Threading the Needle: Brazil's carbon market opportunity and the risk of missing it

Brazil has built a national emissions trading system, an international transfer regime and three tradable environmental attributes in twenty months. Nothing published says how they connect. That gap, not ambition, is the risk.

Philip Hyland

Founder, NorthStar ESG Advisory

The risk is not ambition. It is architecture.

Brazil is not short of climate ambition, technical capacity or natural assets. It has legislated a national emissions trading system, consulted on international transfers, and regulated tradable environmental attributes for aviation fuel, hydrogen and geological carbon storage, all within twenty months. Few countries have moved faster on paper.

The risk is that none of it connects. Each instrument was drafted by a different authority, under a different law, on a different timetable, and no published document sets out how they relate to one another. Brazil's problem is not that too little has been built. It is that the fabric needs to be stitched together. This is the failure mode of a country moving fast, not one moving badly. It does not require deforestation to rise, or political commitment to weaken, or a scandal to break. It requires only that each competent institution does its own job well and nobody joins the results.

Consider the most concrete illustration. Brazil drove most of the global decline in tropical forest loss last year, cutting non-fire primary forest loss by 41 per cent to its lowest level on record, with environmental violation notices up 81 per cent and fines up 63 per cent across 2023 to 2025 against the three years before. It has not been issued a single jurisdictional forest carbon credit. Guyana, whose forest covers around 18 million hectares, has. It built a national monitoring system, took its registration documents through the standard's validation and verification, and has had credits issued.

Separate instruments, one seam, and the needle is held by the Brazilian state. Whether the seam is run determines whether Brazil supplies the carbon market or defines it.

The encouraging part is what the risk is made of. Every gap identified in this article is a coordination gap. None requires new primary legislation, new money, or a change in political direction. Most require a single institution to publish something it has not yet published. That is an unusually cheap set of fixes for an unusually large prize, and it is the argument of what follows.

Who decides what

Fragmentation is easier to see when it is counted. The table below lists the decisions that determine whether Brazil has a functioning carbon market, and who takes each one.

Sixteen decisions, spread across more than twenty domestic bodies and three international ones. No single institution appears in more than three rows.

Three things follow, and only the first is genuinely alarming.

The authority at the top of the table does not yet exist.

The órgão gestor is the executing instance of the SBCE, holding normative, regulatory, executive, sanctioning and appellate powers. Its role is currently performed by the Extraordinary Secretariat for the Carbon Market, created in October 2025, in this initial structuring phase, until a dedicated and specific managing body is created. The two decisions that most determine whether Brazilian credits are worth anything, the cap and methodology accreditation, both belong to a body that has not been constituted. Standing it up is the single highest-return institutional act available to the government, and it requires no new primary legislation, since the law already provides for the body.

The regulatory perimeter moves depending on how an asset is sold.

Under article 14, SBCE assets and carbon credits are securities subject to the 1976 securities law when traded in financial and capital markets, but private placements outside those markets fall outside CVM regulation altogether. That is defensible policy, since it keeps small bilateral deals from carrying prospectus-scale cost. It becomes a problem only if the boundary is left undrawn, because an international buyer cannot price an asset whose disclosure regime depends on a channel decision made after they commit. A CVM statement of where the line falls would close it.

The coordinating machinery already exists.

Decree 12,768 of December 2025 established the Permanent Technical Advisory Committee, and article 2 charges it with presenting inputs and recommendations on the criteria for accrediting and de-accrediting CRVE methodologies and on the criteria to be observed in the National Allocation Plan. Those are two of the three decisions that determine whether the pieces join. Its membership is unusually complete: fourteen federal bodies, including the CVM and the Ministry of Indigenous Peoples, five state and Federal District representatives, academia, civil society, and seven sector seats filled by public selection. Its first resolutions, on 11 May 2026, approved its rules and established working groups, which the decree caps at four running at once.

The limit is that the Committee advises. It does not decide, and under article 9 the consulting body need only justify whether or not it used the result. So the venue exists, the mandate exists, and the parties are seated. What is missing is a published output and a permanent authority to act on it.

Where the seams do not meet

Five misalignments run through the system. Each has a specific closing move, and none of them requires legislation.

Three clocks, one company.

The Finance Ministry's roadmap divides implementation into five phases, the first running 12 to 24 months for initial regulation, creation of the managing body and definition of the regulated sectors. MRV consultation closes on 28 August 2026. The international transfer regime addresses mitigation results occurring between 2031 and 2035. A Brazilian industrial emitter therefore reports under one timetable, reconciles under a second, and reaches international transfer under a third, with no published mapping between them. Capital allocation decisions taken in 2026 must straddle all three. A single published sequencing document, showing which obligation attaches when and how the three interact, would resolve most of this at negligible cost.

