeconomic impacts than carbon taxation.

Evidence offered by a study conducted by the World Bank, State and Trends of Carbon Pricing 2021, suggests that carbon pricing has boosted productivity and innovation in developed countries. As a result, an increasing number of companies and governments have been integrating carbon pricing into their climate strategies. In Brazil, companies have considered this in their strategies, especially those that have publicly committed to the goal of becoming carbon neutral by 2050.

For the regulated carbon market to be effective, it is essential that there is a high level of governance on the part of the government to design and implement a system that is adapted to the national context. The industrial sector also posits that the domestic carbon market should ensure Brazilian companies are competitive abroad and should include all greenhouse gas emitting sectors.

It also proposes an initial learning phase and the use of the proceeds from the commercialization of greenhouse gas emission permits for reinvestment in low-carbon technologies. In addition, the industrial sector would like to see the regulation of the carbon market include the generation of carbon credits on several fronts, such as forest conservation and restoration, energy efficiency projects and investments in renewable energy.

The sector also makes the case that a robust system for measuring, reporting and verifying greenhouse gas emissions and removals should be put in place.