A step toward a broader carbon market in Brazil

Amid the environmental calamities Brazil has suffered throughout 2020, one green milestone went relatively unnoticed: after three years of planning, decarbonization credits — a cornerstone of Brazilian biofuels policy RenovaBio — made their debut on the São Paulo stock exchange. Now, as trading picks up, these credits, known as CBIOs, may be leading the way toward a broader carbon market in Brazil, according to Fabio Solferini, CEO at agribusiness consultancy StoneX.

This milestone dates all the way back to the Paris Agreement of 2015, in which Brazil pledged to slash its carbon emissions by 37 percent by 2025, as well as a 43-percent reduction by 2030. In order to do that, increasing the share of renewable sources in the country’s energy mix to 45 percent was elected as a crucial step. Among the strategies employed toward this ambitious target was the 2017 biofuels policy RenovaBio, which forced fossil fuel distributors to reach a collective carbon emission reduction goal.

According to the law, all fuel distributors must purchase an individual quota of CBIOs, which consist of carbon credits issued by biofuel producers, based on the difference between their carbon emissions and fossil fuels. For each CBIO issued, one ton of CO₂ emissions will be spared. As a result, encouraging the CBIO market could help curb Brazilian carbon emissions, especially as increased deforestation is expected to push emissions up 20 percent versus 2018 levels, in stark contrast to the 6-percent global reduction in CO₂ emissions as a result of Covid-19.  

To analyze the impacts of CBIO trading on the future of the market, The Brazilian Report...