The carbon credit market and how it works in Brazil

In 1999, the countries of the United Nations signed an agreement known as the Kyoto Protocol, which stipulated some reductions in human interventions in the environment. Among them is the reduction of greenhouse gas (GHG) emissions by an average of 5.2% between the years 1998 to 2012, compared to what was measured in 1990.

Companies can count on the support of Consulpaz UN Regional, to prepare the entire project to absorb GHG from the atmosphere and benefit from the Kyoto protocol.

Among these gases, the one of greatest concern is carbon dioxide (carbon dioxide – CO2), whose concentrations in the atmosphere are growing more and more, mainly due to the burning of fossil fuels, such as petroleum derivatives (gasoline, diesel oil, etc.). And according to data from The Climate Analysis Indicators Tool, man releases more than 46.5 billion tons of carbon dioxide a year into the atmosphere, being he the main responsible for environmental problems, such as the greenhouse effect and global warming.

A country that removes carbon dioxide from the atmosphere, as through reforestation, earns carbon credits to sell to other countries.

The carbon credit is an electronic certificate that is issued when there is a reduction in the emission of gases that cause the greenhouse effect, which causes global warming. A carbon credit is equivalent to one ton of CO2 (carbon dioxide) that is no longer emitted into the atmosphere. The other reduced gases are issued credits, using an equivalence table between each one of the gases and CO2.

Companies that manage to reduce the emission of greenhouse gases (GHG) obtain these credits and can sell them in the financial markets. Carbon credits are considered commodities (goods traded at prices established by the international market).

These credits are generally purchased by companies abroad that, due to the Kyoto Protocol, have mandatory targets for reducing greenhouse gas emissions, but fail to reach the determined level. Buying the credits allows them to maintain or increase their emissions.

In other words, companies that pollute above the limit allowed by the Kyoto Protocol pay for the additional pollution they generate, remunerating activities that reduce gas emissions.

To encourage developed countries to comply with this agreement and for this reduction to be done in a certified manner, the Clean Development Mechanism (CDM) was created.

Thus, we have the following: when a country reduces emissions or removes 1 ton of carbon dioxide from the atmosphere, it earns 1 carbon credit, which is a unit issued by the Executive Board of the CDM, called Certified Emission Reduction (CER) or Reduced Emissions Certificates (CER). These credits can then be sold on the world market to other countries.

The reduction in emissions of other greenhouse gases is measured in tons of carbon dioxide equivalent – ​​t CO2e (equivalent). For example, methane (CH4) is also a GHG, but its global warming potential is 21 times the potential of CO2, so 1 ton of methane reduced or removed from the atmosphere is equivalent to 21 carbon credits. See how many carbon credits yield other gases:

* N2O - Nitrous Oxide = 310 carbon credits;

* HFCs – Hydrofluorocarbons = 140 to 11700 carbon credits;

* PFCs – Perfluorocarbons = 6500 to 9200 carbon credits;

*SF6 - Sulfur Hexafluoride = 23900 carbon credits.

Thus, companies can develop projects to absorb GHG from the atmosphere, such as reforestation, or even reducing the burning of fossil fuels by their industries, replacing it with other types of cleaner energy, such as wind, solar and biomass use. , or the use of emissions that would otherwise be released into the atmosphere, an example being the use of methane produced by garbage in landfills to generate clean energy.

Under the Kyoto Protocol, industrialized countries are expected to reduce their GHG emissions compared to 1990 emissions. The Protocol established three innovative mechanisms, known as Emissions Trading, Joint Implementation and the Clean Development Mechanism (CDM). The first two are exclusive to countries that have mandatory targets, which is not the case in Brazil.

Only in the case of the CDM is there the purpose of contributing to the sustainable development of developing countries.

Emissions trading is a global system for buying and selling carbon emissions, based on the cap-and-trade market scheme. The expression cap-and-trade, which in loose translation would be something like “limit and negotiation”, is used to describe a market mechanism that creates limits for the gas emissions of a certain sector or group. Based on the established limits, emission permits are issued and each participant in the scheme determines.