Analysis: From Kyoto to Paris: Proposal for the creation of the carbon market
The regulation of a global carbon market has been one of the most discussed topics since COP25, and it has gained increasing strength among leaders concerned with sustainability, mainly due to the economic recovery process after the Covid-19 pandemic.
Generally speaking, the carbon market involves trading carbon credits between countries that fail to meet their greenhouse gas reduction targets and those that have reduced their emissions. To better understand the current discussions, it is necessary to analyze the two main carbon market treaties within the scope of the United Nations (UN).
The first was the Kyoto Treaty, created in 1997, which determined a maximum quota of gases that countries can emit, enabling the negotiation of credits. However, as only developed countries had targets, only developed countries could trade carbon credits. The Paris Agreement, elaborated during COP21, came to replace the previous treaty and included all countries in the credit trade.
The objective of including all signatory countries in the trade of carbon credits is to encourage rich countries and large companies to allocate resources to developing countries, such as Brazil. Through this business model, the regulated market, there are two paths to be followed: cap and trade and taxation.
In cap and trade, companies have a stipulated maximum emissions limit and, based on that, they can buy and sell permissions. Those who issue less can sell credit to companies that issue more than allowed, creating compensation. Taxation, on the other hand, determines a fixed price for a given amount of CO₂ emitted; the adoption of a carbon tax determines a price per quantity emitted.
At COP26, which takes place in the first half of November, in Glasgow, Scotland, the world will have the opportunity to create a regulated global carbon market. And if the countries reach a consensus, Brazil will have a great opportunity to attract investments. This is because, currently, the country has 50 million hectares of degraded areas. The reforestation of these lands or their transformation into productive areas could generate carbon credits for Brazil. In addition, the carbon market can help the country to control deforestation and restore its reputation in relation to recent environmental developments that have had international repercussions.