The Brazilian Carbon Compliance Market: A (Baby) Step in the Right Direction

By Luis Felipe Adaime, CFA, Founder and CEO at Moss

Jun 12, 2022

In May, the federal government in Brazil announced the much awaited creation of a carbon offset compliance market framework. The government announced that it will create a cap and trade system analogous to the European ETS scheme, in which a regulator will determine annual emission limits for Brazil’s most polluting economic segments (mining, oil E&P, agriculture, beef, etc.) and will require companies to acquire offsets in a new system called Sinare.

The measure is a key development for the Brazilian market and for the global carbon credit market in a few ways:

Brazil is the “Saudi Arabia'' of carbon credits: according to the FAO, the country holds 40% of the world’s tropical forests and 50% of the world’s capacity for carbon credit generation. Many experts believe that most of the future carbon credit generation is likely to come from nature based solutions (NBS) or, in the case of Brazil, forest conservation protocols like REDD+. In fact, McKinsey estimates that 65-85% of the future carbon credit supply generation will come from NBS. Additionally, the global voluntary carbon credit market could potentially expand 15x by 2030. Consequently, if all that expansion would need to come from NBS (as renewable energy projects lose additionally due to increasing cost competitiveness of solar and wind power), then much of that expansion is likely to come from Brazil. The above mentioned estimates combined indicate that Brazil’s avoided deforestation credits are likely to expand by a factor of 40 to 60x by 2030.

But what would Brazil’s compliance market have to do with its voluntary market credit issuance and expansion? Quite a bit! For starters, the Brazilian government has historically been dismissive regarding carbon markets and has not positioned itself officially regarding voluntary markets. On the compliance market side, the law for its creation was passed back in 2015, but no regulation or legal framework have been announced since then. This lack of clarity on the government side has led to anxiety by international buyers of Brazilian assets in the voluntary market. Thus, the statements made by the Ministry of Environment last year, namely that Brazilian REDD+ credits would be accepted in an eventual compliance market, have set the tone for a constructive approach to voluntary market credits. Furthermore, a compliance market in which Brazilian companies can buy REDD+ credits to fulfill obligations will obviously drive demand upwards and be a further driver for pricing of Brazilian project credits, and an incentive for the development of more greenfield conservation projects. We estimate that Brazilian companies currently buy 5 million credits per year and could potentially buy 100 million annually.

The government didn’t stand in the way of the markets, but unfortunately also missed the opportunity to create clear rules. Creating a compliance market via executive order was a missed opportunity to align with demands and opinions of stakeholders like Congress, projects, environmentalists, scientists and society at large. Stakeholders had mobilized in the past two years in the creation of a law proposal in Congress, by Congressman Marcelo Ramos, that would create the compliance market with full regulatory details and in alignment with existing voluntary markets. The executive order unfortunately lacked many details on how the system will work, how existing voluntary credit protocols would fit into the compliance requirements, and more importantly how the sectoral limits would be defined. And the executive order completely ignores the law proposal, creating unnecessary tension between Congress and the executive power in Brazil. Since executive orders can be voted down in Brazil, we expect some sort of negotiation to achieve a middle ground between Congress and the executive power. This is a presidential election year after all, and the international pressure on Brazil may have led the executive power to try to gain the spotlight and steal the thunder of Congress’s law proposal.

Political theater minutia aside, one should view the announcement a net positive for Brazilian carbon credits and for the global voluntary market. Eliminating a large source of uncertainty for Brazilian project REDD+ credits is key for international investors to put money to work in the country for the expansion of supply and for us to create economic incentives for the conservation of Brazilian forests.

🙌 Wins of the Week

Spotlighting our incredible MCJ community members.

3️⃣2️⃣ people joined MCJ this week - a big welcome to this illustrious group of folks! Catch more about them and others in #o-introductions and make sure to join #o-virtual-coffee-chats and opt into chats every Tuesday to meet cool community members.

☀️ Lassor Feasley and Tom Compas met last year at a NYC meetup hosted by Alec Turnbull. The pair decided to start a community solar investing platform company called Legends Solar together as co-founders.They just made a public debut and fellow community member @Max Justicz posted about it on Hacker news a week ago and it hovered at the #2 spot for 5 hours and drove about 700 sign ups for them.

✍️ The Draw-down

Weekly climate art by our MCJ Artist-in-Residence, Nicole Kelner.

