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What is SBCE? And Why Does It Matter?

The SBCE (Brazilian Emissions Trading System) is a regulated carbon market, based on a cap-and-trade model, currently under implementation in Brazil. Its main objective is to promote the reduction of greenhouse gas (GHG) emissions in an efficient, cost-effective manner aligned with the country’s climate commitments. Among these, the highlight is Brazil’s new target under the Paris Agreement: the Nationally Determined Contribution (NDC) established under the United Nations Framework Convention on Climate Change (UNFCCC).

Legal Framework and Governance

The system was established under the legal framework of Brazil’s national climate policy through Law No. 14,590/2023, which amended the National Climate Change Policy (Law No. 12,187/2009), creating the legal foundation for regulating a national carbon market. The regulatory framework is being developed by the SBCE’s managing body, coordinated by the Ministry of Environment and Climate Change (MMA) and the Ministry of Finance (MF), with input from the private sector and civil society through public consultations.

Timeline and Expectations

The first regulated sectors are expected to be defined by the end of 2025, marking a decisive step in consolidating Brazil’s climate policy. At that point, the Brazilian government will publish the specific SBCE rules, detailing the sectors included, methodologies for emissions calculation and verification, allocation or auction criteria for allowances, as well as penalties and enforcement mechanisms.

How Will the SBCE Work?

Under the SBCE model, once fully regulated, companies with emissions above a defined threshold will be required to monitor, report, and verify (MRV) their emissions according to established standards.

According to Article 30, different requirements will apply based on emissions volume:

  • For installations emitting between 10,000 and 25,000 tCO₂e/year:
    • Submission of an emissions monitoring plan to the managing authority
    • Periodic reporting detailing GHG emissions and removals
  • For installations emitting more than 25,000 tCO₂e/year:
    • Compliance with the above requirements
    • Periodic reconciliation of their obligations

Non-compliance may result in penalties such as warnings, fines of up to 3% of the company’s annual gross revenue, suspension of activities, or partial or total operational shutdown.

What is Periodic Reconciliation?

Periodic reconciliation involves proving that a company holds enough credits to offset the total amount of GHG emissions it generated. After monitoring, reporting, and verifying their emissions, companies must demonstrate that these emissions are covered by valid assets in the system, such as Brazilian Emissions Allowances (CBEs) or Verified Emission Reduction or Removal Certificates (CRVEs). These credits come from emitters who stayed below their permitted limits and saved the surplus for trading.

The Cap-and-Trade Model

A total emissions cap will be established for specific sectors or activities. Within this limit, companies will be able to trade emission allowances—the right to emit GHGs—thus creating a cap-and-trade market similar to those already in place in countries like Germany, France, China, and the U.S. state of California.

This system functions as a “carbon ceiling”: the more a company reduces its emissions, the greater its potential to sell surplus credits or allowances. Conversely, companies exceeding their limits will need to purchase credits or allowances on the market, fostering a virtuous cycle of efficiency and innovation.

Economic and Competitive Advantages

The system will act as an efficient economic instrument aimed at reducing GHG emissions at the lowest possible cost. It will encourage companies to adopt innovative solutions to decarbonize their operations, promoting competitiveness with sustainability.

Although the regulatory framework is still being developed, companies should start adapting to the SBCE guidelines to secure competitive advantages.

Recommended steps include:

  • Implementing emissions measurement and control systems
  • Investing in energy efficiency
  • Investing in renewable energy sources

Benefits of Early Preparation:

  • Market differentiation
  • Increased attractiveness to investors
  • Potential revenue from carbon credit sales

Alignment with Climate Commitments

The SBCE aligns with Brazil’s international climate commitments, including its NDC under the Paris Agreement. By establishing clear rules and monitoring mechanisms, the system helps ensure that these targets are achieved in a controlled, measurable, and transparent manner.

Sectors such as power generation, transportation, steel, cement, and pulp and paper are likely to be among the first regulated under the SBCE. In addition to representing a significant share of national emissions, these sectors have greater technical and institutional capacity to implement MRV (Monitoring, Reporting, and Verification) systems.

Complementarity with the Voluntary Market

The SBCE will also complement Brazil’s existing voluntary carbon market by offering a regulated environment with stricter rules and greater legal certainty—particularly relevant for high-carbon-intensive sectors. Companies in these segments should prepare for mandatory emissions monitoring and for potential regulatory costs arising from the system’s implementation.

The voluntary market will remain a useful tool, especially for companies seeking to take early climate action, enhance their reputation, or operate in areas not yet covered by regulation. However, with the advancement of the SBCE, there will likely be greater convergence between the standards of both markets, raising the quality and transparency of traded credits.

Opportunities for Green Investments

The SBCE has the potential to attract green investments. A well-regulated, transparent, and structured market boosts Brazil’s international credibility, creating a favorable environment for raising funds aimed at climate transition and sustainable development.

With clear rules for emissions trading and reduction traceability, Brazil becomes more attractive to investors focused on ESG-aligned assets. This includes green bonds, sustainability-linked securities, and global climate funds like the Green Climate Fund. Furthermore, companies operating under a regulated system will have better predictability regarding climate risks and easier access to green credit lines offered by multilateral banks and financial institutions committed to climate goals.

Conclusion: A Leadership Opportunity

With all these developments, the SBCE has the potential to strengthen Brazil’s image as a leader in climate solutions—a strategic advantage in a global landscape where trade agreements, investments, and value chains are increasingly tied to environmental performance.

For companies, adapting to this new regulatory context is not just about compliance—it’s a real opportunity for differentiation and access to new markets.

Understanding how the SBCE works—and more importantly, how to operate strategically within this new market—will be essential for anyone aiming to lead the transition to a low-carbon economy. Along the way, support from experts who understand regulatory complexities, know the available instruments, and offer integrated solutions can make all the difference.

Every step toward decarbonization matters—and having qualified guidance can turn regulatory challenges into real competitive opportunities.

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