Publications

Category: Infrastructure and energy

The revised administrative infractions and fines set out by the Mining Code came into effect last August resulting in penalties and fines that  could reach R$ 1 billion.

Among the various measures adopted after the disasters that occurred in 2015 and 2019 in Mariana and Brumadinho,  in Minas Gerais, the Brazilian Congress  issued the Law 14,066 in 2020 that modified the National Policy for Dam Safety and the Mining Code, imposing new obligations on miners and giving more visibility to environmental liabilities in mining.

To regulate such changes, the Decree 10,965/22, published at the beginning of this year, also modified the rules for penalties and fines set out by the Mining Code Regulation (Decree 9,406/18).

Such changes, like others already set out by the environmental legislation on mining, were triggered, among other factors, as a result of the perception that, historically, part of the miners ignored the rules imposed on their mining activities because they considered the value of the imposed penalties and fines modest ones, as well as there was until very recently a perception of reduced law enforcement.

One of the most significant changes brought by Decree 10,965/22 is related to the revision of the administrative infractions and fines that came into force last August 2022. In the past regulation, the i failure to comply with most of the obligations resulted in the penalty of a simple warning and/or fines ranging from R$ 300 to R$ 3 thousand. Only on extreme cases the one that breached the law was punished with the forfeiture of its mining title.

Now, the penalties and fines should be applied more severely with amounts ranging from R$ 2 thousand to R$ 1 billion. In the case of non observation of the  obligations set out by the appliable regulatory legislation, depending on the severity of the violation, in addition to the penalties of warning, fine and/or forfeiture of the mining title, the regulation provides the possibility of seizing goods, ores and equipment or temporary suspension - total or partial - of the mining related activities.

As a result of the new decree, the penalties and fines take into consideration not only the type and severity of the damage caused by the violation committed and the aggravating and mitigating circumstances - such as the recurrent acts. They also consider a very debatable subjective element: the economic capacity of the one that is in breach of the law.

Regardless the possibility of imposing a double  fine in the event of a recidivist of the one that is in breach of the law, two other new sanctions are worthy attention. It is applicable to:

• practice of mining activities, processing or storage of ores or tailings that result in serious damages to the population and the environment; and
• degradation of the public property and its water and environmental resources due to a mining dam leakage or rupture.

Such infractions can now result, in the last case, in the forfeiture of the mining title, without prejudice to the imposition of fines and civil and criminal liability of the infringing miner.

Causing damage and losses to third parties due to the practice of mining and failure to submit to the National Mining Agency a report of the activities performed annually in the established period were also included in the list of administrative infractions. . It is evident, therefore, the legislator's concern in restraining the conducts of the one that is in breach of the law  and whose acts may degrade and impact the environment.

The parameters, criteria and procedures for the imposition of the aforementioned penalties on agents of the mining sector shall be further regulated by a resolution to be published by the National Mining Agency.

As a first step, it was included as a priority in the last regulatory agenda approved by the National Mining Agency the requirement to regulate the administrative sanctioning process of the agency.

Additionally to these changes, aiming to result on greater awareness and accountability of  mining companies, the decree also regulated certain obligations for the exercise of mining activities that cover more than the recovery, mitigation, and compensation of the environmental impacts resulting from mining activities.

It becomes mandatory to act to prevent other impacts, including those related to the welfare of the communities involved in or otherwise impacted by the activities of research, mining, processing, transportation, commercialization of ores or the use or storage of sterile and tailings.

In accordance with international best practices, it was explicitly established the responsibility for the welfare of the communities around the mine and for the preservation of the health and safety of those who are directly related to mining activities.

In order to prevent environmental disasters, the mining entrepreneur should prepare and implement a contingency plan^[1], in addition to the obligation of recovering areas that may be in some way degraded as a result of its activities.

The recovery of areas due to mine closure and decommissioning of facilities - including any dams or similar infrastructure - includes the obligation to create a destination for future use of the area.

It is also required to monitor the tailings and sterile disposal systems  following the geotechnical stability of the mined areas, according to the specific closure plan approved by the competent authorities - which include the National Mining Agency (ANM) and the environmental governmental body responsible for licensing the mine.

^[1] Contingency plan that must be integrated to the city's Contingency Plan for Protection and Civil Defense, if any, according to art. 5, §2 of Decree 10.965/22.

