By Paulo Trevisani and Luciana Magalhaes | Oct. 26, 2023 7:00 am ET | WSJ PRO
Local exporters hope that regulation will open doors in developed export markets
Brazil is on track to create a regulated carbon market ahead of next month’s United Nations climate action summit, fueling hopes of an export boost despite a controversial decision to exclude the country’s agricultural sector.
The cap-and-trade system won approval in Brazil’s Senate earlier this month and is widely expected to pass through the House and be signed by President Luiz Inácio Lula da Silva, a concrete step he can bring to the United Nations COP28 climate conference in November. A Brazilian carbon market would be an important addition to an expanding network of cap-and-trade systems around the world.
Under Brazil’s system, companies emitting greenhouse gases above specified limits must purchase certified offsets from others. It is expected to be fully operational in a couple of years, fostering reforestation and funding protection of Brazil’s forests and savannas, important carbon sinks, according to scientists. Brazil is the sixth-largest greenhouse-gas emitter and home to about 60% of the Amazon forest and around 30 million acres suitable for reforestation, an area as large as Pennsylvania.
Brazilian agricultural producers and miners hope the carbon market will help overcome headwinds in developed markets where consumers often associate them with deforestation. Exporters of manufactured goods using Brazilian grains, meat, iron-ore and other raw materials could also get a boost if carbon regulation improves the country’s environmental credentials, according to Brazilian business executives.
“The more carbon regulation we have here, the easier” to export to foreign markets increasingly concerned about emissions, said Flávio Roscoe, a director at textile mill Colortextil and chairman of the manufacturing association of Minas Gerais state.
The exemption from emissions requirements for Brazil’s agricultural sector removed a major hurdle for cap-and-trade. Brazilian emissions, however, are largely produced by farms, an industry linked to deforestation. The country is a leading exporter of soy, corn and beef, and much of its crops and livestock are produced on land that just a few decades ago had been lush tropical forest. The deforestation of Brazil’s sprawling Amazon jungle, which is declining this year according to preliminary data, is widely attributed to the expansion of farmland on the edges of the forest.
Nearly half of Brazil’s greenhouse emissions come from deforestation and a quarter from crops and livestock, with only 18% from energy generation, according to a report produced by the country’s lower house of Congress earlier this year.
The agricultural caucus in Brazil has argued that emissions from crops and livestock are hard to measure and the new regulation could become a cumbersome hurdle for a sector producing most of the country’s exports. Climate experts say that crop fertilizers give off the greenhouse gas nitrous oxide, while cattle burp methane and deforestation releases the carbon stored in trees.
“It is regrettable that the agro sector wants to be out of the regulation,” said Marcio Astrini, executive secretary of the Brazilian Climate Observatory. “It shows how backwards they are and how they want to avoid reality and be transparent about their emissions.”
However, Brazil is not alone. Europe also excludes farmers from its emissions trading system, the world’s largest cap-and-trade market.
Sen. Tereza Cristina—a former agriculture and livestock minister—defended the decision to exclude the sector from carbon regulation.
“The farm sector isn’t ready for the regulated carbon market,” she said. Despite the exemption, Brazilian farmers still hope to benefit from the regulated market.
“Agriculture is going to be a major supplier of carbon offsets,” said Fábio Passos, head of carbon business in Latin America at German chemical giant Bayer.
Bayer’s Brazilian operation has for years worked with local farmers and technology startups to develop ways to measure how much CO2 is captured and stored by crops using sustainable farming methods. Passos says that companies around the world trying to reduce emissions along the supply chain will be willing to pay a premium for raw materials that are certified low-carbon.
“Agriculture must be part of the solution for a company willing to become carbon neutral,” he said.
Bayer’s Brazilian operation has for years worked with local farmers and technology startups to develop ways to measure how much CO2 is captured and stored by crops using sustainable farming methods. Passos says that companies around the world trying to reduce emissions along the supply chain will be willing to pay a premium for raw materials that are certified low-carbon.
“Agriculture must be part of the solution for a company willing to become carbon neutral,” he said.
Write to Paulo Trevisani at paulo.trevisani@wsj.com and Luciana Magalhaes at luciana.magalhaes@wsj.com (Visit WSJ.com for original article)
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