Brazil has enormous potential to lead the global carbon offset market because of its expanses of rainforest, but its aspirations are lagging as regulation to create this market awaits congressional approval, investors said at the Brazil Climate Summit.
In late August, the administration of President Luiz Inacio Lula da Silva presented in congress legislation that will create a regulated carbon market, establishing a cap-and-trade system for sectors with high emissions, and requirements for carbon reduction projects.
The draft bill is now waiting for a vote.
Approved carbon regulation will give Brazil the opportunity to become a leader in the carbon economy by helping other countries offset their carbon emissions with projects in the country, speakers said at the event in New York.
"The Middle East will never offset emissions by itself, it needs Brazil," said Luis Henrique Guimaraes, chief executive at Brazilian energy and logistics conglomerate Cosan, adding that a regulation for the carbon market should include mechanisms to incentivize investors rather than to punish them.
A robust carbon market will also help lower the cost of Brazil's energy transition, according to former minister of finance Joaquim Levy.
The EU's Green Deal and the US' Inflation Reduction Act (IRA) are aimed at attracting investment in clean energies through subsidies, but Brazil's state coffers cannot compete with those countries, meaning it needs to find other mechanisms to level the playing field in the race to attract investment in low-carbon energies.
An ambitious and clear energy transition plan is required to mobilize financing. Partnerships with other countries are also important, Levy noted.
"We need to be sharp, focused, and smart to decide where we allocate capital as the EU and the US are more powerful," said Luciana Costa, director of infrastructure, energy transition and climate change division at Brazil's central bank, Bndes.
The proposed carbon bill is one of several pieces of legislation that Lula is seeking to pass as part of a broader ecological transition plan launched last month that aims to support growth by focusing on low-carbon segments of the economy.
