Brazil’s regulated carbon market (SBCE), explained in one minute

The minute

• Law 15,042/2024, sanctioned on 11 December 2024, created the SBCE, Brazil’s regulated cap-and-trade system for greenhouse gas emissions
• Installations and sources emitting over 10,000 tCO2e/year must submit a monitoring plan and annual verified emissions reports; above 25,000 tCO2e/year, operators must also reconcile their emissions with allowances (CBEs) or certificates (CRVEs)
• Primary agriculture is exempt; the law sets five implementation phases, and the allowance market only starts in Phase IV, with free allocation under the first National Allocation Plan

Why it matters

The SBCE puts a legal ceiling on emissions from Brazil’s largest industrial and energy emitters and creates a national market for emission allowances and verified credits. For companies, reporting obligations arrive before trading does, and the data submitted in the first reporting years feeds the parameters that will later define allocations. The preparation window is now.

What Law 15,042/2024 establishes

Law 15,042 of 11 December 2024 institutes the Sistema Brasileiro de Comércio de Emissões de Gases de Efeito Estufa (SBCE), a regulated environment with a limit on greenhouse gas emissions and trading of assets representing emissions, reductions or removals (Article 3). The law was published in the Diário Oficial da União on 12 December 2024 and entered into force on the date of publication (Article 58). The National Congress had passed the bill on 19 November 2024, as recorded by the International Carbon Action Partnership (ICAP).

Beyond the trading system itself, the law defines the regulated gases (CO2, methane, nitrous oxide, SF6, HFCs and PFCs, Article 2, XIII), creates the two SBCE assets, sets emission thresholds (Article 30), a penalty regime (Article 37) and a five-phase rollout (Article 50). It also treats SBCE assets and carbon credits as securities when traded in the capital markets, under the securities regulator CVM (Article 14), and exempts revenue from their sale from PIS/Pasep and Cofins (Article 19).

How cap-and-trade works under the SBCE

The SBCE follows the cap-and-trade model used in the EU. For each commitment period, a National Allocation Plan sets an aggregate emissions ceiling for the system and the number of emission allowances to be distributed among regulated operators (Article 21). Each allowance, called a CBE (Cota Brasileira de Emissões), represents the right to emit one metric ton of CO2 equivalent. At the end of each commitment period, or at a shorter interval set by the managing body, every operator in the compliance tier must hold SBCE assets equal to its emissions in that period (Article 34). This is the periodic reconciliation of obligations.

Operators that emit less than their allocation can sell surplus CBEs. Operators that exceed it must acquire additional CBEs on the market, or surrender CRVEs (Certificados de Redução ou Remoção Verificada de Emissões), up to the maximum percentage of CRVEs that the National Allocation Plan admits in reconciliation (Articles 12 and 21, IV).

A simplified example: a regulated plant receives 500,000 CBEs for a commitment period and verifies emissions of 540,000 tCO2e. It has a shortfall of 40,000 tCO2e. It can buy CBEs from operators with a surplus, or use CRVEs within the percentage ceiling set by the plan. If it does neither, it is in breach and exposed to the penalties described below. Had it emitted 480,000 tCO2e, it could sell the 20,000 surplus CBEs.

The price is formed mainly by supply and demand, but the law also gives the managing body price stabilization mechanisms to reduce volatility (Article 8, XVI).

Who governs the SBCE

Article 6 of the law sets a three-part governance structure:

• Interministerial Committee on Climate Change (CIM). The deliberative body. It sets general guidelines, approves the National Allocation Plan and approves the annual plan for SBCE revenue (Article 7).
• Managing body (órgão gestor). The executing body, with normative, regulatory, executive, sanctioning and appellate powers (Article 8). It defines what is regulated in each period, sets MRV rules, proposes the allocation plan, issues CBEs, keeps the Central Registry, accredits CRVE methodologies and applies sanctions.
• Permanent Technical Advisory Committee (Comitê Técnico Consultivo Permanente, CTCP). The consultative body, with federal and state governments, operators, academia and civil society (Article 9). Its Chamber of Regulatory Affairs (Câmara de Assuntos Regulatórios), made up of regulated sectors, must be heard before key rules are issued (Article 9, paragraph 3).