📢 Climate Action of the Week

Want to do more? Sign up for the next Climate Changemakers Hour of Action here.

Submit a public comment. The Securities and Exchange Commission (SEC) and the Environmental Protection Agency (EPA) are both soliciting public input on proposed climate regulations. SEC is considering a rule to require public companies to disclose climate risk, while EPA seeks to regulate upwind pollution across neighboring states. Use our Action Playbook to submit a comment to the SEC before June 17 or to the EPA before June 21.

🎙My Climate Journey Podcast

This week Jason spoke with Emma Stewart, Sustainability Officer at Netflix about how the entertainment company measures its footprints, plus sustainability targets for 2030. MCJ partner, Cody Simms, also hosted his first episode with Dana Gibber, Caroline Klatt, and Phil Fogel of Flowcarbon about crypto, voluntary carbon markets and the company’s strategy for tokenizing carbon credits.

✨ Highlights

👋 MCJ Meetups

The MCJ Portland community held a happy hour event last Friday with a dozen participants. The group had a blast and already has their July 15th gathering booked. RSVP here and join the #g-pdx channel in the MCJ member Slack for more.

🗞 Community News

MCJ x Terra.do Job Fair - Kickstart your climate tech career at an MCJ Collective portfolio company! We’re excited to partner with Terra.do for a climate job fair on June 29. During this three-hour live event you can build 1:1 connections with 10+ awesome companies (representing 100+ jobs) from our portfolio, spanning energy, mobility, agriculture, and more. Free for job seekers. Register here. Have any questions? Let us know!
Climate Art Workshop - MCJ Artist-in-Residence, Nicole Kelner, is hosting her first MCJ climate art workshop on June 14. Learn how to paint or draw your own version of her “Electrify Everything” piece. Nicole will share techniques on how to take a complicated climate concept and turn it into a simple visual. These tips can be helpful for anyone in the climate ecosystem to start thinking about how to communicate more effectively on their website, social media, and general marketing. Register here.
Collaborative Fund recently launched Shared Future Fund, a platform for funding climate entrepreneurs. Over the course of 2022, Shared Future is aiming to programmatically support 100 companies with $100,000 each. Today, Collab announced that they will fund climate companies that are part of the Activate or Y Combinator cohorts, and will expand the application pool in 2023.

👩‍💻 Climate Jobs

For more open positions, check out the #j-climatejobs channel in MCJ Slack as well as past newsletters.

Charge Robotics is looking for a Mechanical Engineer to help build large-scale solar farms with robots.
Climate Club is hiring a Senior Full Stack Engineer and Product Designer. The new tech company aims to inspire climate positive action and outcomes for organizations across their teams.
Raptor Maps has several openings in Software (Sr. Software Quality Engineer), Finance (Staff Accountant), and Marketing (Events Specialist). The company is a leading provider of lifecycle management software for the solar industry. Check out a full list of remote jobs here.
Plug and Play is hiring a summer Ventures Intern for their Sustainability team in Paris, with potential for FT hire.
Embue is making multifamily buildings more energy/carbon efficient. They have a few openings, including Data Scientist, Firmware Engineer (IoT), and Full Stack Developer.
Deep Science Ventures is looking for a Climate Associate to help their efforts in driving and accelerating the net-zero carbon transition.

👉 Events

For more climate events, check out the #c-events channel in MCJ Slack.

“Working Together to Bridge Capital Gaps for Early Infrastructure in Climate Tech” (Virtual, June 14)
TechCrunch Sessions on Climate (Berkeley, June 14)
MCJ “Monthly Ideas Jam” (June 17) For those of you working on an idea or early-stage company in climate that you would like to get MCJ community feedback on.
“Non-dilutive Startup Funding Sources” (Virtual, June 22)
“Hollywood Climate Summit” (Virtual + in-person, June 23-26)
“Where to now? Artists and climate change” at the Royal Academy of Art (London, July 12)
“For ClimateTech Summit 2021” (Virtual, September 15-16)
Google’s “Geo for Good Summit” (Mountain View, CA + virtual, October 4-6)

Climate Voices is a free weekly email curating news, jobs, My Climate Journey podcast episodes, and other noteworthy happenings in the MCJ member community.

💭If you have feedback or items you’d like to include, feel free to reach out.

🌳If you’d like to become an MCJ community member, apply today.

📨If someone forwarded this to you, sign up for the newsletter.