Despite being a billionaire, the carbon market requires “patience” in Brazil

It is not new that Brazil is discussing the creation of a regulated carbon market, in which credits can be sold to countries that need to meet mandatory emissions reduction targets. In this scenario, experts point to Brazil as having billion-dollar potential to become an exporter of carbon credits. According to the projection of a study by WayCarbon, commissioned by the International Chamber of Commerce (ICC Brazil), the country can generate around US$ 100 billion in revenue from carbon credits by 2030, with emphasis on opportunities in the agricultural and livestock sectors. power. Despite this, the discussion is still moving at a slow pace.

A significant part of this potential has its expectations in Brazilian agriculture. For decades, the sector has been advocating the adoption of good agricultural practices, including those capable of increasing carbon in production systems. The profile of Brazilian agricultural production also draws attention, as the country is known worldwide for its expertise in conservation management.

“Agriculture is one of the few chains that can sequester carbon from the atmosphere. Good agricultural practices are capable of incorporating organic matter that, at some point, will be carbon sequestered in the soil. It's a reduction in emissions that no other chain has. In other words, a huge opportunity for agribusiness”, highlights Marília Folegatti, researcher at Embrapa Meio Ambiente. “The message for agribusiness is one of optimism, but also, mainly, of patience”, adds Maurício Cherubin, professor in the Department of Soil Science at the Luiz de Queiroz College of Agriculture at the University of São Paulo (Esalq/USP).

In May of this year, the federal government took another step towards creating a regulated carbon market in Brazil, with the publication of Decree 11.075. The text regulates the National Policy on Climate Change (PNMC), established in 2009 by Law 12.187, and places it under the jurisdiction of the Ministries of the Environment and Economy. The new decree establishes the procedures for the preparation of Sectoral Climate Change Mitigation Plans referred to in the 2009 Law, in addition to establishing the National Greenhouse Gas Emissions Reduction System (Sinare), in which the carbon credits.

In practice, the legislation establishes that sectors eligible for plans to reduce greenhouse gas emissions will have 180 days, extendable for another 180, to present their proposals. Based on the regulation of a national market, Brazil intends to export credits. “It is a good initiative to create a national carbon market, inspired by what already exists in other countries, but it still needs to be detailed”, points out Carlos Roberto Sanquetta, professor in the Department of Forestry Sciences at the Federal University of Paraná (UFPR).

Despite the positive outlook, experts warn that the process is slow and time-consuming. “The implementation of a regulated carbon market in Brazil still faces technical differences and lacks specifications. In other words, rural producers must be rewarded in the future in the carbon market, but not immediately. Especially because financial gain should not be the focus of the discussion”, explains Bruno Vizioli, technician from the Technical and Economic Department (DTE) of the FAEP/SENAR-PR System. “The greatest gain will come indirectly, with increased soil fertility, greater water accumulation and fewer losses through erosion, which results in input savings and greater production efficiency”, he explains.

Sustainable Agriculture

Carbon pricing works as a remuneration incentive for farmers who adopt good agricultural practices, consequently reducing emissions of polluting gases and increasing carbon storage in the soil. “With better soil quality, plants will deliver more productivity. Well-prepared soil becomes more resilient and is also less vulnerable to climate variations. This is a type of benefit that, in the short term, may even seem invisible, but the gains will only increase in the long term”, highlights Cherubin.

The Low Carbon Emission Agriculture Plan (ABC Plan) is a federal government policy that emerged in this context, aiming to promote the expansion of the adoption of sustainable agricultural technologies with high potential for mitigating greenhouse gas emissions. Its first phase ran between 2010 and 2020, disseminating techniques such as direct planting, recovery of degraded pastures, treatment of animal waste, integration systems, planted forests and bio-inputs.

Currently, the program has entered a new stage, called ABC+, which will run until 2030 and foresees eight actions with the objective of reducing the emission of 1,1 billion tons of carbon. On this, experts are unanimous: the rural producer's focus should be on promoting sustainable agriculture.

“The path to sustainability brings several benefits. If Brazil wants to have healthy and lasting agriculture, the application of good practices is essential. This will guarantee good environmental and economic performance”, warns Marília, from Embrapa Meio Ambiente. “Carbon accumulation has to be part of the process. The main focus has to be increasing productivity more efficiently. This is what the producer will have the most financial return for at the moment”, adds Cherubin.

According to Cristiano de Andrade, a researcher at Embrapa Meio Ambiente, even in the face of projections of billion-dollar figures, carbon sequestration is not an end-activity and, therefore, the credit should not have more monetary value than the agricultural product. “We should not create expectations around a new source of income. The idea is that carbon is always linked to sustainable production”, he highlights.

“The foundation of climate change policies is to develop mitigation strategy actions to create a favorable environment for production for all sectors, including agriculture. It is, first and foremost, adapting existing agriculture to best low-carbon practices. The market is a consequence of positive actions for the long-term sustainability of production”, concludes Sanquetta, from UFPR.

Regulated market

In the future, the expectation is that the regulation of a national carbon market will attract investments for Brazil to accelerate the technological development necessary for environmental advances. With more resources available, the country can also more quickly achieve the commitments established with the United Nations (UN). At the United Nations Climate Change Conference (COP26), last year, Brazil set the goal of reducing greenhouse gas emissions by 50% by 2030 and transitioning to a new green economy neutral in carbon emissions by 2050 .

At the moment, the country is outside this market for cooperation between countries. This is because it is a closed mechanism: only those who have a regulated market buy and sell carbon credits. In other words, it is necessary to reduce carbon emissions to later receive the title of Certified Emission Reduction (RCE), that is, credits that will be available to be sold.