Category: Compliance, investigations and corporate governance

In the wake of the recent publication of the Decree 11,129/22, which amended the regulation of the Anti-Corruption Law, on 25 July, the Office of the Comptroller General ( (CGU) published the Normative Ordinance CGU 19/22, which brought specific rules on summary judgment in the context of administrative accountability proceedings (PAR) determined or avocados by the CGU.

According to the CGU, summary judgment is a negotiating sanctioning instrument, whose main objective is to stimulate the culture of integrity in the private sector, promoting express accountability for harmful acts committed against the Public Administration.

Summary judgment has certain requirements and, if accepted by the authority, may grant benefits to the legal entity that triggers it.

The request for summary judgment proposed by the legal entity must include the admission of objective responsibility for the practice of the harmful acts investigated, accompanied by evidence and detailed reporting of what is known.

In addition, the request for anticipation must contain the following commitments:

• repay the caused damage;
• lose the undue advantage (when it is possible to estimate);
• pay the fine of Art. 6 of the Anti-Corruption Law;
• respond to requests for information;
• do not file administrative appeals;
• waive the submission of a written defense;
• waive the right to file lawsuits relating to the PAR; and
• include suggestion on how and how to pay financial obligations (there is the possibility of proposing the installment payment).

At the federal level, the CGU, in a discretionary manner, may reject or agree to the request made by the legal entity. If the return is positive, the authority will prepare a final report, recommending the summary judgment, which will proceed to the final decision of the Minister of the CGU, preceded by legal manifestation of the legal advice department of the CGU.

Summary judgment can only be used for PARs already instituted and still pending final judgment. The degrees of benefit in the amount applied to the fine vary depending on the time the legal entity submits its proposal.

In this way, the following mitigations in the calculation of the fine can be applied:

• Before the beginning of the PAR (in the context of preliminary investigation) – mitigation of 4.5%
• Before the presentation of the written defense - attenuation of 3.5%
• Before the closing statements – attenuation of 2.5%
• After the closing statements - 1.5% mitigation

Summary judgment has characteristics very similar to those provided for in the leniency agreement – such as admission of strict liability, delivery of evidence and detailed reporting of what is known to the company, in addition to some differences highlighted below:

Given these two possibilities, it is important that the legal entity subject to some preliminary investigation or a PAR examines, according to the specific case, what is the most advantageous way: leniency agreement, summary judgment or follow the procedural flow of the PAR.

This reflection is necessary because, considering that Article 25, II, that of Decree 11.129/22 imposes a limit of three times the value of the advantage obtained to the fine imposed, in a hypothetical PAR scenario in which the fine calculated exceeds this limit, the mitigation of the summary judgment may be to make it innocuous. This is because even without the incidence of the reduction of the summary judgment, the fine would have already reached its maximum. In this case, opting for summary judgment or normal flow, the fine imposed would be the same – the amount of three times the advantage given.

In this scenario, in addition to the non-application of mitigating factors, the summary judgment would prevent the legal entity from, in the administrative sphere of the PAR and in potential judicial sphere, to discuss the facts and present its defense, since the summary judgment imposes the commitment not to appeal and give up related lawsuits.

These considerations and reflections are extremely relevant for legal entities involved in PARs in progress, because the normative ordinance established a deadline of 60 days for legal entities to make proposals for summary judgments in PARs already established and not yet judged. Considering that the normative ordinance comes into force on August 1, 2022, the deadline for the proposal, in these specific cases, expires on September 30, 2022.

Category: Labor and employment

Whether good or bad, fact is that one of the biggest legacies of the covid-19 pandemic was telework, and it definitely came to stay. Several companies have adopted the telework as a rule, allowing your employees to work from home or anywhere else that has a good internet connection.

What most of these companies do not see – and does not do so out of ignorance – is that the multiplicity of service locations leads to a multitude of places where their employees can process them. So, what was supposed to be a benefit can become a nightmare from a legal point of view.

Imagine a company with a nomadic employee, who over the course of a year travels the entire Brazilian coast, and at the end of the contract, decides to sue. Where will he distribute this action? And if the company has the entire staff of employees adept at the anywhere office, how can it promote the defense of its interests considering the continental size of our country?

In a first view – and considering the general rule that it is competent to judge a labor complaint the Labor court of the place where the employee provides his services – one might think that the options would be numerous, but recent decisions^[1] of the courts addressing the issue of digital nomads have put this rule in check.

