Carbon market in Brazil: what to expect and how to prepare

Many Brazilian companies treat the carbon market as a distant future issue — something for 2030 or beyond, which the sustainability area will resolve when the regulator gives the signal. This calculation is wrong on two counts. The SBCE is under active implementation, with regulations being published. And the groundwork — auditable emissions inventory, reduction strategy, positioning in the voluntary market — takes years to build with credibility. Companies that start when compliance is mandatory will start late and pay a higher price for it.

How SBCE was designed

The SBCE was established by Law 15,042 of 2024, after more than a decade of discussions. The system follows the cap-and-trade model: the regulator defines an emissions ceiling, distributes or auctions licenses (the Brazilian Emissions Quotas, CBEs), and allows companies that emit below the limit to sell the surplus to those emitting above. The logic is that the reduction happens wherever it is cheapest — as long as the cap is sufficiently restrictive.

The schedule foresees an initial phase of monitoring and reporting without penalties, followed by full operation with compliance obligations. Initial coverage focuses on high-emission sectors: electricity, oil and gas, cement, steel, aluminum, pulp and paper, and domestic air transport — together responsible for the majority of the country's industrial emissions.

The voluntary market that already exists

Before the SBCE goes into full operation, there is a voluntary carbon market that has been operating in Brazil for more than a decade — and which has important characteristics to understand.

In the voluntary market, companies buy credits from certified projects to compensate for emissions that have not yet been reduced internally. The most common are forest preservation (REDD+), renewable energy and energy efficiency, certified by standards such as Verra VCS and Gold Standard. Brazil has a comparative advantage in this market: it is one of the largest generators of REDD+ credits in the world, with projects in the Amazon and Cerrado that attract international buyers willing to pay premiums for high-integrity credits.

The relationship between voluntary and regulated markets is a strategic point of attention. The SBCE provides that voluntary market credits — Decarbonization Credits, or CDRs — can be used for compliance, within limits. Companies with a position in the voluntary market have an asset potentially usable in the regulated system, but there is a significant difference in quality between voluntary credits that will matter when the eligibility criteria are published.

What you need to have before compliance

The difference between a company prepared and a company not prepared in the SBCE will not manifest itself mainly in the negotiation of credits — it will manifest itself before that, in the quality of the emissions inventory.

Inventory is the basis of everything. Without knowing precisely what Scope 1 and Scope 2 emissions are, how they are distributed by installation and process and what the trends are over time, the company is unable to assess its position in the system, define a prioritized reduction strategy or buy or sell credits with a solid basis. An inventory produced for the sustainability report without an auditable methodology is not suitable for this purpose.

International frameworks already exist: the GHG Protocol Corporate Standard defines the accounting methodology by scope, and the sectors covered will have specific protocols with emission factors, accounting perimeter and independent verification requirements. Building an auditable inventory from scratch takes 6 to 18 months. Companies that start when compliance is required will do so hastily, with a greater risk of methodological errors that directly affect their position in the system.

Credit strategy: buy, sell or reduce

A company's strategic position in the SBCE depends on two factors: its initial allocation of CBEs and its marginal cost of reducing emissions compared to the market price of the credits. If the company can reduce at a lower cost than the market price, it makes sense to invest in reduction and sell the surplus. If the reduction cost is higher, it makes sense to buy credits. This analysis needs to be done with real abatement cost data by process and installation, not with generic estimates.

The trajectory of the carbon price in the SBCE still has significant uncertainty. Mature cap-and-trade markets like the EU ETS have taken years to develop liquidity and reliable price signaling — and international experience shows that initial prices tend to be lower than necessary, rising with progressive cap tightening. Companies that assume the price of carbon will remain low indefinitely are making a bet that history does not support.

How to build capacity now

The preparation work for the SBCE has three layers that need to advance in parallel, not sequentially.

The data layer is the foundation: activity data collection and consolidation systems that feed the emissions inventory with auditable quality. This includes energy consumption by installation, production and industrial processes with specific emission factors, and transport by its own fleet. Manual spreadsheets with data consolidated annually are no use — the SBCE will require periodic reporting with sufficient granularity for verification by an independent auditor.

The analytical layer is where the strategy is built: marginal cost of abatement per process, carbon price trajectories, reduction options with positive returns even without the market versus options that depend on pricing to be economical. This work informs the capex plan with the correct priority.