New Carbon Credit Market Legislation in Brazil

Overview of the Law and the SBCE

The new law establishes the Brazilian Greenhouse Gas Emissions Trading System (SBCE), the country's first regulated carbon market. Until then, Brazil relied only on voluntary initiatives and international mechanisms for credit trading. With the SBCE, a national structured market now exists, aimed at incentivizing the reduction of greenhouse gas (GHG) emissions and establishing clear emissions limits for certain economic sectors, creating a credit trading platform. In simple terms, it operates as a cap-and-trade system: the government sets an emissions cap per sector/activity and distributes emission allowances (called Brazilian Emission Allowances, or CBE) to regulated companies. Those who emit less than their allowances can sell the surplus; those who need to emit above the limit must purchase additional allowances from another company or acquire Verified Emission Reduction Credits (CRVEs) from certified environmental projects. This creates a direct financial incentive to reduce pollution: carbon emissions now have a price, and polluting less becomes an asset.

The SBCE includes two well-defined segments: the regulated market and the voluntary market. The regulated market is where it becomes mandatory to meet emission targets — initially covering activities and companies with the highest emissions. The voluntary market remains as a complementary option, where companies, individuals, or organizations can spontaneously trade carbon credits to offset emissions not subject to the regulatory cap. Importantly, agribusiness was excluded from the regulated market in the law, remaining only in the voluntary segment (meaning farms and companies in the sector will not be required to reduce or offset emissions under the SBCE at this time). This division allows Brazil to have both an official market (for sectors with mandatory targets) and maintain a dynamic voluntary market that already drives forest conservation, renewable energy, and other projects.

The SBCE governance will involve an Interministerial Committee on Climate Change and a central management body, responsible for regulating market operations and enforcing penalties for violations. Companies that fail to meet their targets or incorrectly report their emissions may be penalized. The law requires the Executive branch to publish complementary regulations detailing governance and market operation rules. In the coming months, issues such as which sectors will initially fall under the SBCE, the emissions cap per sector, how initial allowance distribution will occur (free allocation or auction), and the maximum percentage of project credits companies may use to offset emissions are expected to be defined.

Finally, the regulated market will be implemented gradually over six years. This means the SBCE should be fully operational by 2030, but the entry of companies and sectors may be phased. This gradual timeline is positive as it allows adaptation time: companies can prepare internally (emissions inventories, reduction plans) before their mandatory targets take effect.

Covered sectors, requirements, and market rules

The law establishes that public or private entities emitting more than 10,000 tonnes of CO₂ equivalent per year will be subject to the regulated market (SBCE). This threshold covers Brazil's largest emission sources, including sectors such as: fossil fuel-based electricity generation, cement, steel, chemical, pulp and paper, mining, and potentially transportation (fuels). Each sector will have specific reduction targets based on its share of national emissions and mitigation potential.

As mentioned, agricultural emissions (livestock, crops, etc.) are excluded from mandatory scope. This was due to the complexity of measuring and controlling diffuse field emissions and to avoid immediately burdening a sector that is strategic for the Brazilian economy. However, it is worth noting that agribusiness accounts for approximately 28% of national emissions — meaning that even if not directly regulated, it is a fundamental part of the climate solution. Another sector with special treatment is waste and sanitation: under the law, waste and effluent treatment companies that already adopt technologies to capture and neutralize their emissions (such as landfill biogas utilization) may be exempt from additional targets.

For companies included in the SBCE, the primary immediate requirement will be to prepare an Emissions Monitoring Plan and report it to the management body periodically. Accurately inventorying emissions is the first step to participating in the market — this involves installing meters, adopting standardized calculation protocols, and possibly hiring audits to verify data. Additionally, each company will need, within the regulatory calendar, to retire sufficient credits to cover its period emissions. Failure to do so will result in fines or penalties. Conversely, if a company reduces more than required, it can hold surplus credits for sale or future use.

An important rule is the clear distinction between credits used in the SBCE and the voluntary market. Voluntary credits can be traded freely, but if converted into CRVEs for use in the regulated market, they no longer count in Brazil's emissions accounting (avoiding double counting). This is positive as it aligns the Brazilian market with the international integrity required by the Paris Agreement.

Impacts and strategies for companies

For Brazilian companies, carbon market regulation represents a watershed moment in operations management and sustainability strategies. First, it will have a direct financial impact: emitting GHGs now has a measurable cost. Companies that have already adopted energy efficiencies, renewable sources, and effective environmental management tend to fare better, as they can meet targets easily and even sell surplus allowances.

A collateral benefit is predictability: with the SBCE, companies can plan their decarbonization path long-term. This facilitates justifying investments in clean technology, as returns may come not only through energy savings but also from selling generated credits.

Another impact is on brand image and value. Companies aligned with the new legislation will strengthen their ESG credentials, which are increasingly considered by investors and consumers.

Strategic opportunities in the new regulatory landscape

• Monetization of Reductions and Removals: Companies investing in emission reductions beyond what is required can generate revenue by selling unused allowances or extra credits.
• Agribusiness credit generation: Although agribusiness has no obligation to purchase credits, it can be one of the most benefited sectors. Rural producers with conserved areas can certify stored carbon and issue credits for sale.
• Innovation and new markets: The need to decarbonize will drive demand for innovative solutions in cleantech, emissions monitoring, and credit management software.
• Green financial market: With the creation of a national carbon price, there is room for associated financial products, including carbon derivatives. Brazil has the potential to transact US$ 2 billion in carbon credits over the next decade.
• Competitive advantage and branding: Companies that quickly join the new market can position themselves as sustainability leaders in their sectors.

Brazil's carbon market regulation should incentivize a race for efficiency and innovation. For companies, the message is clear: get ahead. It is essential to begin quantifying your emissions as soon as possible, seek viable reductions, and evaluate offsetting options. Carbonova is ready to assist your company on this journey: contact us to learn about emissions management solutions, carbon credit projects, and customized strategies to maximize the new regulated market. Together, let's transform climate challenges into sustainable growth opportunities.