Brazil’s carbon market takes shape as cornerstone of industrial policy

The new secretariat will act as the executive body, giving the initial push to the carbon market law enacted in December. Under this law, Brazil will have a system with emission limits and tradable allowances among companies that emit the most carbon, a “cap-and-trade” mechanism. The ministry will define methodologies, monitor progress, and allocate emission quotas across sectors.

In Ms. Reis’s view, the step is far broader. “Decarbonization projects will unleash a vast network of science, technology, and innovation, integrating Brazil into strategic global value chains,” she said. Ms. Reis has not yet been officially appointed to the position and continues to serve as undersecretary for sustainable economic development at the Finance Ministry. She plans to invite José Pedro Neves, her right-hand man, to serve as deputy secretary. “We must prepare to have a strong, large, and powerful exchange—one that’s not dependent on others,” she said.

Agency within two years

“We hope to establish, within two years, a governing body similar to a regulatory agency. We need something permanent and robust,” she said. “But since such a decision takes time, we thought it best to create an interim structure to lay the groundwork for the regulated carbon market—and later transition to a more definitive body.”

The undersecretariat where she currently works—the Undersecretariat for Sustainable Economic Development under the Finance Ministry’s Secretariat for Economic Policy—will continue handling taxonomy, the bioeconomy plan, and several other topics. “The carbon market, however, will move to the new structure,” she noted.

New structure

“We’ll have two undersecretariats,” Ms. Reis added. “One will handle regulation and methodologies and will be led by Ana Paula Machado, currently undersecretary of the Climate Plan at the Ministry of the Environment. She knows the subject well—she worked at the National Civil Aviation Agency (ANAC). She participated in Corsia (the Carbon Offsetting and Reduction Scheme for International Aviation, a program of the International Civil Aviation Organization for reducing and offsetting CO₂ emissions from international flights).”

“This undersecretariat will have two divisions: one for methodologies and another for regulatory impact analysis. The regulatory impact team will define which activities, sources, facilities, sectors, and greenhouse gases are covered. The other will accredit carbon-credit methodologies that may be accepted as offsets in the regulated market.”

Regulated and voluntary markets

“The voluntary market already exists,” Ms. Reis said. “It’s based on bilateral transactions—contracts between a company and another party that reduce or remove carbon in any sector.”

“Law 15,042 created the regulated market. It requires large emitters—those releasing more than 25,000 tonnes of greenhouse gases per year—to decarbonize,” she said.

To that end, the governing body will set an emission cap and the allowances each regulated entity will have to meet its targets—the “cap and trade.” “Each regulated company will have its own allowance: if it meets it, great; if not, it will have to buy from someone with a surplus.”

“Our system allows companies to buy carbon credits from the voluntary market, but not just any credit,” Ms. Reis noted. “It must be generated under a methodology accredited by the governing body—and that’s the job of this division.”

“For example, a cement producer that has already reached its emission limit has two options: it can buy credits from another company that has reduced emissions beyond its quota, or it can go to the voluntary market and purchase credits from a forest regeneration project using a methodology accredited by the secretariat.”

Strategic planning

“The other undersecretariat will be led by Thiago Barral, former National Secretary for Energy Transition and Planning at the Ministry of Mines and Energy,” Ms. Reis said. “It will focus on implementation and will include two divisions: one for MRV studies—monitoring, reporting, and verification—and another for registries.”

“The MRV division will determine how companies will report their emissions, how monitoring and verification will be carried out, and how this information will feed into the National Allocation Plan. This plan will set emission limits, annual reduction targets, and rules for allocating credits—whether free or paid.”

“The other division will create the system’s registry,” she explains. “That’s where the regulated companies will submit their data: ‘This year, I emitted this much, from this activity.’ This dataset will help us continuously refine the policy.”

Strong exchange

“This undersecretariat will also structure how, in the future, the registry and the system’s assets—the allowances to be distributed—will interact with the stock exchanges,” Ms. Reis added. “Now that we have a regulated carbon market taking shape, a law that can boost the voluntary market, and international transfers that may eventually be traded on exchanges, we must prepare to have a strong, large, and powerful exchange—one that is not dependent on others.”

“As for whether we’ll work with the São Paulo or Rio de Janeiro stock exchange, no decision has been made yet,” she added.

Liquidity

“Carbon credits can be traded on the stock exchange,” Ms. Reis noted. “Today, volumes are still small, but they tend to grow.”

“The system’s assets—that is, the allowances—have been defined as securities under the governance and regulation of the Securities and Exchange Commission (CVM). This ensures the desired liquidity for both the allowances and carbon credits, giving market participants more confidence in these transactions.”

