Brazil Opens Carbon Credit Market

(International Relations and Security Network, 15/09/2005)


The Brazilian Development Ministry on Wednesday announced the launch of the region's first carbon credit market in cooperation with the Brazilian Stock Exchange in Rio de Janeiro, in a move that paves the way for industry in developed countries to counterbalance high levels of greenhouse gas emissions by purchasing carbon credits in Brazil.


Since the Kyoto Protocol entered into force on 16 February, the Brazilian government has begun approving authorizations for company and project participation in clean development mechanisms (CDMs). Authorized companies and projects will then be able to sell carbon gas credits to companies in developed countries that are trying to meet the Kyoto Protocol demands for reducing green house gas emissions.


The Protocol stipulates that developed countries are to reduce green house gas emissions by 5 per cent, relative to 1990 levels, by a time window set between 2008 and 2012.


The Rio de Janeiro stock exchange will now serve as a platform for the Latin American market now operational between approved Brazilian CDMs and companies in developed countries that choose to purchase carbon credits from Brazil.


"In 21 years, each CDM project in Brazil could reduce emissions by 14 million tonnes," Brazilian Ministry of Science and Technology Chief Coordinator of Research in Global Change, José Miguel, said in a recent interview with Brazilian news service Agencia Brasil.


An increase in CDMs in Brazil would be good for development, Miguel said, because these projects improve living standards. It is hoped they will create jobs and encourage renewable energy generation in Brazil. This year alone, Miguel expects some 30 projects to be approved.


The multi-step process of CDM approval will take time, however. The project identification documentation must first be submitted and validated. Next, the Brazilian Inter-Ministerial Climate Change Commission must approve it. This step represents a significant bottleneck, as the commission has many projects in the pipeline. Once approved, the project must get a stamp of approval from the United Nations Executive Board before receiving CDM authorization.


The first CDM project approved in Brazil, called Nova Gerar, is located in Nova Iguacu, Rio de Janeiro. It is a gas-to-energy project located at a sanitary landfill near the mouth of Rio's Guanabara Bay. The landfill has the capacity to produce 18 million cubic meters of natural gas and receives 850,000 tonnes of domestic solid waste per year. At maximum gas production, project developers expect the electricity produced to reach some 40 megawatts of power.


A similar project called Vega Bahia has also been approved. Vega Bahia will undertake to run a gas-to-energy project on the landfill that serves Salvador, Bahia.


A report recently released by Business News Americas, a Chilean-based news service, says both China and India may prove to be strong competitors in the emerging carbon-credit market, but that Latin America has a head start on its competitors because governments took action long ago. Now that the protocol has entered into force, countries such as Brazil are ready.


"But both India and China have the potential to dwarf Latin America completely," Business News Americas Energy Features Editor Karl Royce, told ISN Security Watch, adding that, "high oil and gas prices may contribute to the development of the carbon credit markets, but it's very much uncharted territory."


Meanwhile, the World Bank reports that carbon sequestration projects submitted by Asian countries reached 51 per cent of total projects in 2003, up from 21 per cent in 2002. Conversely, in Latin America, the percentage of total projects fell from 40 to 27 per cent during the same time period.

Nevertheless, Brazilian observers are optimistic that a multi-billion dollar market may be fostered in Latin America.


According to Brazil's Getulio Vargas Foundation consulting firm, which is an organizer of Wednesday's carbon market launch, the Latin American carbon-credit market is expected to reach US$3.5 billion by 2007, 10 per cent of which is destined for Brazil.