Given the multiplicity of places of service provision and the freedom granted to the employee, the courts have understood that the jurisdiction to adjudicate a labor complaint proposed by an adept collaborator of the anywhere office is the company's headquarters.

The reasons listed by the decisions revolve mostly around the right of defense of companies, which can be limited in case there is unpredictability about the place where the labor complaint will be proposed. In addition, the example of the agent or commercial traveler is "borrowed", since the nomadic employee can work in several locations, but without necessarily living in any of them.

We understand that some hiring precautions can help prevent a number of labor complaints related to supporters of the anywhere office:

Fixing the place of the company's headquarters as a competent forum to judge the labor lawsuit in the employment contract is one of them, even better if the worker in question has a higher education degree and receives a salary equal to or twice the maximum limit of the benefits of the General Social Security System.

The establishment of a remote work policy in which it is made clear that issues related to the employment contract will be discussed at the company's headquarters will also strengthen the arguments before the Labor Court in case there is discussion as to where a labor complaint should be handled.

There is an understanding that the place of discussion of labor demands cannot be determined by the employer and the employee for fear that  may be impaired. It is the so-called "prohibition of the forumclause", that is, the impossibility of establishing this place in contract or otherwise. Thus, even if the necessary precautions were adopted, there would still be a risk of concluding that this adjustment did not exist.

However, we believe that the proposed measures will bring greater legal certainty to companies and, at the very least, facilitate the discussion of this issue in the courts, which need to adapt to new forms of work.

The adaptation of labor laws to new social phenomena is necessary, and the suggested measures seek precisely to combine the best of both worlds: grant the employee freedom of choice on where to work and, on the other hand, to give legal certainty to companies, who will be able to concentrate their demands on the place of their headquarters, without having to mobilize people and financial resources to meet labor complaints spread throughout a country as large as Brazil.

^[1] RO: 0100647-28.2019.5.01.0246

RT: 1000924-87.2020.5.02.0009

RR: 0000426-03.2017.5.20.0012

Category: Tax

It is a fundamental guideline of the National Tax Code that taxes are not intended to punish any unlawful act:

"Art. 3º Tributo is any payment of the compulsory pecuniary, in currency or the value of which can be expressed therein, which does not constitute a penalty for an unlawful act, instituted by law and charged through fully linked administrative activity."

Taxes, therefore, cannot serve as an instrument to penalize those who break the laws. Charges, as a kind of tax, are included in this rule.

Thus, it surprised the recent decision of the plenary of the Supreme Court (STF) in direct actions of unconstitutionality ADI 4,785, ADI 4,786 and ADI 4,787.

In this brief article, we will deal only with the possibility of justifying, based on incidents that occurred in a given economic segment, the collection of charges without equivalence with the cost (even if estimated/approximated) of the service to be funded.

This is because, no more than three years ago, the same plenary of the Supreme Court ruled on the impossibility of the charges for the police power being charged at levels higher than the cost of the state service to be remunerated.

At that time, when we had the opportunity to represent the entity author of the action, more specifically in the judgment of the ADI 6,211/AP, the plenary of the Supreme Court ruled that the collection arising from the charges by the police power cannot be disconnected from the cost of state activity to be funded.

About this trial, the very website of the Supreme Court reported:

"The Supreme Federal Court (STF) declared unconstitutional provisions of the state Law 2.388/2018 of Amapá, which instituted a fee on exploitation activity and use of water resources (TFRH). By a majority of votes, the Plenary, in the session of Wednesday (4), upheld the Direct Action of Unconstitutionality (ADI) 6211, filed by the Brazilian Association of Independent Producers of Electric Energy.

Consideration

The vote of the rapporteur, Minister Marco Aurelio, prevailed in the trial. According to him, the rate, unlike the tax, has a counter-provision, that is, it must be tied to the effective or potential execution of a specific public service or, as in this case, to the regular exercise of police power. On the basis of calculating the rate, it should therefore be observed a correlation between costs and benefits, in compliance with the principle of proportionality.

For the minister, in the case of Amapá, where the rate is calculated according to the volume of water resources used by the taxpayer, the data show the lack of proportionality between the cost of state activity that justifies the rate and the amount to be spent by individuals for the benefit of the public entity. The amount collected, he said, is ten times the annual budget of the state's environment management secretariat. 'Nothing justifies a fee whose total collection exceeds the cost of state activity that allows it to exist,' he said.

