Principal investigator: Angelo Cruz do Nascimento Varella
Article title: What is the carbon market and how does it operate in Brazil?
Article authors: Fernando B. Meneguin
Location of the intervention: Brazil
Sample size: Not applicable
Sector: Environment, Energy & Climate Change
Type of Intervention: Qualitative analysis of Brazilian participation in Emissions Trading.
Main Variable of Interest: Not applicable
Evaluation method: Others
Policy Problem
The international carbon credit market is a global agreement aimed at environmental sustainability and the planetary reduction of greenhouse gas (GHG) emissions. Essentially, it is an electronic certificate issued when there is proven reduction in the emission of these polluting gases, so that those responsible for the reduction can trade credits, effectively exchanging their reduction for funds in the financial market, by negotiating the sale of their carbon credits.
In fact, carbon credits are considered commoditiesThese are commodities traded at international prices, established according to demand and competition. The aim is to reduce global collective emissions through initiatives aligned with the Kyoto Protocol.
Assessment Context
The Kyoto Protocol was signed in December 1997 by 55 countries that were responsible for more than half of the greenhouse gas emissions in 1990. The agreement, which entered into force in February 2005, established three innovative mechanisms aimed at implementing effective sustainability solutions.
In addition to the first mechanism, Emissions Trading, the Kyoto Protocol also created the Joint Implementation system, which aims to assist developed countries whose economies are transitioning to more sustainable systems, and the Clean Development Mechanism (CDM), whose objective is to contribute to increases in environmental preservation in developing countries, such as Brazil.
Policy Details
Since the intention of Emissions Trading is to reduce global GHG emissions, credits are issued to economic agents who demonstrably manage to reduce this polluting factor, so that other countries and institutions that cannot, or do not intend to, adjust their greenhouse gas emissions, pay for the credits. In this way, polluting agents finance the activities of those who reduce their harmful emissions, contributing to the economic viability of projects with a sustainable focus.
Each carbon credit unit is equivalent to one ton not dissipated in the Earth's atmosphere, so in 2011, 10,3 billion credits were traded, equivalent to a global market of around 176 billion dollars, an 11% increase compared to 2010.
Methodology Details
The researcher conducts a qualitative analysis of the adherence to and regulatory and normative environment in Brazil for the inclusion of sustainable projects, applicable to the CDM concepts, according to the Kyoto Protocol. The main objective of the analysis is to argue in favor of implementing environmentally viable projects in order to take advantage of existing international benefits aimed at environmentally-oriented initiatives.
Results
The researcher's analysis demonstrates not only the beneficial potential of Brazilian agents' participation in the Kyoto Protocol and the carbon credit market, but also in the creation of projects with proven sustainability, arguing in favor of the economic and environmental viability of this type of initiative.
The author also highlights, as a positive example, the case of the Bandeirantes Sanitary Landfill, located in Perus, in the metropolitan region of São Paulo. This initiative, covering 1,4 million square meters, has received approximately 36 million tons of solid waste, generating 170 MWh of electricity per year from biogas production. The author points out that the batch of just over 808 carbon credits was traded by the São Paulo City Hall for 34 million reais.
Lessons in Public Policy
Investing in sustainability represents an opportunity cost. Economic production, especially industrial production, contributes to the emission of greenhouse gases, which have negative global externalities. By proposing solutions that increase economic incentives, the Kyoto Protocol created a system of opportunities for developing countries, such as Brazil, to foster sustainable enterprises.
Therefore, with regard to public policies, it is advantageous to take advantage of the economic and financial mechanisms consolidated by the international agreement, in order to implement initiatives that seek improvements to the environment, mitigating the global greenhouse effect and other ills resulting from the unchecked exploitation of natural resources.
Reference
MENEGUIN, Fernando B. What is the carbon market and how does it operate in Brazil? Brazil Economy and Government, v. 28, 2012.
