Brazil Deals Blow to Schwarzenegger-Championed Carbon Trade

Brazil damped hopes that an international carbon trade supported by Arnold Schwarzenegger five years ago will go ahead as South America’s biggest economy has no intention of exporting credits.

Securities generated by protecting the Amazon rain forest will be needed by Brazil to meet its own emission-reduction targets and won’t be sold to another country or state, Carlos Klink, secretary of the climate change unit at the nation’s environment ministry, said Wednesday in an interview in London. California is considering importing credits from Brazil’s Acre state to comply with environmental rules at home, its Air Resources Board said Oct. 19 in a document.

The potential trade would break new ground because it’s between two states rather than countries at a time when nations are publishing pledges on how to tackle climate change under a global agreement that may be signed in Paris in December. California’s proposal stems from a memorandum of understanding signed in 2010 by former governor Schwarzenegger and his Acre counterpart. Californian companies would potentially buy credits to meet 4 percent of their local compliance needs.

Protecting Forests

In exchange for issuing credits, Acre would get revenue to help prevent loggers from destroying its forests. Only reductions that exceed forest protection standards would be eligible to get credits. California would seek a regulatory framework that ensures such standards are met before approving credits, according to the Oct. 19 paper.

Brazil instead favors grants to protect its forests, such as those offered by the Norway-funded Amazon Fund, Klink said.

Timing of the potential deal for the 2018 to 2020 period highlights the need for emissions-trading rules being debated as envoys prepare for the United Nations climate conference in Paris.

‘Crucial’ Rules

Brazil’s Klink says these rules are “crucial.”

California is seeking such rules as part of the global negotiations, Dave Clegern, a spokesman for the California Air Resources Board, said by e-mail. California’s market is already linked with one in Canada’s Quebec province, which would also be consulted on any trades, according to California’s paper.

“The risk is that the carbon reductions get double counted” by both Acre and California or Brazil and the U.S., said Louis Redshaw, founder of Redshaw Advisors, a carbon-trading company in London. “If California can find a way to make this work when Europe hasn’t, then I’d be surprised. The danger here is there may be better ways to protect forests than via markets.”

Brazil’s 2025 emissions limit for a 37 percent reduction in greenhouse gases below 2005 levels is the most ambitious in the world for a major country by target-emissions trajectory, according to rankings by Bloomberg New Energy Finance.

“California takes very seriously its leadership role,” said Richard Saines, partner at the law firm Baker & McKenzie LLP in Chicago. The potential trade with Acre is an “important contribution” to the climate talks because it will create a debate about how jurisdictions should meet their various types of emissions targets, Saines said by phone.

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