Collecting character

The rapporteur noted that the very wording of the law demonstrates the eminently collecting nature of the tax instituted, by providing for the contribution of the proceeds of the collection for the promotion of municipal initiatives related to the state policy of water resources and to increase the so-called water resources fund. 'It was admitted that a substantial portion of the collected is not even directed to the cost of expenses related to the control and supervision of exploration activities to the use of water resources,' he said.

Minister Edson Fachin was partially defeated, who considered articles 2, 3 and 5 of the standard constitutional, which, in his view, only provide for the exercise of police power and explain their form of exercise or performance."

Nothing more appropriate and settled, since, unlike the taxes that are the primary source for the maintenance of state entities, the charges are signage/referable/counter-paymental taxes, which require that their collection is intended to cover the cost of the service to be funded.

Given the relevance, we transcribe excerpts from some of the votes cast in the ADI 6,211/AP trial:

• Excerpts from the vote given by Minister Marco Aurélio Mello:

"There is different understanding as to what is alleged in the first piece regarding the constitutional hygiene of the attacked act in the material sense, taking into account the principle of proportionality, which translates into the verification of the appropriate equivalence between the required value of the taxpayer and the costs alusing the exercise of police power to justify the imposition of the tax.

Pay attention to the provisions of Article 145, item II, of the Federal Constitution, to reveal the notion of fee, the requirement of which is guided by the principle of retributivity.

(...)

It is stated that the fee has a counterproductive and sinalagmatic character: by tied to the effective or potential execution of a specific and divisible public service, or, as is the case, to the regular exercise of police power, the value of the tax must reflect, within the limits of the reasonable, the cost of the state activity from which it takes place. According to Hugo de Brito Machado, 'nothing justifies a fee whose total collection in a given period exceeds the cost of state activity that allows him to exist', it should be observed, in determining the basis of calculation, 'even if by approximation and with a certain margin of agency', correlation between costs and benefits, under penalty of having mischaracterized the nature of the tax (MACHADO,  Hugo de Brito. Tax Law Course. São Paulo: Malheiros, 2018. p. 443)

In view of the need to keep, in the definition of the amounts to be charged, intimate relationship with the fulfillment of the activity that gives it opportunity, verified difficulty or even impossibility of determining precisely the cost alusive to state activity, it is feasible for the Public Administration to establish an approximate amount, proportional, which is the adoption of the basis of own calculation of tax,  in the form of Article 145, § 2, of the Major Law.

There is almost ten times the budget annually allocated to the Secretary of State for the Environment, the body entrusted, in the form of Article 3 of the Diploma wholesale, to 'plan, organize, direct, coordinate, implement, control and evaluate sectoral actions related to the use of water resources' and to 'record, control and monitor the exploitation and use of water resources'. From the analysis of the budget pieces for the years 2018 and 2019, the resources allocated to the Secretariat comprised, respectively, 8.3 million and 10.5 million reais – reaching the average of only 9.4 million reais annually."

• Excerpt from the vote given by Minister Luis Roberto Barroso:

"Here, what is verified is that the claim of collection with this fee, as in the case of Pará, exceeds the budget of several Secretariats of State. The disproportionality seems evident. It is not that it exceeds the budget of the Secretariat in charge of supervision, it exceeds the budget of several departments added together. I think this mischaracterizes the rate character as a linked tax proportional to the activity performed."

• Excerpt from the vote given by Minister Rosa Weber:

"Furthermore, the financial data estimated by the author and not challenged by the Governor or the State Legislative Assembly seem to indicate that there is no correlation between the value of the fee and the cost of the police power to justify its imposition. There is no need for there to be an exact correspondence in the fees with the cost of the service provided or made available to the taxpayer or the police power exercised, but minimal proportionality and reasonableness are necessary, and no gifts are made.

• Excerpt from the vote delivered by Minister Luiz Fux:

"Mr President, I say that there is no revelation of equivalence between the costs of state activity and the taxpayer's ability to pay. This parameter used effectively generated a confiscatory effect."

