How Brazil’s SBCE Interacts with the EU CBAM: What Exporters Need to Know

Brazil now has a regulated carbon market. The Sistema Brasileiro de Comércio de Emissões (SBCE), established by Lei nº 15.042/2024, creates a cap-and-trade framework that will put a price on greenhouse gas emissions from major industrial sources. At the same time, the European Union’s Carbon Border Adjustment Mechanism (CBAM), governed by Regulation (EU) 2023/956, requires importers of certain goods into the EU to pay for the embedded carbon in those products. For Brazilian companies exporting steel, fertilizers, cement, aluminum, or hydrogen to Europe, the interaction between these two systems is not a theoretical question. It determines how much their European buyers will pay in CBAM certificates and whether Brazilian carbon costs can offset that bill.

What the SBCE Is and Why It Matters for CBAM

The SBCE is Brazil’s emissions trading system. Lei nº 15.042/2024, signed in December 2024, mandates that entities emitting above a threshold set by regulation must hold emission allowances corresponding to their verified emissions. The system operates on a cap-and-trade model: the government sets an overall emissions cap, distributes or auctions allowances, and regulated entities can trade those allowances among themselves.

The SBCE matters for CBAM because of Article 9 of Regulation (EU) 2023/956. This article allows EU importers to reduce the number of CBAM certificates they must surrender if a carbon price has been effectively paid in the country where the goods were produced. In other words, if a Brazilian steelmaker pays for carbon under the SBCE, that cost can, in principle, be deducted from the CBAM obligation that the EU importer faces.

How Article 9 of the CBAM Regulation Works

Article 9 does not grant automatic recognition of any foreign carbon price. Several conditions must be met:

• The carbon price must have been effectively paid in the country of origin. Allowances that were allocated for free do not count as a paid carbon price.
• The price must not have been subject to any rebate, compensation, or other form of reduction beyond what is available under the EU Emissions Trading System (EU ETS) itself.
• The carbon price must apply to the specific goods being exported, not to unrelated activities of the same company.
• The importer must present documentation proving the carbon price paid, the type of carbon pricing instrument, and the scope of emissions covered.

The European Commission will adopt implementing acts specifying how third-country carbon prices are to be calculated and verified. As of this writing, the detailed methodology for converting SBCE costs into CBAM-eligible deductions has not been finalized. Exporters should monitor the implementing acts published in the Official Journal of the European Union and any guidance from the European Commission’s CBAM registry.

Which Brazilian Sectors Have CBAM Exposure

The CBAM covers six product categories defined in Annex I of Regulation (EU) 2023/956: cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen. For Brazilian exporters, the two sectors with the most significant exposure are:

• Iron and steel. Brazil is a major exporter of steel products to the EU. Semi-finished and finished steel products, including pig iron, crude steel, and certain downstream products, fall within the CBAM scope. Companies regulated under the SBCE that produce and export these goods will need to document the embedded emissions and any carbon costs paid.
• Fertilizers. Nitrogen-based fertilizers, including urea and ammonia, are covered by the CBAM. While Brazil is primarily a fertilizer importer, domestic producers that export to the EU will face CBAM reporting requirements.

Aluminum and cement exporters may also be affected, though export volumes to the EU in these categories are comparatively smaller. Hydrogen is an emerging sector that may gain relevance as trade in low-carbon hydrogen grows.

Step by Step: What Exporters Should Do

1. Determine if your products are covered. Cross-reference your exported goods against the CN codes listed in Annex I of the CBAM Regulation. Not all steel or fertilizer products are included. The classification must be exact.
2. Check your SBCE obligations. Verify whether your facility falls under the SBCE’s regulated entities as defined by Lei nº 15.042/2024 and its implementing decrees. If you are below the emissions threshold, you may not hold allowances and therefore have no carbon cost to deduct under Article 9.
3. Establish MRV procedures. Monitoring, Reporting, and Verification (MRV) is the backbone of both systems. Under the CBAM, EU importers need data on the specific embedded emissions of each product. This means exporters must be able to report direct emissions from production processes and, depending on the product category, indirect emissions from electricity consumed. Adopt a monitoring plan that aligns with the methodology described in Implementing Regulation (EU) 2023/1773.
4. Document the carbon price paid. Keep records of every SBCE allowance surrendered or purchased. The documentation should show the quantity of allowances, the price paid (whether at auction or on the secondary market), and the compliance period to which they correspond. Free allowances must be identified separately, as they do not generate a deductible carbon cost.
5. Communicate with your EU buyers. The CBAM obligation falls on the EU importer, not on the exporter. However, the importer cannot claim an Article 9 deduction without data from you. Establish a data-sharing protocol with your European customers that covers embedded emissions per unit of product, the applicable carbon price, and the verification status of your MRV data.
6. Engage a third-party verifier. Both the SBCE and the CBAM require independent verification of emissions data. Using accredited verifiers recognized under both frameworks strengthens the credibility of your reported carbon costs.

Common Mistakes to Avoid

• Assuming free allowances count. If your facility receives free allocations under the SBCE, those do not represent a carbon cost paid. Only allowances purchased at auction or on the secondary market generate a deductible amount under Article 9.
• Using facility-level averages instead of product-level data. The CBAM requires embedded emissions data at the product level, not a company-wide average. A single facility may produce multiple products with different emission intensities.
• Ignoring indirect emissions. For some CBAM product categories, indirect emissions from electricity consumption must be reported. Brazil’s electricity grid has a relatively low emission factor due to hydropower, which can be advantageous, but the data must still be reported and verified according to the prescribed methodology.
• Waiting for final rules before acting. The SBCE’s implementing regulations are still being developed, and the EU’s methodology for recognizing third-country carbon prices is pending. But the CBAM’s transitional phase has already required reporting since October 2023, and the definitive phase with financial obligations applies from January 2026. Companies that delay preparation risk being unable to provide the data their EU buyers need.

What to Do Now

Start with an internal assessment. Map which of your export products fall under the CBAM scope and estimate the embedded emissions per unit. Set up internal MRV systems that can produce product-level emissions data verified by an accredited third party. Track your SBCE compliance costs separately for each product line. Open a dialogue with your EU customers about data requirements and timelines.

Monitor the regulatory developments on both sides. In Brazil, the Ministry of the Environment and Climate Change (MMA) and the national climate authority will publish implementing decrees and technical guidance for the SBCE. In the EU, watch for implementing acts under the CBAM Regulation that detail how third-country carbon prices will be assessed.

The intersection of the SBCE and the CBAM creates both an obligation and an opportunity. Companies that build robust MRV systems and document their carbon costs accurately can ensure that the price they pay under the SBCE reduces the financial burden their buyers face under the CBAM. Those that do not prepare risk seeing their products treated as if no carbon price were paid at all, making them less competitive against suppliers from countries that have established recognized carbon pricing mechanisms.