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On December 12, 2024, Federal Law No. 15,042/2024 was published, instituting the Brazilian Greenhouse Gas Emissions Trading System (“SBCE”), a significant milestone in the regulation of the country’s carbon market.

The SBCE will apply to activities, sources, and facilities located within Brazilian territory that emit or have the potential to emit greenhouse gases (“GHG”). Operators responsible for installations and sources emitting over 10,000 tCO_2eq/year must submit a monitoring plan and a GHG emissions and removals report to the SBCE managing body. Additionally, operators of sources emitting over 25,000 tCO_2eq/year must, beyond the obligations aforementioned, offset their emissions, within the compliance period to be determined by the managing body, and submit a periodic reconciliation report.

Primary agricultural production, as well as goods, improvements, and infrastructure directly associated with their rural properties, are not subject to the rules of this system.

In sum, the SBCE adopts an economic approach known as “cap and trade”. The SBCE managing body will allocate Brazilian Emission Allowances (“CBEs”) to regulated operators, either free of charge or for a fee, setting a maximum emissions limit for the sector (cap). Operators that reduce their emissions below the distributed CBEs can trade the surplus, while those emitting GHGs above their allocated CBEs must offset their emissions either by acquiring CBEs on the market or through Verified Emission Reduction or Removal Certificates (“CRVEs”) (trade).

Both assets – CBE and CRVE – are fungible, tradable units, representing effective reductions or removal of GHGs of 1 tCO_2eq. The difference lies in their origin: CBEs will be granted by the managing body, while CRVEs represent credits generated from projects duly registered before SBCE and following its methodologies (to be regulated).

When traded on the financial and capital markets, these assets will be classified as securities and subject to the Brazilian Securities and Exchange Commission Law (Federal Law No. 6,385/1976).

In this regard, the CVM has just published CVM Resolution no. 223, of December 16, 2024, which approves OCPC Technical Guidance 10 – Carbon Credits, Emission Permissions (allowances) and Decarbonization Credits (CBIO), with the basic requirements for recognition, measurement and disclosure of carbon credits, emission permits and decarbonization credits (CBIOs), as well as provision on associated liabilities, whether arising from legal or non-formalized obligations, as defined in the CPC 25 – Provisions, Contingent Liabilities and Contingent Assets.

For each compliance period, the National Allocation Plan will define, among other aspects, the maximum emissions cap, the number of CBEs to be allocated to operators, and the allocation method (free or for a fee).

The traceability of these assets will be ensured through the SBCE Central Registry, a digital platform that will (i) receive and consolidate information on GHG emissions and removals; (ii) ensure precise accounting of the granting, acquisition, holding, transfer, and cancellation of assets; and (iii) track national transactions involving these assets and internationally transferred mitigation outcomes.

Revenue generated from trading SBCE assets will be taxed under the Income Tax rules applicable to (i) the taxpayer’s regime, in the case of developers who initially issued these assets; (ii) net gains from transactions on stock exchanges, commodity and future markets, and organized over-the-counter markets; and (iii) capital gains in other situations.

These provisions also apply to the Social Contribution on Net Income (“CSLL”) for legal entities under the actual, presumed, or arbitrated profit regime. Revenues from the sale of assets are not subject to the Pis/Pasep or the Cofins.

Lastly, the SBCE will be implemented in five phases as follows:

Phase I: a 12-month period, extendable for another 12 months, for regulatory development;

Phase II: a 1-year period for operationalizing emission reporting instruments;

Phase III: a 2-year period during which operators are only required to submit a monitoring plan and an emissions and removals report;

Phase IV: implementation of the first National Allocation Plan, with free allocation of CBEs, and the launch of the SBCE asset market; and

Phase V: full implementation of the SBCE upon the conclusion of the first National Allocation Plan.

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For further information, please contact the professionals in the Corporate Sustainability and Tax departments at GSGA.