• Excerpts from the vote given by Minister Ricardo Lewandowski:

"Once the question of jurisdiction is overcome, I recall that the fee, as a counter-provision to an activity of the Public Power, may not exceed the reasonable equivalence ratio that must permeate the actual cost of state action and the value that the State may require of each taxpayer, considered, for that purpose, the relevant elements to the rates and calculation basis set by law. In other words, if the quantification of the rate exceeds the cost of the service made available to the taxpayer, thus constituting a situation of excessive costlyness, it will be demonstrated, in my view, offence to the fundamental prohibitive clause of non-confiscation, provided for in Art. 150, IV, of the CF/88:

(...)

The technical context reveals, therefore, disproportion and lack of correlation (referibility) between the facts generating the tax, the amounts to be collected and the cost of the inspection services provided by SEMA (calculated according to the volume of production, in accordance with article 6, of the contested legislation), so that, in the dimension of the cost/benefit, applicable to the fees,  violation of the principle of contributory capacity (Art. 145, § 2, CF/88) is also envisaged."

• Excerpt from the vote of Minister Dias Toffoli:

"Although the law may avail itself of the volume of water resources used to establish the value of THE TFRH – because, in the case, the larger this volume, the greater the exercise of the supervisory power by the Public Administration – it has to respect proportionality and reasonableness. In this sense, the amount actually charged under the fee cannot be strayed from the cost of state activity that is sought to pay."

It is out of doubt that it would be virtually impossible to have accuracy in the parity between the cost of the service to be funded and the amount to be collected with the charge.

This practical difficulty, however, cannot serve as a justification to allow the lack of equivalence – even if reasonably approximate – between the amount collected with the charge and the cost of state activity to be remunerated, under penalty of turning it into a true tax.

It happens that, although everything that has been commented on above reflects the decision of the Plenary of the Supreme Court on the charges for the police power, it seems, something caused some Justices of the Supreme Court to radically change their minds.

In the support of the votes cast by the Justices in the trial of the recent ADI 4,785, ADI 4,786 and ADI 4,787, with the exception of the Attorney General of the Republic, who expressly said to have changed their minds on the subject, the Justices who voted for the possibility of the charges for police power exceed the cost of the state service to be remunerated did not clear they made the reason for the change of understanding.

Apparently, one of the determining factors for Justices to validate the collection of charges on trial in those three direct actions of unconstitutionality was the occurrence of environmental incidents.

This can be drawn from the synthesis of the votes verbalized in the plenary session of 01/08/2022 – the judgment has not yet been formalized – especially Justices Edson Fachin, Luiz Fux and Carmen Lucia.

The Justices of the Supreme Court relied on the occurrence of environmental incidents to justify the collection of charges by the police power at strange levels and far from the cost of state service to be funded.

It happens that, as posted in Article 3 of the National Tax Code, tax is not the appropriate legal instrument for sanctioning any unlawful act.

From the judgment of ADI 4.785, ADI 4.786 and ADI 4.787 then the question arises: what exactly is the understanding of the plenary of the Supreme Court on the possibility of the charges for the police power being charged at higher levels – and sometimes even much higher – at the estimated cost of the public service to be remunerated?

With the jurisprudential scenario we have today, the answer to this question is unclear. There is great uncertainty for the applicators of the right on what is, after all, the understanding of the plenary of the Supreme Court in relation to the subject.

If you've ever considered it, for example, in ADI 6,211/AP, the unconstitutional charge for supplanting by more than ten times the total amount of the annual budget of the state entity that would carry out the police power funded by the fee, now, in ADI 4,785, ADI 4,786 and ADI 4,787, understood that there would be no harm in which the charges were charged in amounts significantly higher than the cost of the service to be cost.

Several possible questions emerge:

• Did the Justices of the Supreme Court understand that only mining charges could be collected at higher levels than the cost of the inspection activity due to the incidents that occurred?
• Did Justices consider the equivalence between the amount collected from the charges for the police power and the cost of the public service to be remunerated as an insurmountable constitutional beacon?
• How and what can be done so that other states and the various municipalities do not go through similar legislation so as to create charges with the same feature, to the point of making the constitutional tax system even more conflictive?
• Is the difference between the judgment of ADI 4,785, ADI 4,786 and ADI 4,787 and previous judgments on police charges, is there a probative question of the lack of equivalence between the cost of state service and the amount to be collected?

Questions like these urgently need answers from the plenary of the Supreme Court. It is expected, therefore, that Justices will re-consider the issue, whether in the context of a motion to clarify decision to be opposed in these three direct actions of unconstitutionality or in a forthcoming seat on the subject, because, worse than the sudden change of jurisprudential orientation of the maximum court of a country, is to leave the jurisdictions to the taste of doubt.

