Carbon Market

Report

December/2024
CARBON MARKET
REGULATION
With the approval of the Carbon reached a notable level of
Market in Brazil, the regulatory maturity in their regulations and
phase will now begin. This serve as important benchmarks
document aims to summarize due to their regional impact and
the key aspects of emissions market size.
trading systems in Brazil, the Adopting carbon pricing
European Union, China, and mechanisms may offer exporters
Mexico, with the goal of aligning better competitiveness
the new Brazilian system with advantage.
leading global practices.
This document was prepared by
Approximately 36 countries
analyzing national regulations,
currently employ emissions
along with reports from the
trading mechanisms, with the
World Bank and the
European carbon market being
International Carbon Action
the oldest, operating for 19
Partnership (ICAP).
years. Although the systems in
China and Mexico are not as
long-standing, they have Best regards,
PATRI.

12/12/2024 2
TIMING
Law 15,042/24 establishes that the
government is tasked with
developing the Brazilian Emissions
Trading System (SBCE), outlining
the following timeline:
▪ 1 year for drafting regulations,
extendable for an additional year.
▪ 1 year for regulated entities to
adapt to the instruments.
▪ 2 years dedicated exclusively to
monitoring and reporting
emissions.
▪ The first Allocation Plan and the
implementation of the SBCE asset
market will take effect thereafter.
Initial challenges are expected for
2025, including the definition of the
Managing Body. Discussions are
currently ongoing regarding the
creation of a new public agency or
a specialized Secretariat.
Another critical task will be
determining how the sectors will be
effectively regulated. The law
provides a general framework,
excluding agriculture, waste
management, and sanitation
sectors.
Finally, and equally important, the
general rules for Measuring,
Reporting, and Verifying emissions
must yet be established.

12/12/2024 3
HOW DOES IT WORK?
The goal is to internalize the GLOSSARY
societal costs arising from
REGULATED ENTITIES: The company
greenhouse gas (GHG) emissions
and/or its facilities (factories or
by companies or emitters. One emission sources) may be
approach is the creation of a tax; considered.
however, there are doubts about its
COVERED GASES: The gases that will
effectiveness in reducing emissions. be counted within the regulated
If the tax rate is not well-defined, market for reporting purposes.
some actors may simply opt to pay
CAP: Emission limits imposed on
for the right to pollute. regulated sectors.
Another way is setting an Emissions ALLOWANCES/PERMISSIONS:
Trading System (ETS), in which: Usually equivalent to the right to
emit 1 ton of CO2.
▪ The government defines the
sectors required to meet PERIODIC COMPLIANCE: Period in
obligations and sets a limit (cap). which the regulated entity must
submit its emissions report to the
▪ Permissions to emit, typically government with the corresponding
equivalent to 1 ton of GHGs, are number of allowances.
then allocated. VOLUNTARY CREDITS/OFF-SETS:
▪ Within a specific timeframe, Voluntary projects aimed at
removing or reducing greenhouse
regulated entities must report
gas emissions, which generate an
emissions and return allowances asset.
matching their emission levels.
BANKING: Allows the storage of
▪ The key aspect is that operators allowances for the next compliance
can sell surplus allowances or period.
purchase additional ones from BORROWING: Allows the advance
other entities if needed (trade). use of allowances from the next
compliance period, functioning as a
This is the basis of an ETS operating
"future loan" of its emission limits.
under the cap-and-trade model.
Allowances decrease with each
phase of the ETS, ensuring emission
reductions across the economy.
12/12/2024 4
 CARBON MARKET SCENARIO 12/12/2024

BRAZIL
Brazilian Emissions Trade System (SBCE)

REGULATED SECTORS* *Initially, all entities

emitting more than
25,000 tCO2/year will
be subject to the
regulation, which will
detail the sectors,
INDUSTRY ENERGY AVIATION NAVIGATION except for agriculture,
waste, and sanitation.

NUMBER OF ENTITIES 5000 TOTAL EMISSIONS (GHG) 2.3 Gt

*Projected

WHO IS REGULATED EMISSION CAP

0.34 Gt
INSTALLATION/ *Projected
SOURCE
% OF EMISSION COVERED BY ETS
COMPANIES

BOTH
15%
*Projected

COVERED GASES
CO2e (HFCs, N2O, PFCs,
CO2
SF6 and others)

REPORTING CYCLE AND DELIVERY OF QUOTAS/PERIODIC COMPLIANCE

6 months 1 year
To be defined by2regulation
1 year and a years 2 Years and a 3 years
half half

ARE VOLUNTARY CREDITS/OFFSETS FLEXIBILITY OF QUOTAS FOR THE

ALLOWED? FOLLOWING CYCLE
ALLOWS ALLOWS
YES NO
To be defined
TRANSFERS by regulation
BORROWING
(BANKING)

PENALTIES FOR NON-COMPLIANCE ALLOCATION OF RESOURCES

Warnings, fines, suspension of activities, and A minimum distribution is defined: 15% goes
publication of a judicial condemnation to the maintenance and operation of the
decision in means of communication. Fines system; 75% must be allocated to the
can range from BRL 50,000 to 20 million but National Climate Change Fund, to finance
cannot exceed the company's revenue. The investments for decarbonizing regulated
regulation will specify the transgressions and activities and sources, and 5% is shared with
their corresponding penalties. indigenous peoples.