“The financial dimension of carbon markets is highly relevant,” she said.

Start

“We’ll have a testing phase and distribution of allowances within the regulated system—aimed at companies that emit more than 25,000 tonnes of CO₂ per year,” Ms. Reis said. “This phase will begin in four years.”

“After that, there will be a mandatory phase, when companies will have to buy these allowances through auctions—the law sets this to happen in five years,” she added.

“Four years is the time this secretariat has to get everything ready—conduct studies, draft regulations, and issue the necessary ministerial ordinances.”

Building it up

“We’re putting in place something of enormous importance that could have major relevance for the country,” Ms. Reis said. “Minister Fernando Haddad is being bold and innovative by establishing this secretariat within the Finance Ministry. He sees it as both a business opportunity and a way to integrate Brazil technologically into strategic value chains.”

“These decarbonization projects will unleash a vast network of science, technology, and innovation,” she added. “We already have universities, laboratories, and research institutes developing solutions to decarbonize different sectors—what we lacked was demand and scale.”

“With regulation, the carbon market can foster this ecosystem related to science, technology, and innovation, while also strengthening the economic, financial, and legal dimensions of the transition,” she added.

“Just imagine how many consulting firms will emerge,” Ms. Reis said. “We expect a significant impact on the corporate services sector. We must start right away—and do so transparently. We’ll also have to develop an engagement and communication plan. There’s a lot of pressure and anticipation surrounding the carbon market. We must be ready—there are countless possibilities, and now it’s up to the government to regulate and chart this path.”

Sectors

“The question of which sectors we’ll begin with is the most important one,” Ms. Reis said. “The regulatory impact analysis will determine that—we don’t yet have an answer. This will be one of the first decisions the secretariat will make.”

“The testing phase with free allowances will last four years,” she said. “We don’t call them licenses, as the Europeans do; the law uses the term allowances. In Portuguese, license sounded like permission to pollute—and that’s not the idea. It’s an allowance that must be complied with.”

Certification companies

“This is one of the areas causing the most excitement,” Ms. Reis said. “The certification sector is highly concentrated—there are only a few players doing this work. The law stipulates that certification firms must have a minimum capital in Brazil. So, if a company is foreign, it will have to register a business taxpayer number here. It can be headquartered abroad, but it must open a branch in Brazil.”

“Another major discussion concerns methodologies—whether they’re appropriate for our reality,” she added. “That’s why there’s a growing defense of national certification companies, with homegrown methodologies developed by Embrapa and universities. We believe it’s the right time to promote competition in this sector.”

“What’s essential,” she said, “is to properly assess the environmental benefit and the generation of carbon credits—whether the project removes, reduces, retains, or captures emissions. There are many different methodologies.”

“The next step,” she added, “is international recognition, which is still limited today. This debate is already underway, and Brazil will continue to push for clarity—that the needs of the Global South are different. But we also have to look at our companies and ask whether they want to export carbon credits or seek an international seal of approval. And again, that’s precisely the role of the methodology undersecretariat.”

Industrial policy

“I’m a specialist in sustainable industrial policy,” Ms. Reis said. “A country’s development depends on transforming its productive structure to reduce technological dependence. That means developing our own technologies—with inclusion, reduced inequality, and environmental and climate sustainability.”

“The carbon market is industrial policy,” she said. “We’ll define the sectors that will be included, the methodologies, and the allocation of allowances—all of which will become pathways for industrial development.”

“Europe has had its carbon market, the ETS (Emissions Trading System), for 20 years,” she noted. “It has generated €200 billion in revenue. And the use of that revenue has also been strategic: Europeans channeled it into three funds—for innovation, just transition, and modernization. These financed the modernization and innovation of European industry, which had been struggling to compete with Chinese and American companies.”

“In our case, 75% of the revenue from Brazil’s carbon market will go to the Climate Fund, with a portion dedicated to supporting forest projects involving traditional communities and Indigenous peoples. We also have the capacity to promote the development of future technologies.”

“So, the system must be very well regulated, and with a strategic national vision—one that ensures Brazil plays a stronger role in global value chains,” she added. “The carbon market belongs to the future.”

Social cost of carbon

“The carbon market is one more instrument for mitigation,” Ms. Reis said. “It’s not the only one, but it’s a consistent one. Today, about 40 jurisdictions apply a carbon price, covering almost 30% of global emissions. That’s significant.”

“The regulated market targets large emitters, those causing harm to a public good, and ensures they internalize the social cost of carbon,” she said.

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