Brazil’s carbon trade takes off, but agribusiness escapes scrutiny

As Brazil sets the legal basis for its carbon trade, environmentalists are doubtful on whether it will be able to lower the country’s emissions — the sixth largest in the world according to the EU Emissions Database.

The rules do not put a limit on emissions from farming, the country’s top carbon polluting sector, which accounts for about 74% of the country’s emissions.

“We’ve missed the opportunity to bring agribusiness to a regulated sphere, which not only limits emissions, but also promotes sustainability,” said Gabriela Savian, deputy director of public policy at the Amazon Environmental Research Institute, IPAM.

With farmers out, only about 16% of the country’s emissions are expected to be covered by Brazil’s budding cap-and-trade carbon market, according to Natalie Unterstell, president of Instituto Talanoa, a Brazilian climate policy think tank.

But even though it leaves the country’s largest emitters off the hook, the regulation is expected to bring legal security and foster carbon projects that protect the forest against pressure from the agribusiness sector.

In cap-and-trade systems, governments ascribe each sector of the economy a cap to carbon emissions, and companies that exceed that limit can buy allowances from others that still have headroom.

In the European Union, the largest cap-and-trade system in value in the world, about 40% of emissions from aviation, industry and energy sectors, mostly connected to fossil fuel burning, are covered, according to the European Commission.

But Brazil, which had its basic carbon market rules signed into law in December, is different.

Data from the country’s Climate Observatory shows that most of its emissions come from its 240 million strong cattle herd and destruction of its vast natural areas, mostly to make room for pasture and grain fields.

Farming was left without a cap in response to a demand from leaders of the country’s powerful agribusiness caucus, the dominant force in Brazil’s congress.

Their argument was that most cap-and-trade markets do not establish a cap to agriculture, as counting emissions from producers is a technical challenge, something critics said researchers could overcome.

“No country in the world has regulation over the farming sector due to lack of scientifically proven metric” to their emissions, wrote Pedro Lupion, president of Brazil’s Parliamentary Agricultural Front, in a 2023 statement.

As part of their effort to lower emissions, big polluters are expected to become a larger source of funding for forest protection initiatives, said Savian, which could help ease the pressure from farms.

“Even though there is not a cap to the great emitter, which is deforestation,” the cap-and-trade system “structures the possibility to fund schemes … that fight deforestation and promote regeneration,” she said.

There is a growing number of companies and state governments sourcing carbon credits from forest conservation and recovery projects in Brazil.

One of those companies is Carbonext, which now runs 11 projects in partnership with farmers and communities, sourcing carbon from 322,000 hectares of forests.

Those offsets are currently sold in the voluntary carbon market to companies that wish to compensate for emissions even without any legal requirements to do so.

But Janaina Dallan, CEO from Carbonext, expects to be able to sell credits to help companies comply with the regulated cap-and-trade market in the future, providing a non-destructive income alternative for the Amazon.

In addition to communities and private owners, two Amazon states, Tocantins and Para, have been making strides in the carbon market, announcing plans to sell more than $600 million of jurisdictional offset credits.

This class of offsets is sourced by governments that succeed in reducing deforestation or capture carbon within their jurisdictions.

As they reward state policies that stem deforestation, assets are shielded from the land tenure issues that have hurt the reputation of private projects in Brazil, that have been shown to operate on disputed land, embarrassing buyers.

Those credits are calculated based on each jurisdiction’s success in lowering their deforestation rates, a clear indicator, whereas private projects have often been accused of sourcing excessive credits by inflating the risk of deforestation in the areas where they intervene.

The law allows offsets from the voluntary carbon market to be converted into assets that other countries could buy to achieve climate targets, said Raul Protazio, secretary for environment and sustainability in the state of Para, host of this year’s U.N. COP30 climate summit.

Last year’s COP climate summit set the basis for a United Nations overseen international carbon market, raising expectations for this type of global cooperation.

The recent national and international rules “will make it possible for Para to sell credits for Switzerland” to help protect the Amazon as it pursues its national targets, he said. “It will be the most premium type of credit in existence.”