Brazilian Congress approves law establishing the Brazilian Emissions Trading System

The approval of the bill establishing the Brazilian Emissions Trading System (SBCE in Portuguese) by the Chamber of Deputies on Tuesday, November 19, marks a significant milestone for Brazil, a victory that deserves to be greatly celebrated, commemorated Cristina Reis, Deputy Secretary for Sustainable Economic Development at the Brazilian Ministry of Finance (MF). She emphasized the approval timing, coinciding with the 29th United Nations Climate Change Conference (COP29) in Baku, Azerbaijan, which is set to conclude on Friday, November 22.

The Ministry of Finance has supported the SBCE bill, which was approved on Tuesday, from its inception, aligning the proposal with the guidelines of the Ministry's Ecological Transformation Plan (PTE in Portuguese). "The Ministry of Finance contributed to the approved text. It strengthens key aspects such as legal nature, taxation, revenue use, governance, and the national allocation plan," said Deputy Secretary Reis. With the bill's passage in the Chamber of Deputies, its legislative process in Congress is complete, as the Senate had previously approved the text. The bill will proceed to presidential sanction, laying the groundwork for establishing a regulated carbon market in Brazil.

“Brazil set its path to COP 30 in Belém,” said Cristina Reis. The 30th United Nations Climate Change Conference (COP30) will occur in Belém, Pará, Brazil, in November 2025.

"The approval of the carbon market, which addresses both the regulated and voluntary aspects, will establish an emissions trading system among the largest sources of greenhouse gas emissions. It will also enable the growth of the voluntary market, fostering sustainability projects in sectors such as agriculture and forestry," explained the Deputy Secretary.

Reis highlighted other aspects: "We have a tremendous business opportunity that will drive technological innovation while helping us meet our climate targets. It also creates a feedback loop: revenues generated by this market will be reinvested to finance industries aiming to decarbonize and support innovative projects willing to generate carbon credits with integrity," she concluded.

Important topics

A recent article by Cristina Reis and José Pedro Neves, General Coordinator for Sustainable Finance at the Ministry of Finance, addressed the significance of the carbon market mechanism recently approved in Brazil. Already adopted in over 28 jurisdictions, including Mexico and Colombia, the regulation of carbon markets is recognized as a powerful tool to combat the climate crisis while fostering technological innovation and new business opportunities.

In their article, Reis and Neves underscored Brazil’s leading role in climate action, built on years of dialogue among the productive sector, civil society organizations, and research institutions. They emphasized that the Brazilian Emissions Trading System (SBCE) has the potential to drive growth by advancing technological and productive development in cutting-edge sectors, such as renewable energy.

"Among the various policy options, the carbon market is among the most effective. For Brazil, adopting the SBCE offers clear advantages, as evidenced by preliminary studies conducted by the Ministry of Finance in collaboration with the World Bank. They reveal that Brazil could anticipate positive impacts on GDP and job creation, along with a $100 billion reduction in private investment needs for decarbonization compared to alternative regulatory approaches”, attests Reis and Neves’s article.

Guidelines

The Brazilian Emissions Trading System (SBCE) is a cornerstone of the Ecological Transformation Plan. Drawing on successful international models, the SBCE establishes an emissions cap for specific high-emission sectors of the economy, mainly composed of large-scale companies. Under this system, businesses emitting less than their allocated quotas can trade surplus allowances with other companies or entities engaged in carbon-capture activities, such as reforestation. Cristina Reis has emphasized that this regulation could be a powerful economic incentive to avoid deforestation, one of Brazil’s most pressing environmental challenges. 

The SBCE introduces a declining emissions cap over time, pushing companies to invest in cleaner technologies and innovate their production processes to meet their targets for greenhouse gas emissions reductions. 

Brazil is committed to reducing its greenhouse gas emissions by 48% by 2025 and 53% by 2030, relative to 2005 levels. These goals are outlined in the country’s Nationally Determined Contribution (NDC in Portuguese), initially submitted under the Paris Agreement in 2015. Still, because the previous government altered it, it was readjusted in 2022 to restore its original ambition. Brazil is also aiming for net-zero emissions by 2050. On November 13th, at COP29 in Baku, Azerbaijan, Brazil submitted its updated NDC to the United Nations Framework Convention on Climate Change (UNFCCC), setting an additional emissions reduction target of 59% to 67% by 2035 compared to 2005 levels. Brazil's latest national inventory shows that this economy-wide commitment equals an absolute reduction of 1.05 to 0.85 GtCO₂. 

The Ecological Transformation Plan aims to redefine Brazil’s economic, technological, and cultural paradigms to foster a development rooted in a harmonious relationship with nature and its ecosystems. This transformative vision seeks to generate and equitably distribute wealth while improving the quality of life for current and future generations.