12/12/2024 5
 CARBON MARKET SCENARIO 12/12/2024

EUROPEAN UNION
EU Emissions Trading System (EU ETS)

REGULATED SECTORS*
*In 2018, buildings
and land
transportation will
be added.
INDUSTRY ENERGY AVIATION NAVIGATION

NUMBER OF ENTITIES 9030 TOTAL EMISSIONS (GHG) 3.6 Gt

WHO IS REGULATED EMISSION CAP
1.38 Gt
INSTALLATION/
SOURCE
% OF EMISSION COVERED BY ETS
COMPANIES

BOTH *Aviation and maritime

38%
transportation companies

COVERED GASES
CO2e (HFCs, N2O, PFCs,
CO2
SF6 and others)

REPORTING CYCLE AND DELIVERY OF QUOTAS/PERIODIC COMPLIANCE

6 months 1 year 1 year and a 2 years 2 Years and a 3 years

half half

ARE VOLUNTARY CREDITS/OFFSETS FLEXIBILITY OF QUOTAS FOR THE

ALLOWED? FOLLOWING CYCLE
ALLOWS ALLOWS
YES NO BORROWING
TRANSFERS
(BANKING)

PENALTIES FOR NON-COMPLIANCE ALLOCATION OF RESOURCES

Regulated entities must pay a fine of EUR 100 Revenue from the EU ETS is used by Member
(adjusted for inflation) per ton of CO₂ emitted States for climate and energy objectives,
without a permit, in addition to acquiring and including compensation for energy-intensive
presenting the equivalent permits. The name industries and funding the Innovation and
of the violating operator is disclosed, and Modernization Funds, which support low-
Member States may impose additional carbon technologies and just transitions.
penalties for other forms of non-compliance.

12/12/2024 6
 CARBON MARKET SCENARIO 12/12/2024

CHINA
China National ETS

REGULATED SECTORS*
*The inclusion of the
steel, aluminum,
and cement
industries is planned
for the coming years.
INDUSTRY ENERGY AVIATION NAVIGATION

NUMBER OF ENTITIES 2257 TOTAL EMISSIONS (GHG) 15.6 Gt

WHO IS REGULATED EMISSION CAP
5 Gt
INSTALLATION/
SOURCE
% OF EMISSION COVERED BY ETS
COMPANIES

BOTH

COVERED GASES
40%
CO2e (HFCs, N2O, PFCs,
CO2
SF6 and others)

REPORTING CYCLE AND DELIVERY OF QUOTAS/PERIODIC COMPLIANCE

6 months 1 year 1 year and a 2 years 2 Years and a 3 years

half half

ARE VOLUNTARY CREDITS/OFFSETS FLEXIBILITY OF QUOTAS FOR THE

ALLOWED? FOLLOWING CYCLE
ALLOWS ALLOWS
YES NO BORROWING
TRANSFERS
(BANKING)

PENALTIES FOR NON-COMPLIANCE ALLOCATION OF RESOURCES

Fines for non-compliance can reach up to 10 There are no provisions regarding the
times the market value of the missing allocation of resources generated by the
permits, with potential deductions in future system in the China National ETS text.
allocations and interruptions. Fraud and
manipulation result in similar fines and
disqualification.

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 CARBON MARKET SCENARIO 12/12/2024

MEXICO
Mexican Emissions Trading System

REGULATED SECTORS*
*Pilot phase –
Facilities emitting
more than
100,000 tons of
CO2.
INDUSTRY ENERGY AVIATION NAVIGATION

NUMBER OF ENTITIES 300 TOTAL EMISSIONS (GHG) 714 Mt

WHO IS REGULATED EMISSION CAP
273.1 Mt
INSTALLATION/
SOURCE
% OF EMISSION COVERED BY ETS
COMPANIES

BOTH
35%
COVERED GASES
CO2e (HFCs, N2O, PFCs,
CO2
SF6 and others)

REPORTING CYCLE AND DELIVERY OF QUOTAS/PERIODIC COMPLIANCE

6 months 1 year 1 year and a 2 years 2 Years and a 3 years

half half

ARE VOLUNTARY CREDITS/OFFSETS FLEXIBILITY OF QUOTAS FOR THE

ALLOWED? FOLLOWING CYCLE
ALLOWS ALLOWS
YES NO BORROWING
TRANSFERS
(BANKING)

PENALTIES FOR NON-COMPLIANCE ALLOCATION OF RESOURCES

In the pilot phase of the system, non- The Mexican Secretariat of Environment and
compliant entities lose the opportunity to Natural Resources (SEMARNAT) is developing
accumulate unused permits and receive fewer institutional arrangements to manage
permits during the operational phase. revenues during the operational phase.
Sanctions are also foreseen for this phase,
which was initially scheduled to start in 2023
but remains pending official publication in the
Mexican Official Gazette.

12/12/2024 8
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