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Carbon credits are akin to receipts that verify reductions in greenhouse gas emissions, such as CO2. Imagine planting a tree as depositing money in a bank: the tree captures CO2 from the atmosphere, and this "deposit" is recorded as a carbon credit. Companies with high CO2 emissions can purchase these credits to offset their emissions, thereby incentivizing environmental preservation.
This idea gained traction with the Kyoto Protocol, which established emission reduction targets for developed countries. The Paris Agreement, in turn, expanded this initiative, encouraging all countries to set ambitious targets to combat climate change. To achieve these goals, one of the most effective mechanisms is the carbon market.
Brazil, with its vast territory and rich biodiversity, aims to take a significant and necessary step in the fight against climate change by creating a regulated carbon credit market. Bill 2148/151, currently under consideration in the Federal Senate, establishes the Brazilian Emissions Trading System (SBCE), creating a regulated market that can help reduce emissions and promote the transition to a low-carbon economy. According to McKinsey2, Brazil holds approximately 15% of the world's potential for carbon capture through forest restoration. The demand for carbon credits in Brazil is projected to reach between 90 and 220 million tons of CO₂ equivalent by 2030.
Regulation, when implemented, will be welcome. In the meantime, transactions have been carried out in the voluntary carbon market, known as REDD+, which faces significant integrity issues, including double counting, lack of independent verification, and insufficient benefits for local communities.
A case that exemplifies the complexities and challenges of the carbon market in Brazil is that of the Pará State Government. Recently, the state signed a historic agreement to sell nearly R$1 billion in carbon credits. However, this operation has sparked debates regarding the lack of consent from indigenous populations and local communities in relation to these projects. The Pará State Public Defender's Office has pointed out that some projects were implemented without proper authorization and did not bring social benefits to residents.
Due Diligence in Human Rights in the Carbon Market
Given these challenges, the incorporation of human rights due diligence (HRDD) emerges as a fundamental tool to strengthen the integrity and sustainability of the carbon market. One of the major challenges of the voluntary carbon market concerns the transparency of the credits it trades, which ultimately impacts the final price of the credits.
HRDD consists of a systematic process of identifying, assessing, and mitigating the risks of human rights violations throughout the value chain of carbon credits. By conducting due diligence, companies, investors, organizations, certification bodies, and governments can identify and prevent negative impacts of their projects, strengthen their reputation, and contribute to building a more just and equitable carbon market.
HRDD, as advocated by the UN Guiding Principles on Business and Human Rights,
establishes the need to verify, monitor, and mitigate potential adverse impacts on human rights that may occur in the development of carbon projects.
In the case of carbon credits, HRDD must include prior, free and informed consultation with affected communities, as required by ILO Convention 169. This ensures that these communities can participate in decisions that directly impact their lands and livelihoods.
The absence of HRDD in carbon projects, in addition to the potential to generate serious social and environmental impacts and undermine the credibility of a necessary and urgent market, opens the door to practices incompatible with the very purpose of the carbon market.
The Role of Certification Bodies and Companies
Certification bodies and companies play a crucial role in strengthening the integrity of carbon credits. They need to adopt rigorous HRDD processes that include not only the technical analysis of emission reductions but also the verification of compliance with human rights standards. The inclusion of HRDD in certifications is a vital step to ensure that credits generated by these projects are truly sustainable and do not become a tool for greenwashing, which even experienced certifiers with established and accepted practices in the market cannot always avoid.
In this sense, the case of the Verra certifier, which suspended its carbon credit operations originating from operations suspected of being used for laundering timber illegally extracted from areas that had been deforested in the Amazon and sold to large companies, is emblematic.
The issue has been the subject of Operation "Greenwashing" where the federal police are investigating the entire incident.
Furthermore, ongoing monitoring and auditing of projects are essential to ensure the maintenance of integrity standards. Without these mechanisms, projects can easily deviate from their initial environmental and social goals, compromising their contribution to mitigating climate change and protecting human rights.
Transparency and Accountability
Transparency is another crucial aspect of effective HRDD in the carbon market. Companies must be transparent about their practices, reporting clearly and accessibly the measures they are taking to mitigate the impacts of their projects on human rights. Accountability, in turn, requires the existence of effective redress mechanisms for communities and individuals affected by violations. This includes access to justice and adequate compensation for damages suffered.
Conclusion
Just as the interest rate market underwent a period of structuring until gaining greater breadth and relevance with the oil crisis of the 1970s, Brazil's carbon credit market is also undergoing a development process. It is natural for a dynamic market to face challenges and opportunities, and for its maturation to require time and adjustments.
However, while the former already has a more consolidated structure, the carbon market still faces significant challenges in terms of integrity and transparency. Studies indicate that a significant portion of carbon projects do not meet human rights due diligence standards, which undermines the market's credibility and prevents it from becoming an effective tool for combating climate change.
The lack of transparency and the absence of robust accountability mechanisms not only affect the price of carbon credit itself but can also lead to the proliferation of low-quality projects, loss of investor confidence, and market fragmentation. Additionally, the violation of local community rights can generate social and environmental conflicts, undermining eorts to build a more just and equitable low -carbon economy.
Human rights due diligence emerges as an imperative to ensure the integrity and sustainability of the carbon market. By requiring companies to identify, assess, and mitigate the risks of human rights violations throughout the value chain, HRDD contributes to building a more transparent, reliable, and aligned market with the principles of climate justice and corporate social responsibility.
For the Brazilian carbon market to reach its full potential, a joint effort is essential from all stakeholders involved, including governments, companies, civil society, and financial institutions, to promote the implementation of HRDD and strengthen governance and control mechanisms. Only then can we ensure that the transition to a low-carbon economy is just, equitable, and sustainable.
By:- Antonio Grillo Neto, Executive Director at Âme Consultoria em Direitos Humanos e Sustentabilidade Ltda.
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