After all, all that is sought with direct actions of unconstitutionality is legal certainty to know the ratio decidendi plenary of the Supreme Court on the subject in judgment.

Category: Capital markets

To better understand the main international regulations regarding ESG (Environment, Social and Governance) issues, the Brazilian Securities and Exchange Commission (CVM) published last May 26 the study The ESG agenda and the capital market - An analysis of ongoing initiatives, challenges, and opportunities for further reflection by the CVM.

Prepared by Assessoria de Análise Econômica e Gestão de Riscos (ASA), in collaboration with the Brazilian Institute of Corporate Governance (IBGC), the publication also aims to analyze the main mandatory or voluntary disclosure standards for ESG factors, and whether there is a more adequate and internationally accepted standard.

As part of the CVM Regulatory Agenda 2022, the study incorporates the regulatory priorities for this year, focusing on the relationship between the topic of sustainability, in its various forms, the capital market, and ESG issues.

In the study, the CVM indicates the existence of a global trend toward taking advantage of existing standards of disclosure. In addition, the agency highlights the risks and analyzes the disclosure of ESG factors in the Brazilian securities market.

In November of 2021, the CVM conducted a survey to understand the level of knowledge and interest of the investing public on ESG issues and their influence on investment choices (64% of the participants confirmed they already use ESG criteria in their decision-making process).

The agency also promulgated CVM Resolution 59/21, which expanded the set of ESG information that must be disclosed in the reference forms of publicly traded companies, demonstrating alignment with international initiatives.

The CVM has also been concerned with analyzing the interactions of some Brazilian public companies with securities market regulators in Australia, Canada, the United States, and the United Kingdom, who have contributed data on their regulations, guides, policies, overviews, and transparency standards used.

In this regard, we note a leading role for jurisdictions in the European Union and the United Kingdom, where regulations regarding ESG are already more robust, focusing not only on disciplining and standardizing the information disclosed and access to ESG information by regulators, but also on encouraging sustainable investment.

The regulatory benchmarking presented in the study leads to some conclusions, such as the noticeable increase in market interest in social responsibility policies, the growing demand for more consistent, comparable, and useful information for investment decisions, and the risks of greenwashing (the creation of a false appearance of sustainability through speeches, advertisements, and publicity campaigns that highlight supposedly ecologically/environmentally responsible and green practices) and potential penalties and sanctions applicable to irregularities related to the disclosure of ESG practices (which can already be observed, albeit at an incipient level, in some jurisdictions).

The CVM initiative highlights the importance of integrating ESG factors with the capital market, taking into account that non-financial risks are increasingly being considered by investors in their decision-making processes, due to the global perception of their economic and financial impacts.

The study supports the view that ESG issues have become sufficiently relevant to merit special attention from regulators in various jurisdictions, who are already promoting regulatory changes aimed at:

• standardizing and disseminating access to information on ESG issues, in order to promote standardized and comparable disclosures to inform the public's investment decisions;
• punishing and curbing disclosure irregularities on ESG topics (as in the case of greenwashing); and
• fostering corporate sector adherence to ESG practices and inducing investment in sustainable sectors.

Category: Environmental

After more than a decade of waiting, the new regulation of the Brazilian carbon market was enacted last May by Federal Decree No.11,075/22, which establishes the procedures for the drafting of the Sectoral Plans for Mitigation of Climate Change, institutes the National System for the Reduction of Greenhouse Gas Emissions (Sinare) and amends Decree 11,003/22 (which institutes the Federal Strategy for the Incentive of Sustainable Use of Biogas and Biomethane).

The decree is part of the discussions on the consolidation of a low-carbon economy initiated by Federal Law No.12.187/09, which instituted the National Policy on Climate Change (PNMC).

According to the PNMC, it would be up to the Executive Branch to establish the Sectoral Plans for Mitigation of Climate Change, in order to meet the gradual goals for the reduction of greenhouse gas emissions, which was disclosed during the Global Carbon Market – Decarbonization & Green Investments Congress, held in mid-May by Banco do Brasil and Petrobras, with support from the Ministry of the Environment and the Central Bank. The event was attended by representatives of the most diverse sectors of the economy and authorities involved in the matter.