The permanent managing body has not yet been created. Decree 12,677 of 15 October 2025 created the Extraordinary Secretariat for the Carbon Market (Secretaria Extraordinária do Mercado de Carbono, SEMC) within the Ministry of Finance, which exercises part of the managing body’s powers on a temporary basis until the permanent body is created and starts operating. Decree 12,768 of 5 December 2025 regulates the CTCP, chaired by the Ministry of Finance.

The two SBCE assets: CBEs and CRVEs

Only two assets are traded within the SBCE (Article 10), and both exist only once entered in the Central Registry. The carbon credit sits outside the system unless converted.

A voluntary carbon credit (explained in what carbon credits are and how they work) is considered a CRVE only if it meets three conditions set in Article 44: it originates from a methodology accredited by the managing body, it is measured, reported and independently verified under that methodology, and it is entered in the SBCE Central Registry. Credits from forest maintenance or sustainable forest management cannot be converted unless an accredited methodology recognizes an effective reduction or removal (Article 42, paragraph 2). When an SBCE asset is used for voluntary offsetting by a person or company, it must be cancelled in the Central Registry (Article 45).

Thresholds and obligations: the two tiers

Article 29 lists the obligations (monitoring plan, emissions reports, reconciliation report and others set by regulation), and Article 30 splits operators into two tiers.

Three details in the law change how these thresholds apply in practice:

• Thresholds can only go up. The managing body may raise both thresholds (Article 30, paragraph 1); the law does not provide for lowering them.
• Consolidated MRV methodologies are a precondition. Obligations apply only to activities with consolidated MRV methodologies, as defined by the managing body (Article 30, paragraph 2).
• Waste treatment exception. Waste and effluent treatment units are excluded when they demonstrably neutralize those emissions (Article 30, paragraph 3).

The monitoring plan needs prior approval for each commitment period (Article 31). The annual emissions report must pass a conformity assessment by an accredited inspection body (Article 32), and validated data go into the operator’s account in the Central Registry (Article 33). The glossary entry on what the SBCE is summarizes the terms used here.

Which sectors are covered and which are exempt

The law does not list sectors. The managing body defines the activities, installations, sources and gases regulated in each commitment period (Article 8, III).

Primary agriculture is exempt. Primary agricultural and livestock production, and the goods, improvements and infrastructure inside rural properties directly associated with it, are not regulated activities and are not subject to SBCE obligations (Article 1, paragraph 2). Indirect emissions from the production of agricultural inputs or raw materials are also not considered when imposing obligations (Article 1, paragraph 3). The exemption covers primary activity on the farm, not the whole agribusiness chain: industrial processing, such as mills or meatpacking plants, is not primary production and is subject to the general thresholds.

Proposed sector coverage. On 28 July 2026 the Ministry of Finance opened a public consultation, open until 28 August 2026, on a proposed schedule for the start of MRV obligations. The preliminary proposal has three stages:

• First stage (start planned for 2027): pulp and paper, iron and steel in integrated mills, cement, primary aluminium, oil and natural gas exploration and production, oil refining and air transport.
• Second stage (start planned by 2029): mining, recycled aluminium, iron and steel in semi-integrated mills, the power sector, glass, ceramics, food and beverages, chemicals, solid waste and sewage treatment.
• Third stage (start planned by 2031): road, rail and waterway transport.

Inclusion in MRV does not by itself mean emission limits or reconciliation, which will be defined later. This is a proposal, not a final rule; Agência Brasil reported that the final regulation was expected in 2026 for implementation from 2027.

The five implementation phases in Article 50

Article 50 sets five phases, each adding a layer of obligation. The law fixes the length of the first three; the last column is an arithmetic reading of those periods, not dates written in the law.

Two consequences follow. The first plan distributes CBEs free of charge, with charging phased in later (Article 11, paragraph 3), and trading only begins after two years of reporting. The government intends to publish all implementing rules by December 2026, with the SBCE entering operation in 2030, according to Agência Brasil. ICAP lists the system as under development.

