On May 19, 2022, the Brazilian Federal Government published Decree No. 11,075/2022 (“Decree”), which establishes the National Greenhouse Gas Emissions Reduction System (“Sinare”) and the related  procedures for the implementation of the Sectoral Plans for Climate Change Mitigation (“Sectoral Plans”). The National Policy on Climate Change (Federal Law No. 12,187/2009) mentions the implementation of such plans, and the Decree seeks to establish a regulatory framework for carbon markets in Brazil.

Pursuant to the Decree, the Sectoral Plans are governmental planning instruments for achieving Brazil’s climate goals, in which gradual targets for emission reduction and greenhouse gas (“GHG”) removal will be set forth for regulated sectors. Such gradual targets are meant to be in line with the long-term goal of climate neutrality pursuant to the Brazilian Nationally Determined Contribution. Sinare, in turn, will be a centralized registry for emissions, removals, reductions and compensations of GHG, as well as acts of commerce, transfers, transactions and retirements  of carbon credits.

It is worth pointing out that, on the same day that the Decree was published, the lower house of the Brazilian Parliament also made a new draft of the bill of Law No. 2,148/2015 (“Bill”) public. The Bill seeks to establish a framework for carbon markets in Brazil, as well, though in a more structured manner, creating two concurrent systems: a traditional emissions trading system (cap and trade) and a system for registering carbon credits in itself  (offsetting). If the National Congress approves the Bill, new regulations likely will be necessary, in addition to modifications to the Decree itself for its compatibility with the future law. An example of this is the Decree’s provision regarding “methane credits,” which are not mentioned in the current draft of the Bill.

In light of this, the expectation is that the Decree will not result in immediate practical effects. In addition to the fact that the Bill is a fundamental part of this mechanism, the Decree leaves the proposition of the Sectoral Plans to additional future regulations from relevant ministries, also granting a 180-day deadline, extendable for an equal period, to regulated sectors to submit their proposals for the establishment of GHG emission reduction curves. The same applies to Sinare: as provided in the Decree, it will be up to the Ministries of the Environment and Economy to establish Sinare’s rules of operation.