White Paper: The Potential of Carbon Markets and Results-Based Payments for the Post-2020 Period

26 August 2019

August 23, 2019 – The year of 2020 will be a milestone in the recovery of carbon markets around the world. Starting this year, the main international agreements aiming to stop climate change and reduce the global emissions of greenhouse gases (GHG) will come into effect. Some main treaties signed include: The Paris Agreement and The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).


In addition to these treaties, there are many ongoing initiatives in Brazil. The National Policy on Climate Change (PNMC), established by law in 2009, promoted the development of a Brazilian Market of Emissions Reduction (MBRE). Since 2015, the country has been internally developing the Project Partnership for Market Readiness (PMR). The Brazilian Coalition on Climate, Forests and Agriculture supports the immediate implementation of the MBRE, which considers not only emissions reduction, but also, the removal of carbon from the atmosphere as predicted in the PNMC. Thus creating a work agenda that stimulates synergies between the market and the valuation of forest assets.


In the context of international initiatives, both the Paris Agreement and CORSIA predict the structuring of market mechanisms, which should be operating in the next 10 to 15 years. Such mechanisms are expected to generate incentives that are important to emissions reduction and removal in different countries and regions. Brazil is one of the countries with the highest potential to attract international investments to mitigate its emissions, especially focusing on land use, forests, and agricultural sectors.


However, in order for Brazil to successfully attract international investments, the private sector and the federal and state governments must have an active dialogue with the organized groups of Brazilian society. This dialogue would allow for an understanding of Brazil’s potential to produce and manage mitigation results and would build a balanced process that contributes to the global reduction of GHG emissions.

It is worth remembering the goals set by Brazil within the United Nations Framework Convention on Climate Change (UNFCCC). The Brazilian Nationally Determined Contribution (NDC) [1] aims to reduce emissions in 37% by 2025 and 43% by 2030, compared to 2005 levels. Most of this reduction is anticipated to come from the forest, land use and agricultural sectors, presently responsible for 70% of national GHG emissions [2].


The sectorial target to eliminate illegal deforestation in the Amazon (that is presently responsible for 90% of all the deforestation of the biome [3]) should represent the largest contribution to fulfilling the Brazilian NDC. However, due to the current trend of returning to previous deforestation rates [4] (mostly in the Amazon and Cerrado), Brazil is at risk for falling short of its national goals of GHG reduction. Other crucial targets that Brazil is at risk for falling short of include: to strengthen the compliance with the Forest Code at federal, state, and municipal levels, and to restore and reforest 12 million hectares of forests for multiple uses by 2030.


Resuming the reduction and control of deforestation in the Amazon and Cerrado, as well as reforestation, will demand large volumes of financial resources and a permanent commitment from the government, private sector, and society in general. Different, yet complementary mechanisms are necessary to facilitate Brazil to reach its emissions reduction targets. Mechanisms that focus on structuring new financing strategies via market and results-based payment, capable of attracting investors, governments, and companies on behalf of the harmonic, inclusive and sustainable use of the land in Brazil, are essential to reach the national targets and promote large-scale reduction of emissions in the country.


Therefore, it is essential that Brazil implements initiatives which incentivize forest conservation and sustainable use, as well as, reforestation and restoration through a clear and effective program of forests’ environmental services valuation. It is also crucial to mobilize additional financial resources to complement the existent resources, such as, resources from international carbon markets, as predicted in the Paris Agreement (Article 6), in CORSIA/ICAO, and in the REDD+ systems.


The Brazilian Coalition defends structuring results-based payments systems and carbon markets based on four pillars. These pillars are meant to guarantee the environmental integrity of the global climate system, while promoting additional efforts to reduce emissions in countries and jurisdictions.


Carbon markets and results-based payments are a means of strategic implementation of most varied mitigation efforts. In this context, they also act as a structural incentive for sustainable efforts in order to increase ambition, which is crucial to an increased target in the Paris Agreement.


Pillar 1: Carbon markets should promote the additionality of the efforts to reduce GHG emissions. In other words, to reach respective targets, countries must primarily adopt public policies and national measures that lead to the decarbonization of their economies [5]. After reaching a certain level countries will then be able to complement these measures through GHG mitigation programs financed via carbon markets.


Pillar 2: National programs of net emissions reduction must rely on national systems of monitoring, reporting and verification (MRV) in order to participate in international carbon markets. These systems will allow a sectorial performance analysis, in addition to mitigating risks of “leaks” and double counting.


Pillar 3: The supply and demand for emissions reduction in international carbon markets should be managed in a way that they won’t abruptly affect the price of other mitigation options. However, if properly administered, the inclusion of forest credits should allow more ambitious reductions to be implemented, involving all sectors of the economy.


Pillar 4: Investments deriving from results-based payments and international carbon markets regarding the forest sector should be invested in integrated rural development. To maximize results, it is important to achieve a balance between the resources coming from deforestation reduction and the protection and restoration of forests, with the resources designated to assuring the environmental, social and economic sustainability of the landscape as a whole, for example, such as resources that consider other activities of sustainable use of the land, such as reforestation, livestock intensification, and low carbon agriculture.


Conclusion


Brazil has a unique opportunity to become prominent in a low carbon economy. A system of carbon pricing via market pricing could incentivize the country to exploit the value of its forests, thereby, generating economic assets that can contribute to the sustainable development of Brazil. However, in order to obtain this result, it is necessary to find new mechanisms that promote the forest sector to attract a new influx of investments that mitigate emissions in the country, in synergy and complementarity with existing mitigation efforts.


If activities responsible for emissions reduction in the forest sector are not supported, the fulfillment of NDC will be more difficult, take longer, and be much more costly. Additionally, this lack of support would preclude Brazil from attracting the investments needed to generate emissions removals and reduction in large scale, and to promote activities linked to the standing forest economy, such as, but not limited to: the destination of undesignated public areas, low carbon agriculture, reforestation, forest restoration, and recovery of degraded areas.

 

Notes:


[1] See: Brazilian NDC aiming to reach the goals of the UN Framework Convention on Climate Change, submitted to UNFCCC in 2015.
[2] SEEG, 2017
[3] Mapbiomas
[4] INPE, 2019
[5] Examples: public policies to promote energy efficiency, renewable energy, improvement in industrial processes and transportation, etc.


About the Brazilian Coalition
The Brazilian Coalition on Climate, Forests and Agriculture is a multisectoral movement that was established with the goal of proposing actions and influencing public policies that would lead to the development of a low carbon economy, with the creation of quality jobs, stimulus to innovation and Brazilian global competitiveness, and generation and distribution of wealth for the whole society. More than 200 companies, businesses associations, research centers and civil society organizations have joined the Brazilian Coalition.