The window opens after the demand closes.

This is the costliest misalignment. CORSIA's first phase covers 2024 to 2026 emissions and settles by January 2028. Its second phase runs 2027 to 2029. ICAO approved ART among the first independent crediting programmes to supply that second phase, giving certainty that qualifying TREES credits can be sold into CORSIA through 2031. Brazil's authorised transfers begin in 2031. The country has timed its entry to international compliance markets to arrive after both phases of the only binding sectoral demand in existence have been settled, and at the very edge of its own certifier's runway.

The volume cap, which has drawn most of the criticism, is the wrong target.

There are 108 bilateral agreements or memoranda under Article 6.2, yet only four projects have ever issued and transacted ITMOs, and none since 2024. The 50 Mt ceiling is not what constrains a market that has moved roughly 14 thousand tonnes across 108 agreements. The start date is. And the start date is not yet fixed. The consultation closed on 6 August 2026, the text awaits an act of the Interministerial Committee, and no date for that act has been announced. The most consequential number in Brazil's international position is still a decision rather than a fact.

The one standard Brazil writes itself.

Since 2005, two foreign non-profit certifiers have held 97 per cent of carbon credit certification in Brazil, and a joint BNDES and MMA consultation drew 147 contributions finding their methodologies poorly suited to Brazilian socio-environmental and economic conditions. The obvious alternative is not settled either: in May 2026 the ICVCM declined Core Carbon Principles approval for two ART TREES crediting levels, leaving the 58.4 million credits issued under the high forest, low deforestation level without the label. Grading, in other words, happens elsewhere. With one exception. Under the law, the methodologies validating CRVEs must be accredited and registered within the SBCE itself, which makes the accreditation criteria the one standard entirely in Brazilian hands and the decision that determines what can actually be surrendered. Brazil commissioned a study of its certification market in January 2026. It has not yet written the criteria.

Nesting, unresolved.

State programmes answer to state governments. Corresponding adjustments do not. ART TREES supplies CORSIA conditional on a corresponding adjustment from the host country, and the host country is the federal republic. The same hectare can sit inside a state jurisdictional programme, a private project and the national inventory at once, and nothing published reconciles the three. This is the clearest case where a single federal instrument, a standing authorisation pathway for subnational programmes, would convert a structural ambiguity into a procedure.

The strongest community rules in the world, and the gap where they stop.

Brazil's most valuable and distinctive asset is statutory. The law makes respect for the rights and autonomy of Indigenous peoples and traditional communities a governing principle, alongside respect for their property and usufruct rights, and treats Indigenous lands, quilombola territories and other traditionally occupied areas as eligible areas for carbon projects. Where projects touch those territories, it requires consent through free, prior and informed consultation under ILO Convention 169, conducted according to the community's own consultation protocol, funded entirely by the developer and never by the community, with the participation and supervision of the Ministry of Indigenous Peoples, FUNAI and the Federal Prosecution Service's 6th Chamber. It further requires a contractual clause guaranteeing fair and equitable sharing and participatory management of the monetary benefits. Benefits go to a dedicated account, and communities hold a right to at least 50 per cent of the credits from removal projects and at least 70 per cent from market-approach REDD+ projects. Separately, at least 5 per cent of SBCE revenues is directed to compensating Indigenous peoples and traditional communities for conserving native vegetation and ecosystem services. Accreditation of methodologies applying to traditionally occupied territories is conditioned on observing those principles.

Floors of this kind, written into statute rather than into a programme document, are rare among supplier countries. A Brazilian credit carrying a supervised consent process and a 70 per cent community share is a materially different product from one carrying a certifier's label, and it is a difference competitors cannot replicate quickly.

The gap is precise. There is no express benefit-sharing regulation for jurisdictional market-approach REDD+ programmes, or for state non-market REDD+ programmes. The floors bind projects. Pará and Tocantins are running programmes. That unregulated space is exactly where the disputes have arisen: federal prosecutors have sued to nullify Pará's 12 million credit contract, seeking 200 million reais in moral damages for local communities and alleging that advance sale breached the carbon market law, and in Amazonas prosecutors sought suspension of REDD activity in Indigenous and traditional territories after 21 concessions covering 11.9 million hectares were awarded without consultation of the 483 potentially affected communities.