Meanwhile, in the voluntary market, which already takes place in Brazil, carbon credits are called Voluntary Emissions Reductions (VERs). This is a market aimed mainly at private sector companies that wish to offset their emissions voluntarily. This model has proven to be an attractive opportunity for companies seeking to reduce greenhouse gas emissions.

“In the voluntary market, companies buy carbon credits to fulfill commitments made by themselves. These credits are not valid as a reduction in targets for countries that are part of the international agreement, but they follow the same standards and quality criteria, and are also audited by independent entities”, explains Verônica Souza, market consultant at Bluebell and specialist in credits. carbon and Natural-Based Solutions (NBS).

Carbon pricing also varies between markets. In the regulated sector, there is usually little differentiation between projects and a high supply of credits, after all, buyers are especially concerned about meeting a mandatory emissions offset target. In the voluntary market, the origin, the standards used, the socio-environmental benefits and the quality of the projects are subject to more demanding scrutiny.

The voluntary market is now open to rural producers who wish to sell carbon credits. However, it is necessary to be aware that, at the moment, it is a bureaucratic process with high investment. To participate, the farmer must have their documentation duly regularized, such as Rural Environmental Registration (CAR), Rural Land Tax (ITR) and property registration.

Carbon credit can be worth up to US$10

Rural producers who wish to enter the carbon market need to develop a project with a series of quality criteria, as a guarantee that the reduction in emissions will be permanent; establishing measures to avoid double counting; constant monitoring, reporting and verification of reductions; in addition to evidence that there is an additional effect, that is, the reduction in emissions will be greater than what would have occurred in the absence of the activity. This is why, in the case of agriculture, compliance with standards established by the New Forest Code does not usually generate carbon credits. “What counts is always what is done beyond common practice”, emphasizes Sanquetta, from UFPR.

At Bluebell, Verônica explains that a study is carried out on the rural property using remote sensing, from which a survey (inventory) of carbon in the area is carried out. The project is then developed, lasting 10 years, approved by the IPCC and certified and audited by third parties to generate carbon credits, which are 100% traceable, to be sold on the Singapore Stock Exchange.

“It is a project committed to improving the property over time. Every year we carry out a new analysis of environmental conditions, report to the UN and invest 5% of revenue in environmental education. The producer receives the sales value annually, during the project implementation time. If the condition of the property worsens, you will receive less”, he explains.

Prices vary and depend on the type of credit generated, quantity of supply and perception of integrity of the carbon being traded. Currently, the value of credit for natural solutions projects in the voluntary market fluctuates around US$10.

According to Verônica, a carbon project costs, on average, R$900. Before the project generates the credit itself, it takes at least six months. “At the moment, we only work with more than a thousand hectares [at Bluebell]. What makes the participation of small producers unfeasible are the large certification bodies, which are international and still do not show interest in the Brazilian market, in addition to the high investment cost to make a project viable,” she says.

One possibility for small and medium-sized producers is to organize themselves into associations or cooperatives. For Marília, from Embrapa Meio Ambiente, with the advancement of the regulated market, the tendency is for producers who are associated with larger companies to end up being absorbed by the process.

Implementation requires scientific methodology

Each carbon credit is equivalent to one ton of carbon that was not emitted or was removed from the atmosphere. Therefore, one of the key points for regulation in Brazil to move forward is the definition of metrics to measure this carbon that will be converted into credit. And this is not a simple discussion. “It is essential that a project has a well-defined methodology, with scientific support and that allows monitoring. Projects must be measurable and audited by a third party. And there must also be a commitment to implementation, as these are long-term projects”, explains Sanquetta.

Today, the market has different methods for quantifying greenhouse gas emissions that follow international standards. The calculation methodologies developed by the Intergovernmental Panel on Climate Change (IPCC) are recognized and used worldwide. “Although adaptations and adjustments need to be made to our reality, the methodologies are fully valid”, says Sanquetta, who is also a member of the IPCC and the United Nations Framework Convention on Climate Change (UNFCCC).

A widely used technique is Life Cycle Assessment (LCA), which allows measuring environmental impacts related to all stages of production and use of a product. According to Marília, from Embrapa Meio Ambiente, the methodology helped guide certifications and established a technical base at an international level, but it is still important to think about adaptations for Brazil, especially in agriculture. “There is a great influence of climate, soil and management characteristics that affect the carbon footprint. By adjusting methods to better represent Brazilian agriculture, we will have more accurate numbers to understand the agricultural system in depth and know where to act to further improve performance,” she says.

Another issue raised by scholars is the time it takes to sequester carbon in the soil. In the assessment of Andrade, from Embrapa Meio Ambiente, the application of simulation models would be an alternative to be able to remunerate the producer annually, since the process is slow and difficult to measure from one harvest to the next. “The first step to opening the doors of the regulated market is the definition of sampling protocols that are auditable over the years”, he emphasizes.

Even in well-applied conservation systems, calculating carbon stored in the soil can still be an obstacle, especially in older areas. According to Cherubin, from Esalq/USP, in agriculture, the main protocols basically use two approaches: direct measurement in the field, with collection of soil samples; and mathematical formulas that work with projections. In his assessment, one of the challenges is to estimate results accurately, quickly and on a large scale.

“We are working to operationalize this market focused on agriculture. The forestry sector is slightly more developed, with a focus on recovering degraded areas and combating deforestation. Agribusiness has some additional challenges, as it is a much more dynamic sector and is regulated by the market. To generate credit, we have to opt for conservation practices and we have to give the buyer confidence that they will effectively be applied over time, in accordance with a management plan”, explains Cherubin.