Author: Amália Botter Fabbri, Lobo de Rizzo Advogados*
With the rules of the carbon market still under construction, either internationally at the Climate Conferences (COPs), or in Brazil, there is no settled understanding regarding the legal nature of carbon credits and their governance. In any event, we can advance some points and our opinion on the subject.
In 2009, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM) stated its position on the matter and, at the time, concluded that carbon credits were not a security to be subjected to its purview (Board Decision on 7 July 2009).
Nevertheless, at the end of the same year, Law 12,187/2009 was published, providing the National Policy on Climate Change, which established that the formal Brazilian carbon market would operate in "commodities and futures exchanges, stock exchanges, and [organised] over-the-counter entities, [authorised] by the [CVM], where the trading of securities representing certified avoided greenhouse gas emissions would take place" (article 9).
In parallel, Bills 594/2007 and 33/2008, which attempted to consolidate carbon credits as a security by subjecting them to CVM regulations, were in progress. However, these bills were shelved in 2014/2015 on the main argument that such arrangement under CVM would result in unnecessary additional costs for the carbon market.
Since then, much has been discussed regarding Bill 528/2021, which again attempted to regulate the formal Brazilian carbon market.
This bill seeks to alter article 9 of the National Policy (transcribed above), providing a new 'National System for Greenhouse Gas Emissions Inventory Registration - SNRI-GEE' with the function of registering carbon credit projects and ensuring the credibility of transactions with these assets; and this SNRI-GEE would be administered by the new 'National Institute for Registration of Climate Data - INRDC' and supervised/regulated by the Ministry of Economy.
Along these lines, the concept of a carbon credit brought in by the bill is "a title of right over intangible, incorporeal, tradable, fungible assets that represent reduction or removal of one ton of carbon equivalent " (article 2, II).
Recently, Bill 528/2021 has been attached to Bills 2148/15 and 290/20, and a substitute text has been brought by a Special Commission, suggesting a new authority to be created by the Inter-ministerial Committee of Climate Change for managing the ‘Brazilian GHG Emissions Trade System - SBCE’. The governance of SBCE would rest with a collegiate body composed by government and private sectors affected and count on thematic and sectorial chambers, in which specialists would be able to contribute. Also, the system would rely on the 'National Integrate Register of GHG Emissions Compensations - RNC-GEE’.
In theory, these Bills have been under urgent processing since November 2021, but with no news thus far. We only know that there is some resistance from the Ministry of the Environment (MMA) and the Presidency of the Brazilian Central Bank to the proposed arrangement and that there are also discussions regarding the possibility that the regulatory body would be the MMA itself. We also cannot rule out a future new position by the CVM on the subject, which could change this scenario.
Given this, our understanding is that, for now, carbon credits are assets not regulated by formal governance, but, even so, already tradable between parties in the voluntary market – a market that has been perfected and grown also in Brazil with numerous entities developing projects and partnerships for the generation of carbon credits, already foreseeing the future market.
*Environmental Lawyer at Lobo de Rizzo Advogados, with experience in the area for over 15 years. Master in Environmental and Energy Law (QMUL). Graduate in Law (PUC/SP) and Geography (USP). Researcher for the Applied Environmental Studies Group (GEAMA/USP). Member of the ‘Latin American Climate Lawyers Initiative for [Mobilising] Action’ (LACLIMA). Author of articles and legal books in the environmental field, including climate change. E-mail: [email protected]