In May of this year, the Brazilian government issued Decree No. 11,075, which proposes the preparation of sectoral plans to mitigate climate change. This is a first measure that seeks to nationalize the commitments assumed by Brazil at last year's Conference of the Parties (COP-26), when the country committed to reducing 50% of greenhouse gas emissions by 2030, based on the year 2005. The previous target was 43%, so there was an increase in the promise in relation to emissions reduction. In addition, the COP-26 also had as a novelty the approval of items of article 6 of the Paris Agreement – which indicate the creation of a global market for carbon credits. With this consensus, it will be possible to regulate and coordinate among the countries the bases for the creation of this market.
We spoke with BlockC's Chief Scientific Officer, Ricardo Esparta, who commented a little on these two changes and their effects for companies in Brazil. Read the chat below:
How are the negotiations regarding article 6 of the Paris Agreement going after its conclusion at COP 26?
The negotiation that takes place between the countries is not public, we learn through intermediaries. There are many difficulties to move forward. The agreements that have been made, while remaining in a rhetorical phase, are all used by everyone – but very little is actually carried out in relation to them. What can be said specifically in relation to article 6.4, which deals with the creation of a market mechanism that will practically replace the Clean Development Mechanism, is that its regulation is already being prepared. It is made by a technical-political body, the Supervisory Body. And this group met for the first time now in July. The regulation has started to be prepared, but it will still take a while for us to have something. There will be three meetings. In short: things are moving along from a regulatory point of view, but from an implementation point of view, the only good news is that the United States has just passed a big package. But, thinking about Brazil, we approved only a few decrees. Programs, even, we are still in need.
like the Decree No. 11,075, of May 2022, impact this regulation in Brazil?
The decree defines very little. He calls sectors – for example, power generation, the transport sector, etc. – and speaks of “sectoral plans”. So these groups are invited to make proposals for these “sectoral plans” – they have 180 days to do so from the May decree, which can be extended for another 180 days. But who represents the energy sector? I represent? I go there and make an offer? Legislation formation is a very complex thing. Unfortunately, the regulation has to specify how we are going to recognize groups as representatives of sectors. If they are associations, for example, this needs to be regulated. If they don't talk about it, nobody represents it.
Another thing: the decree speaks of the “Brazilian market for reducing emissions”. What is it? How will this work? It also talks about the “National System for the Reduction of Greenhouse Gas Emissions” (SINARE). All the indications that companies are going to have to publish inventories are nice, but how is that going to work? My final conclusion is that he is weak. It is indicative – better than nothing, but unfortunately it is very close to nothing. Because he just says “come on, guys, let's do it, okay?” – but who is going to do it, how is he going to do it, when is he going to do it?
How has Brazil entered the discussion? Do you know how the working group discussions have been created by the Civil House?
Nobody knows what happened and what didn't happen. There is a WhatsApp group that brings together the leaders of the Brazilian Forum on Climate Change, a group created in the early 2000s that would have the role of being the interface between civil society and the government to discuss climate change. You see it as an informal thing, right? This group communicates via WhatsApp. As I said: it's better than nothing, but very close to nothing. They held two or three meetings to discuss what is being done, how things are working, as Brazil made stronger commitments at COP-26, at the end of last year. But the entire discussion of the May government decree, for example, did not go through the group. We are in a national moment that is a bit like that – the government feels pushed to do something, but it is a little embarrassed, because it hasn't prepared, it hasn't worked all this time to really get society's contribution. But let's get to the positive part of things: they started talking to us. They proceeded to issue a decree. It's a move in the right direction. Now this needs to be done in a more institutional way. We hope that this movement is just the first of many others to come.
Is there any forecast for the creation of a carbon credits market for companies in Brazil?
Not. We are coming from a scenario in which Brazil had no emission reduction commitments. If I were a company and carried out an emission reduction project, I would have the potential to register, generate and sell these credits. Brazil from 2021, from the last Conference of the Parties, has commitments. So now it doesn't work like that anymore: I as a company can do a project, but maybe it needs to surpass the goals that Brazil has committed to. Let's imagine that from one day to the next the government speaks like this: energy sector, you have to reduce your emissions in 20% until 2030, ok? These 20% automatically become mandatory – so if you have a project that will reduce 20% from your emissions, congratulations, you've just complied with the law. We make international commitments. This has to be dealt with.
Brazil has committed to reducing its emissions by 50% by 2030, with 2005 as the base year. We are far from that. We will have some compulsory market, there will be something that will be mandatory. And from the moment it exists, it will be the least we have to do. We will only earn credit if we do something above that. That's what people are not understanding. This is the complexity of the regulation of Article 6.4. The market has the potential to be good in Brazil, but we are still thinking with the head of “we have no commitment”. When Brazil makes these international commitments, it needs to bring it to the country, turn it into law. The May decree is the way to try to comply with what we promised in the Paris Agreement. And it may happen, in this period, that the country understands that it will not be able to comply.
What would be your recommendation for companies that need to position themselves today in relation to the creation of this carbon credits market?
Take your inventory. Know very well where you are. Keep in mind that you will be billed as of January 1, 2021. This is the expiry date of the Paris Agreement. There is a detail in this agreement: Brazil has committed to reducing 37% of emissions by 2025 and 50% by 2030. And you are not required to show a route to go there. You have to be in the year 2025 with 37% less, and in the year 2050 with 50% less compared to 2005. I would also tell the company to try to see what kind of commitments it could make. What is feasible: a 10% reduction in emissions? And 20%, would it threaten your business? And 30%? Do this exercise, because the probability of this happening in the not too distant future is not small. Be prepared, because it's coming.
I always have this pain: if there is a country where emissions can be low, which has an energy matrix that is a little cleaner than average, if there is someone who could benefit from that, it would be Brazil. We could produce things with less emissions. We have these niches to act with competitive and comparative advantage. But we're not doing that.
