While a PL is being drafted, without a vote in the Senate planned, the lack of regulation of the carbon market is making projects wary
The idea seems incredible: companies that want to reduce the effect of their carbon dioxide (CO2) emissions, even though there is no legal obligation to do so, buy carbon credits from other projects or institutions. In theory, these companies offset their emissions, encourage sustainability projects and everyone is happy. But who guarantees that this process has been carried out correctly and reliably?
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Brazil has not yet regulated its voluntary carbon marketwho is therefore faced with a series of suspicions.
“There are many suspicions about REDD+ credits [Redução de Emissões por Desmatamento e Degradação florestal]partly due to a historical methodological divergence and partly linked to public land grabbing”, explains Luciana Vianna Pereira, chair of the ESG, Green Finance and Sustainability Committee of the Environmental Law Institute (IDAM).
The methodological divergence cited by Luciana refers to the way in which Verra, the world’s largest certifier of carbon credits, ensures that a company meets the requirements to offer that credit. According to the lawyer, the institution has accepted two different methods for certification, however, according to a report by the The GuardianPublished in January 2023, they identified “phantom” carbon credits and concluded that about 90% of the offsets were, in fact, worthless.
“As a result, Verra has already expressed herself, she has already changed her methodology precisely to try to unify and give a little more structure and credibility,” adds Luciana. But in Brazil the gap is a little lower.
In June of this year, A federal police operation has dismantled a suspected plan to sell R$180 million in carbon credits from illegally invaded areas of the Amazon.. One of the targets of the Greenwashing operation was the self-proclaimed “largest producer of carbon credits in the world”, businessman Ricardo Stoppe Junior.
Its carbon credit projects were certified by Verra and marketed by Carbonext, the largest developer of REDD+ projects in Brazil. Both institutions suspended their ties with the Unitor, Fortaleza Ituxi and Evergreen projects, which occupied an area almost twice the size of São Paulo.
To the EarthJanaina Dallan, founder and CEO of Carbonext, said the company did not develop the projects, only provided technical advice on what needed to be done and sold the credits. To begin work on the projects, Carbonext says it carried out surveys on the ground, with access to documents obtained from official bodies.
Even before the operation, the company says it suspected irregularities when, in August 2022, it detected an overlap between private and public areas. Janaína said she asked the owner to submit new documents proving that the area belonged to her. The deadline was one month.
“This was not respected and Carbonext went to court asking for evidence, otherwise the contract would be terminated. A year later, the owner submitted the documents and the court ordered the continuation of the project. However, the project did not generate any more credits, for two years, until the Federal Police launched the operation, which allowed Carbonext to terminate the contracts, based on the compliance clause”, the CEO informed.
No parameters
In 2015 the Chamber of Deputies presented the PL 2148/2015which aims to establish the Brazilian Greenhouse Gas Emissions Trading System (SBCE). The proposal has already been examined by deputies and is now awaiting a vote in the Federal Senate, but it is not yet known when this will happen.
The plan is for both the regulated market – for companies that need to offset their emissions as a result of regulations – and the voluntary carbon credit market to be linked to the SBCE. Such a system would take another six years to develop, in a six-stage process.
For now, there is a sort of limbo on the subject. Contacted, the Ministry of Finance confirmed that there is currently no specific regulation aimed at the voluntary carbon market and that the PL 182/2024 in the Senate awaiting the designation of the rapporteur.
Therefore, despite the sustainable promises, emerging platforms must prove themselves to be trustworthy. This is what happens with B4, which calls itself “the first Brazilian climate action exchange.”
“The goal is not 100% carbon credit, but when a company or someone wants to sell a carbon credit, they apply for listing on B4. B4 does an internal screening to see if everything that person is requesting for listing actually exists, is consistent and is legal, and then we subject it to a second-party audit, which could be a certification or even a compliance audit,” explains Odair Rodrigues, CEO of the platform.
If everything is in order, the project could then be listed on B4, similar to what happens on a traditional stock exchange. The carbon credits will be divided and offered for sale. With these parameters, which Rodrigues considers “robust”, in just over a year of activity, B4 has approved only one listing project.
“We had about 180+ companies [aplicando]. This year has been no different. There have also been a lot of projects that have applied to sell carbon credits. So, it’s on a long road to approval. Because this rule is very strict, it’s very difficult to approve carbon credits at the B4 level,” he says.
The CEO’s expectation is that, starting in August, one project will be approved per month.
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The bag is a good idea
The idea of granting carbon credits, according to lawyer Luciana Vianna, is one of the best for the proper functioning of this market. She believes that such a platform would bring greater transparency to negotiations and standardize credit prices. In addition, Luciana emphasizes that, since it is a regulated exchange, supervision by the Securities and Exchange Commission (CVM) is necessary.
“A regulated activity exchange will be regulated by the CVM, it will have to follow certain criteria. This therefore tends to provide greater transparency to this exchange, and it also tends to provide greater liquidity, since the assets would be traded more easily,” the lawyer believes.
So far this is not the case with B4. Despite presenting itself as a stock exchange, since it does not sell assets or financial funds, the company does not need to be connected to the CVM. The information has been confirmed by the institution.
In a note, the CVM comments on the ongoing process of carbon market regulation in the Senate and declares its willingness to contribute. The commission also stated that it “favors” the fact that the public policies developed and encouraged by the CVM are also gaining importance in the legislative context.
B4 is not the only platform of its kind that wants to explore this market. B3, the Brazilian stock exchange, announced in December last year a partnership with the technology group ACX to develop a carbon credit sales platform. A short communication will be sent to EarthB3 only said the project should go into operation in the second half of the year.
With so much water still to flow, those in this market are really hoping that changes will come a little more quickly.
“Brazil has all the conditions to be, for many years, the great protagonist of the global carbon market, since 15% of the planet’s potential for carbon retention by natural means is here, with the possibility of satisfying almost half of the global demand for carbon credits”, believes Janaia Dallan, founder of Carbonext.
Source: Terra
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