Brazil Pursues Carbon Credit Deal With China Ahead of COP31, but Key Rules Remain Undefined

Why it matters: A bilateral carbon credit agreement between Brazil and China would be the first official ITMO trading arrangement for China under Article 6 of the Paris Agreement. It would connect the world’s largest emissions trading system with the carbon reduction potential of the world’s largest tropical forest country, creating a channel for climate finance that does not yet exist. But the path from negotiation to operational trades is filled with unresolved regulatory questions on both sides.

What still needs to happen before a single ITMO crosses borders

The headline possibility of a COP31 announcement in Antalya (November 9-20) masks a long list of decisions that remain open. Brazil’s own international transfer rules are in public consultation as of July 2026, meaning the regulatory architecture for authorizing ITMOs is not finalized. The proposed 50 MtCO₂e cap applies to the 2031-2035 period, so even if an agreement framework is signed at COP31, actual large-scale credit transfers would not begin before 2031 under the current proposal. The two countries still need to agree on eligible project types, methodological standards, corresponding adjustment procedures, and which national authority on each side will approve transactions. China has never signed a bilateral ITMO agreement with any country, so there is no existing template to follow. Brazil’s regulated carbon market (SBCE), established through Law No. 15,042 in December 2024, is itself still in the rule-writing phase. In practice, this means both parties are negotiating an international framework while their domestic systems are still being built.

What this changes for Brazilian companies

For companies operating under the future SBCE, the prospect of Chinese demand for Brazilian ITMOs introduces both opportunity and constraint. Nature-based project developers (forest conservation, restoration, reforestation) could gain access to a buyer market that traded 865 million tonnes of allowances in a single year. That is a scale of demand that dwarfs the current voluntary carbon market activity in Brazil. However, the corresponding adjustment requirement means that every tonne sold to China is a tonne Brazil cannot count toward its own nationally determined contribution (NDC). Companies whose projects generate mitigation outcomes will face a regulatory decision: sell internationally at potentially higher prices, or retain credits within the domestic system. The government’s proposed global cap of 50 MtCO₂e for international transfers signals that Brazil intends to limit how much of its mitigation capacity leaves the country. For industrial emitters covered by the SBCE (the specific sectors have not yet been confirmed in regulation), a bilateral channel with China could eventually affect domestic carbon prices. If high-quality Brazilian credits can be exported, reduced domestic supply could push compliance costs higher. That dynamic, however, depends entirely on the final design of the SBCE allocation rules, which are still under development.

Who gains and who faces risk

The clearest potential winners are Brazilian project developers with large-scale, high-integrity nature-based solutions that can meet both Brazilian authorization requirements and whatever quality standards China establishes. Developers already operating under rigorous methodologies would have a head start. The Open Coalition for Regulated Carbon Markets, launched by Brazil at COP30 with China and the EU as participants, could benefit multilaterally by advancing common rules on monitoring, reporting, verification (MRV), and market interoperability. On the other side, Brazilian climate policy itself carries risk. If the government authorizes too many ITMOs for export, it could compromise its own NDC targets, a tension that the 50 MtCO₂e cap is designed to manage but that ultimately depends on enforcement and adjustment mechanisms not yet written into law. Chinese buyers face credibility risk as well: any bilateral market must demonstrate that purchased credits represent genuine, additional emissions reductions, or it undermines the integrity of China’s expanding ETS. The two months between the Wuhan meetings and COP31 will clarify whether this remains a diplomatic aspiration or moves toward a concrete framework, but large-scale operational carbon trading between Brazil and China is, at best, years away.

via CarbonCredits.com