LatAm in Focus: Can Carbon Markets Finance Brazil's Green Transition?

Reaching the 2015 Paris Agreement goal of net-zero carbon emissions by 2050 is proving difficult. Negotiations are complicated, and companies and governments alike are struggling to create the infrastructure and technology needed for a green economy. The world just can’t move fast enough to emit less carbon.

But Brazil—home to the two-thirds of the Amazon Rainforest, the world’s largest greenhouse gas absorber—is turning the tide. Under President Jair Bolsonaro (2019–2022) deforestation rose, contributing to a rise in carbon emissions. But under President Luiz Inácio Lula da Silva, things are changing. In the first half of the year, Brazil decreased deforestation by 33 percent and launched a green transition package worth billions. The country also increased its Paris Agreement promise, setting a target of carbon emissions cuts to 53 percent by 2030. In a country that’s responsible for 3 percent of global emissions, that could make a big difference.

As part of a series of policies in the country’s fight against climate change, in October the Brazilian Senate approved a bill that aims to regulate a cap-and-trade carbon market, regulating companies releasing more than 10,000 tons of CO2 per year. It still needs to pass through the lower house and doesn’t include the high-emitting agribusiness sector. But regulating carbon credits in Brazil could represent a market of more than $20 billion by 2030. Some experts consider it one of the most effective ways to finance a transition to a green economy—in any country.

“It's important to have a higher price of activities that actually imply substantial greenhouse gas emissions. So we have to put a price on these emissions to discourage consumption and production of these goods and services,” says Emilio La Rovere, the head of the Centre for Integrated Studies on Climate Change and the Environment at the Federal University of Rio de Janeiro, speaking to AS/COA Online’s Luisa Leme.

La Rovere explains that the carbon market will be helpful with efforts to cap emissions, bringing big industries like steel to transition faster. In his view, the biggest difficulties for countries like Brazil and other developing economies in Latin America is having the required jumpstart in financing and technology to transition to a green economy. To solve that, La Rovere sees a clear need for these countries to work together with industrialized economies and create public-private partnership backed by federal governments, which would give more guarantees to investors. “Renewables and energy efficiency will pay along 20, 30 years of a lifecycle investment, but the problem is how to overcome the barrier of funding the upfront costs,” he says.