How the National Allocation Plan sets the cap

For each commitment period, the plan sets the cap, the quantity of CBEs, the forms of allocation (free or onerous), the maximum percentage of CRVEs accepted and the price stabilization mechanisms (Article 21). It must be approved at least 12 months before it takes effect. Allocations consider technological development, marginal abatement costs, and historical reductions and efficiency gains (Article 21, paragraph 3), so historical performance is an explicit allocation factor.

Penalties for non-compliance

The law sets the penalty types and the fine limits itself (Article 37), while the specific administrative infractions will be defined in regulation (Article 35). The penalties, applied cumulatively or separately, are:

• warning;
• fine;
• publication of the conviction at the offender’s expense, in cases of repeated serious infractions;
• embargo of an activity, source or installation;
• partial or total suspension of an activity, installation or source;
• restriction of rights, such as suspension of licences, loss of tax incentives or official credit, and a ban on public contracts for up to three years.

For companies, the fine may not be lower than the cost of the unmet obligations and may not exceed 3% of the gross revenue of the company, group or conglomerate in the year before the administrative proceeding began, updated by the Selic rate. In case of recidivism it can rise progressively up to 4%. For individuals and entities without revenue, fines range from R$ 50,000 to R$ 20 million (Article 37, paragraph 1). As an illustration, for a group with R$ 2 billion in gross revenue the 3% cap would be R$ 60 million.

Defendants have 30 days to respond, light infractions can first be regularized by notification, and restrictive sanctions apply only to very serious infractions after administrative appeals (Articles 37, 38 and 40).

Offsets, CRVEs and international transfers under Article 6

CRVEs serve two purposes in the law (Article 12). The first is domestic compliance: operators may use them in reconciliation up to the maximum percentage set in the National Allocation Plan. That percentage is not yet defined; a generous limit would weaken CBE prices, a strict one would strengthen them.

The second is international transfer of mitigation outcomes (ITMOs) under Article 6 of the Paris Agreement. The law defines an ITMO as a transfer subject to formal and express authorization by the competent Brazilian authority and to a corresponding adjustment (Article 2, XXXIV). Carbon credits generated in Brazil and used for international transfers must be registered as CRVEs, subject to prior authorization by the designated national authority (Article 44, sole paragraph). An act of the CIM will set the conditions and limits for authorization, based on Brazil’s annual emissions estimates (Article 51). Registering a CBE, CRVE or carbon credit gives no right to such an authorization (Article 51, paragraph 2).

The law defines the voluntary market as offsetting transactions that do not generate corresponding adjustments (Article 2, XIX), so voluntary credits continue alongside the SBCE; the practical difficulties of moving Brazilian credits across registries are covered in our article on carbon credit exports and chain of custody.

How the SBCE compares with the EU ETS and the voluntary market

The table below compares the SBCE as written in the law with the EU Emissions Trading System and the voluntary carbon market. For a broader treatment, see voluntary vs compliance carbon markets.

EU data are from the European Commission’s pages on the EU ETS and on the use of international credits.

For exporters, the EU CBAM, in its definitive regime since 1 January 2026 for cement, iron and steel, aluminium, fertilisers, electricity and hydrogen according to the European Commission, lets importers deduct a carbon price effectively paid in the country of origin (Article 9 of Regulation (EU) 2023/956). With free allocation in the first SBCE plan, how much could be deducted is not yet clear.

What companies should do now: a practical checklist

Even though trading has not started, the practical work begins with reporting. Companies near or above the 10,000 tCO2e threshold should consider these steps:

1. Measure at installation and source level. Thresholds apply to installations and sources, not the group. Build a site-level inventory using a protocol such as the GHG Protocol, to see which sites cross 10,000 or 25,000 tCO2e/year.
2. Check your sector against the proposed stages. Compare your activities with the three-stage MRV proposal put to consultation in July 2026 and follow the final text when it is published.
3. Close data gaps. Many operations track energy use but not process or fugitive emissions, and all six regulated gases count.
4. Prepare the monitoring plan. It needs approval before each commitment period, and one internal team should own the data.
5. Line up an accredited inspection body. Demand for qualified verifiers will rise once MRV deadlines are formalized.
6. Map abatement and credit options. Identify internal reductions and projects that could generate CRVEs once methodologies are accredited, and review existing voluntary credit contracts against Article 44.
7. Track consultations and the Chamber of Regulatory Affairs. Rules on MRV, reconciliation and allocation go to public consultation (Article 8, paragraph 1), and sector associations sit on the chamber.
8. Model the cost, including penalties. Test CBE price and allocation scenarios; fines are calculated on group gross revenue.