In general terms, the decree does not present details on the regulation of the carbon markets and still does not offer the necessary legal security. The document addresses the matter in a very superficial way, through generic concepts and devices or very similar to those already in existence, especially with regard to Bill No. 2,148/15, which is advanced proceedings in the House of Representatives.

Main aspects of the decree

The new decree defines what would be the Sectoral Plans for Mitigation of Climate Change , which should be understood as the sectoral instruments of governmental planning for the achievement of climate goals. This definition highlights the relevance of sectoral instruments for the establishment of climate goals.

In the approved text, it is noted that the decree does not bring any forecast on  the definition of climate goals or any direction in relation to their establishment, but only the procedures for the drafting of the sectoral plans.

Proposals to reduce greenhouse gas emissions may be submitted by sectoral agents (members of the sectors of generation and distribution of electric power, urban public transport and interstate cargo and passengers transport modal systems, manufacturing and durable consumer goods, fine and basic chemical industries, pulp and paper industry, mining industry, construction industry, health services and agriculture).

The competence for proposing the Sectoral Plans for Mitigation of Climate Change, however, will fall to the Ministry of the Environment, the Ministry of Economy and related sectoral ministries, if any. The plans will be approved by the Inter-ministerial Committee on Climate Change and Green Growth, established according to Decree No. 10,845/21.

This is a measure of implementation of a "baseline-and-trade" systematic for the carbon market, in which performance goals will be set for each economic sector.

The absence of climate goals may indicate some flexibility regarding the carbon reduction goals since sectoral instruments will enable the discussion and establishment of such goals with the participation of sectoral agents.

The decree also enabled differentiated treatment for sectoral agents, according to the category of the company and/or rural properties and their characteristics (such as billing, emission levels, characteristics of the economic sector and region of location), a measure that reflects the different realities of a continental country such as Brazil.

Sector agents will have a period of 180 days – extendable for an equal period – to submit their propositions for the establishment of greenhouse gas emissions reduction curves.

The long-term goal of climate neutrality agreed in the United Nations Framework Convention on Climate Change, through Nationally Determined Contributions (NDC) – a commitment assumed by Brazilin order to collaborate with the objective of limiting the increase of global temperature must be observed. To this end, a goal was set to be achieved by the public sector, in various spheres, and by the private sector.

There is no provision in the decree regarding the establishment of a sectoral mitigation plan if no sectoral instrument is signed. The hypothesis was left open and it is not known what may happen if such instruments are not signed.

Despite the lack of predictability, some sectors have already signed a protocol of intentions to collaborate in the drafting of Sectoral Plans for Mitigation of Climate Change.

In addition to providing the procedures for the drafting of such plans, the decree instituted Sinare, whose purpose is to serve as a single data center for the registration of emissions, removals, reductions and compensation of greenhouse gases and acts of trade, transfers, transactions and retirement of certified emission reduction credits.

The institution of a single central registry is extremely relevant to the extent that it will concentrate all transactions in the Brazilian carbon market, which can help preventing greenwashing practices.

The decree provides that the emission reductions and removals registered in Sinare that are added to the goals established for sector agents will be recognized as certified emission reduction credits, if they meet the system's certification standard.

Carbon credit comprises the financial, environmental, transferable and representative asset of reduction or removal of one ton of carbon dioxide equivalent, which has been recognized and issued as credit in the voluntary or regulated market.

Carbon footprints of products, processes and activities, carbon from native vegetation, soil carbon, blue carbon (captured by coastal ecosystems) and carbon stock units may also be registered in Sinare, without the need to generate certified emission reduction credits.

With the enactment of the decree, a step– albeit small – has been takens towards the implementation of an effective carbon market in Brazil. Despite the fact that the decree is broad and does not define specific goals for the reduction of greenhouse gas emissions or the methodology for Sinare’s operation, there was progress, considering the establishment of relevant aspects for the beginning of the maturing of a regulated carbon market.

The long-awaited legal security on the matter, however, will only come with the enactment of a specific law on the matter. This is what is sought with Bill No. 2.148/15 and others that arose over time and were attached to it. The regulation of the aspects that remain open in the decree – such as the operationalization of the implemented system – will also be essential.

It is necessary to closely monitor the next steps of the regulation of decarbonization in Brazil – which is beginning to move forward – and hope that sustainable development can be achieved, with the necessary balance for the protection of future generations.