Read correctly, those cases are not evidence that Brazil's community framework has failed. They are evidence of what happens in the one space the framework does not yet reach. Extending the statutory floors to jurisdictional programmes would close it, and would do so by applying a rule the Congress has already written.

Six stitches

Consider what Brazil has to show for four years as the presumptive leader in jurisdictional forest carbon. In February 2026 ART issued 9,085,923 TREES Credits to Guyana for the year 2023, labelled CORSIA-eligible. Guyana is the only jurisdiction ever to have credits issued under the standard, and that was not its first issuance. Tocantins, twenty-one months after presenting its registration document at COP29, remained, as at ART's March 2026 newsletter, one of five jurisdictions in validation and verification. Pará has a published TREES Concept, the first step of the process. Brazil drove most of the global reduction in tropical forest loss in 2025 and has issued nothing. That it remains the country with the largest absolute area of loss, given the size of its forests, does not soften the point. It sharpens it.

That is the risk made concrete. The six moves below would close it. None requires primary legislation, new expenditure, or any change in policy direction. Four require an institution to publish something it has already been mandated to produce.

What this means now

For Brazilian companies in scope

The immediate question is not price but classification. The sectoral coverage proposal is expressly pre-regulatory, and the MRV consultation identified covered activities by CNAE code. Any operator whose codes appear in those annexes should already be testing whether its measurement systems, internal controls and supply contracts can produce verifiable data, because the obligations attach above 10,000 tCO2e a year and the reconciliation duty above 25,000. Both thresholds can be raised by the managing body, which cuts in either direction. The costlier exposure is contractual: long-term offtake and supply agreements signed now will run into a compliance regime whose cost pass-through provisions do not yet exist.

For international buyers and conservation partners

The discipline is to price legal risk rather than assume the certifier has priced it. A validly issued Brazilian credit can still be defective in title or consent, and the parties raising that question are federal prosecutors. Diligence should reach the underlying land record and the consultation history, not stop at the validation report. The corollary is the opportunity: credits carrying verified tenure, a supervised consent process and a statutory community share are a genuinely differentiated product, and buyers should be willing to pay for them. Rating differentiation already moves reforestation prices by 87 per cent per band. Tenure and consent are the next differentiator, and Brazil is where they will be established.

For organisations working alongside Indigenous peoples and traditional communities

The practical point is that the leverage is already in the statute. The 50 and 70 per cent floors, the developer-funded consultation, the supervised process and the dedicated benefit account are enforceable entitlements, not aspirations. The work is extending them to jurisdictional programmes and building the community-side capacity to exercise them, because a floor nobody can audit is a floor in name only.

For investors

Regulatory milestones are the timeline, not corporate announcements. Watch four: creation of the permanent managing authority, the accreditation criteria for CRVE methodologies, the final ITMO resolution and whether the 2031 date survives, and the first National Allocation Plan. Each converts an open question into a priced asset or a stranded one.

The needle is held once

Every decision in this article is already assigned. Someone owns the accreditation criteria. Someone owns the transfer date. Someone owns the corresponding adjustment for a state programme, and someone owns the benefit floors. None of it is contested, none of it is unfunded, and none of it needs Congress. What none of them has is a published output and a single authority to act on it.

That is why the risk is real and why it is relatively cheap to close. A country can fail at this while every institution in it does its own job competently. It is also why the most valuable asset in the system is the one least discussed abroad. Brazil has written into statute a 70 per cent community share for market-approach REDD+, a 50 per cent share for removals, and a consultation process funded by the developer and supervised by three federal bodies. It currently stops at the boundary of the programmes most likely to generate the credits.

The temptation will be to treat what remains as technical: which methodologies, which codes, which registry, which body. It is not technical. Each is a decision about whether the pieces are joined, and the window is not open indefinitely. The Open Coalition on Compliance Carbon Markets launched at COP30 with 18 member countries to establish shared standards and connect trading systems, and ART released version 3.0 of its standard in June 2026, drawing on four years of implementation across 26 participating programmes. The standard-setters are organising. Run the seam cleanly and Brazil is not merely a supplier to the carbon market. It is the country whose rules the others have to answer.

Sourced as at 19 August 2026. Sources listed in the appendix below.

