Brazil to Cap Carbon Emissions for Large Polluting Companies

Brazil will create a cap on carbon dioxide emissions for large polluting companies as part of a broader green transition initiative meant to help the country reach CO2 neutrality by 2050, according to one of the plan’s architects.

(Bloomberg) — Brazil will create a cap on carbon dioxide emissions for large polluting companies as part of a broader green transition initiative meant to help the country reach CO2 neutrality by 2050, according to one of the plan’s architects.

President Luiz Inacio Lula da Silva’s plan will include the creation of a regulated carbon market, as well as measures to gradually end subsidies for fossil fuels and stimulate the use of electric public transportation vehicles, said Rafael Dubeux, who is coordinating the program as a special adviser to Finance Minister Fernando Haddad.

“These are very deep changes that will involve all sectors of the economy,” Dubeux said during a Tuesday interview in Brasilia, the capital. “The plan means more jobs, higher GDP and income for Brazilians.”

The regulated carbon market will affect around 5,000 companies that annually emit more than 25,000 tons of CO2 equivalent into the atmosphere. Sectors like steel and cement, the chemical industry and aluminum manufacturers are likely to face the most immediate effects.

The government has not yet determined a level for the cap. But it plans to gradually lower it each year until emissions are neutralized, Dubeux said.

“This encourages companies to invest in decarbonization and innovation,” Dubeux said. “And there will be strong market surveillance. We are very concerned with ensuring that the Brazilian carbon credit has a lot of international credibility.”

‘Ecological Transformation’

The measures are the start of an “ecological transformation” of Latin America’s largest economy, Haddad said last week, that will seek to deliver on Lula’s campaign promises to simultaneously boost growth and an enact aggressive environmental agenda.

Brazil has long been at the center of global climate change discussions. It is home to the majority of the Amazon Rainforest and boasts one of the world’s cleanest energy mixes based on hydroelectricity and renewable fuels for transportation.

But its overall emissions have bucked global trends and risen in recent years, its oil output is growing, and pollution from agricultural and industrial production has increased. Brazil has also been slow to join an international push toward electric vehicles, and is only now about to jump into booming sustainable bond markets for the first time.

Read More: Lula Launches Green Transition With $350 Billion Investment Plan

The new initiatives will follow the broad contours of policies enacted by developed economies like the European Union, which leans on a cap-and-trade system as its key tool for cutting pollution and imposes decreasing emissions caps on thousands of facilities owned by utilities, manufacturers and airlines. 

Lula’s government expects to send legislation to create the carbon credit market to congress, where it may face resistance from conservative lawmakers, in the coming days. Other aspects of the plan, which according to Dubeux will also include concessions, credits and tax exemptions to promote decarbonization, could come through presidential decrees or other measures.

The government is still calculating the impact a regulated carbon market would have, but Dubeux pointed to a study from Brazil’s National Industry Confederation that estimated it would boost gross domestic product by 2 percentage points and provide a 20% bump to the incomes of the country’s poorest people in the coming years.

The proposals come alongside a $350 billion infrastructure investment program Lula unveiled last Friday that will include financing for energy transition projects and other green initiatives, the president and his economic team said at an event to launch the plan.

While many of its investments will be sustainable, the so-called Growth Acceleration Plan, or PAC, also includes funding for more controversial initiatives, including the Ferrograo railway — a project to transport grain through part of the Amazon region that was suspended over environmental concerns. Brazil’s Supreme Court earlier this year allowed technical studies of the project to resume.

Read More: Brazil Moves to Allow Amazon Oil Drilling, Marring Lula’s Summit

The plans reflect Lula’s efforts to balance immediate economic needs with his promises to transition it toward a more sustainable future, according to Dubeux. 

“Brazil is a lower-middle-income country in international comparison, and an ecological transformation plan cannot stop everything to start from scratch,” Dubeux said. “It is a process of change that we want to happen as quickly as possible.”

(Updates with additional context from seventh paragraph)

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