Our spoke article on what the SBCE changes for your company goes deeper into MRV in practice.

The most common mistake

The most frequent error companies make with phased carbon markets is treating the reporting phase as a bureaucratic formality. The Ministry of Finance has said MRV data will support the later definition of the cap, CBE allocation rules and CRVE limits, and the law lists historical reductions and efficiency gains among allocation criteria. A company that underinvests in measurement quality during the reporting phase risks an allocation that does not reflect its real operational profile, and a verification failure can cost a full reporting cycle.

What is still unresolved

The law settled thresholds, phases, free first allocation and penalty ranges, but several decisions remain open:

• Permanent managing body. The SEMC acts on an interim basis; the permanent body has not yet been created.
• Final sector coverage and MRV schedule. The three-stage proposal was under public consultation until 28 August 2026 and is not yet a final rule.
• Cap, allocation method and offset limit. The first National Allocation Plan, which will set the cap, the allocation criteria and the maximum share of CRVEs, has not been drafted in public.
• Infractions. The specific administrative infractions that trigger the penalties in Article 37 depend on regulation.
• Article 6 authorizations. The CIM act setting conditions and limits for international transfers is still pending.
• Political risk. Implementation depends on rules to be issued across an electoral cycle, a point discussed in our analysis of how the 2026 election affects the SBCE.

Until these rules are published, early preparation on data quality is the lowest-risk strategy available.

Frequently asked questions

Does every Brazilian company have to comply?

No. Obligations apply to operators of installations and sources above 10,000 tCO2e per year (monitoring and reporting) and above 25,000 tCO2e per year (also reconciliation), and only for activities with consolidated MRV methodologies. Primary agriculture is exempt.

When will trading start?

The asset market starts in Phase IV, with the first National Allocation Plan. That comes after Phase I (regulation, up to 24 months), Phase II (one year) and Phase III (two years of reporting only). The government has indicated 2030 for the start of operation.

Will allowances be free?

Under the first National Allocation Plan, yes: Article 50 provides for non-onerous distribution of CBEs in Phase IV. Charging for CBEs, by auction or other instrument, follows the implementation phases and is capped by each plan.

Can voluntary carbon credits be used for SBCE compliance?

Only if they become CRVEs: accredited methodology, independent verification and registration in the SBCE Central Registry. Even then, their use is limited to the percentage set in the National Allocation Plan.

How does the SBCE relate to Article 6 of the Paris Agreement?

Brazilian credits used for international transfers must be registered as CRVEs and need prior authorization from the designated national authority, with a corresponding adjustment. A CIM act will set the conditions and limits.

Sources

• Law 15,042 of 11 December 2024 (Planalto): definitions, governance, assets, thresholds, allocation plan, penalties, phases, Article 6 rules, tax treatment
• Decree 12,677 of 15 October 2025 (Planalto): creation of the Extraordinary Secretariat for the Carbon Market as interim managing body
• Decree 12,768 of 5 December 2025 (Planalto): composition and powers of the Permanent Technical Advisory Committee
• Ministry of Finance, public consultation on the MRV schedule (28 July 2026): proposed three-stage sector coverage
• Agência Brasil, 19 May 2026: expected timing of the final MRV regulation
• Agência Brasil, 27 November 2025: government target of December 2026 for the regulation and 2030 for operation
• ICAP, Brazilian Greenhouse Gas Emissions Trading System factsheet: status of the system
• ICAP, “Brazil adopts cap-and-trade system” (28 November 2024): date of congressional approval
• European Commission, About the EU ETS: EU ETS launch, coverage, allocation and penalty
• European Commission, Use of international credits: international credits after 2020
• European Commission, Carbon Border Adjustment Mechanism: CBAM sectors and definitive regime
• Regulation (EU) 2023/956 (EUR-Lex): deduction of carbon price paid in the country of origin

ESG Minute will track each step, in English and Portuguese, as the implementing rules are published.