Appendix: sources

• Lei nº 15.042, de 11 de dezembro de 2024 (SBCE). Diário Oficial da União, 12 December 2024. Arts. 4, 14, 28, 29, 30, 46, 47, 51.
• Decreto nº 12.677, de 2025, creating the Secretaria Extraordinária do Mercado de Carbono.
• Decreto nº 12.768, de 5 de dezembro de 2025 (Comitê Técnico Consultivo Permanente). DOU, 8 December 2025. Arts. 2, 3, 6, 8 and 9.
• Resoluções CTCP/SBCE, de 11 de maio de 2026, estabelecendo os grupos de trabalho.
• Decreto nº 13.094, de 12 de agosto de 2026 (ProBioQAV / CS-SAF). DOU, 13 August 2026, edição 152, seção 1, p. 3.
• Decreto nº 13.095, de 2026 (CCS/CCUS), implementing arts. 26 to 29 of Lei nº 14.993/2024.
• Lei nº 6.385, de 7 de dezembro de 1976, art. 2, X, as inserted by Lei nº 15.042/2024.

• Ministério da Fazenda, "Sancionada a lei que estabelece as bases para um mercado regulado de carbono no Brasil", 13 December 2024, setting out the five implementation phases.
• Ministério da Fazenda, "SBCE: panorama sobre o funcionamento, a governança e os canais de participação".
• Ministério da Fazenda, "Semc abre rodada de encontros com a indústria na implementação do mercado brasileiro", February 2026.
• Ministério da Fazenda, "BNDES abre seleção de propostas para estudo sobre Certificação de Créditos de Carbono no Brasil", 6 January 2026.
• Ministério do Meio Ambiente e Mudança do Clima, "Consulta pública recebe contribuições para proposta de resolução sobre Resultados de Mitigação Transferidos Internacionalmente", 7 July 2026.
• Plataforma Brasil Participativo, "Consulta Pública: Proposta de Resolução sobre Resultados de Mitigação Transferidos Internacionalmente (ITMOs)", 7 July to 6 August 2026.
• Secretaria Extraordinária do Mercado de Carbono, draft Portaria on MRV implementation stages, consultation 28 July to 28 August 2026.
• BNDES, Agência de Notícias, "BNDES e MMA abrem consulta pública sobre o mercado de certificação de carbono no país".
• BNDES Florestas, "Consulta pública: certificação de carbono", results.
• BNDES, "Mercado voluntário de carbono no Brasil: contribuições da consulta pública", January 2026.
• Serviço Florestal Brasileiro, "Competências", gov.br/florestal.
• INPE, PRODES and DETER deforestation monitoring data.

• UNFCCC, Draft decision -/CMA.7, "Implementation of the guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement", FCCC/PA/CMA/2025/L.12, 21 November 2025.
• UNFCCC, Draft decision -/CMA.7, "Further guidance on the mechanism established by Article 6, paragraph 4", CMA 7 agenda item 15(b), version 19 November 2025.
• ICVCM, Decision M49_ART_TREES_v2.0_HFLD_2026; ICVCM, "Integrity Council announces new batch of assessment decisions", 11 May 2026.
• ART, "ART Publishes TREES Concept for Pará, Brazil on the ART Registry", October 2024.
• ART, "ART Accepts TREES Document Submitted by Tocantins, Brazil", 15 August 2025; 8 October 2025; and "Tocantins Submits Translated TREES Documents", 19 February 2026.
• ART, March 2026 Newsletter (Guyana issuance; jurisdictions in verification; ICAO approval for CORSIA second phase).
• ART, "ART releases TREES 3.0", 25 June 2026.
• ILO Convention No. 169 on Indigenous and Tribal Peoples.

• World Bank, State and Trends of Carbon Pricing 2026 (Washington DC: World Bank, 2026), doi:10.1596/978-1-4648-2348-0. Data cutoff 1 April 2026.
• Mayer Brown, "Progress in the Implementation of the Brazilian Emissions Trading System", 26 May 2026.
• Chambers and Partners, "Brazil's Carbon Market: covered sectors under SBCE", June 2026.
• Carbon Pulse, "ANALYSIS: Carbon industry welcomes Brazil's ITMO draft framework, but criticises timeline, volume limits", 17 July 2026 (subscription).
• Felsberg Advogados, "MMA abre consulta pública sobre regras para a transferência internacional de créditos de carbono", July 2026.
• Migalhas, "Valores mobiliários de ativos inerentes aos gases de efeito estufa", on art. 14 of Lei nº 15.042/2024.

• Mongabay, "Brazil charges 31 people in major carbon credit fraud investigation", 4 November 2025.
• Mongabay, "'World's largest' carbon credit deal under fire as Amazon prosecutors seek repeal", 18 June 2025.
• REDD-Monitor, on Operation Greenwashing and on the Ministério Público Federal recommendation concerning Amazonas.
• Reuters, "Brazil's Tocantins state to offer $430 million in carbon credits", 14 November 2024.