The reality of carbon credits in Brazilian dairy farming

Equipe ESGpec
Aug 5, 2024
7 min read

Brazilian dairy farming plays a crucial role in the country's economy, accounting for a significant portion of food production and job creation. However, the activity is also a source of greenhouse gas (GHG) emissions, raising questions about sustainability and the possibility of trading carbon credits. This article addresses the reality of carbon credits in Brazilian dairy farming, including what they are, the types that exist, and how they apply to agribusiness, particularly in the Brazilian context.

Note: This text presents an analysis of information collected from various sources on the topic, conducted in August 2024. It is important to consider that the content reflects a specific scenario and, therefore, may be subject to change over time. Readers who consult this material after this date should seek updated information to ensure an accurate understanding of the subject, as developments may have occurred since then. While the context presented in the text remains valid as a snapshot in time, it is essential to follow the most recent updates for a complete and up-to-date overview.

The following text is organized into topics:

What are Carbon Credits?

Types of Carbon Credits

Emissions Reduction and Credit Trading

Myths and Realities about Carbon Credits

Expectations for the Future

Quick Guide on How to Generate Carbon Credits on Farms in the Voluntary Market

Frequently Asked Questions about the Voluntary Carbon Market in Dairy Farming

What we read to write this text

What are Carbon Credits?

Carbon credits are certificates that represent the reduction of one ton of carbon dioxide (CO₂) or equivalent in other greenhouse gases (GHGs) in the atmosphere. They can be generated by projects that avoid or remove these emissions. These credits are traded in both regulated and voluntary markets, allowing companies and individuals to offset their emissions and contribute to climate change mitigation.

Types of Carbon Credits

There are two main types of carbon credits:

1. Avoidance Credits: Result from projects that avoid emissions that would otherwise occur, such as the use of renewable energy or forest conservation.

2. Removal Credits: Come from activities that remove CO₂ from the atmosphere, such as reforestation or carbon capture technologies.

Emissions Reduction and Credit Trading

One of the main questions among producers is whether GHG emission reductions achieved through management practices and production efficiency can be converted into tradable carbon credits. Currently, in Brazil, there is no specific regulation permitting the trading of carbon credits based solely on emissions reductions during the dairy farming production process. Bill 2.148/15, currently under consideration in Congress and aimed at creating the Brazilian Greenhouse Gas Emissions Trading System (SBCE), temporarily excludes agribusiness from emissions offsetting obligations. Therefore, sectors such as dairy farming still lack a clear path to trading carbon credits in the regulated market.

The voluntary carbon market, on the other hand, offers an opportunity for projects that go beyond legal requirements and can be validated and certified by internationally recognized standards. This includes practices such as the restoration of degraded areas and the implementation of low-emission technologies, which can be used to generate carbon credits. However, it is crucial that these practices are demonstrably additional and have a real impact on reducing GHG emissions.

Myths and Realities about Carbon Credits

A common misconception is that legal reserve areas on rural properties can generate carbon credits. Because Brazilian law considers them mandatory, these areas are not eligible for credit generation. For an area to generate credits, it must represent an additional decarbonization action, such as restoring degraded areas or increasing vegetation cover in areas previously devoid of this function. Only activities that go beyond legal obligations, such as implementing innovative technologies to reduce emissions, can be traded as carbon credits.

Expectations for the Future

The trading of carbon credits in Brazilian dairy farming is a complex issue that requires a detailed understanding of the regulations and requirements for generating these credits. While the voluntary market offers opportunities, it is crucial that producers are aware of the legal requirements and conditions so that their practices can truly contribute to reducing global GHG emissions and be recognized as carbon credits. Regarding the future of the carbon market in Brazil, especially with regard to the inclusion of dairy farming, the sector is still developing. The creation of a regulated market, with clear standards and legal certainty, is essential for producers to participate effectively and safely. The development of technologies and practices that enable better emissions management can represent a significant opportunity for Brazilian dairy farming, both economically and environmentally, promoting the sector's sustainability.

Quick Guide on How to Generate Carbon Credits on Farms in the Voluntary Market

Source: Voluntary carbon market in Brazil in reality and in practice

The solutions offered by ESGpec, such as PEC Scores and PEC Calc, are aligned with the first step of this process, facilitating the identification of opportunities for emissions reduction and adaptation to international methodologies.

To trade carbon credits in the future, the first steps are:

1. Know what data the farm must collect to carry out the emissions inventory.

2. Calculate the carbon footprint to identify the potential for mitigating emissions.

3. Develop a medium-term mitigation plan, assessing the necessary investments.

4. If the scenario is favorable for commercialization, seek a carbon project developer to begin the emissions inventory and certification with internationally accredited organizations.

Frequently Asked Questions about the Voluntary Carbon Market in Dairy Farming

1. If I own a dairy farm and want to enter the voluntary carbon market, do I need to calculate the emissions from my current activity?

Yes, to enter the voluntary carbon market, it's essential to conduct an inventory of current greenhouse gas (GHG) emissions. This process, known as baseline calculation, is essential to determine how much emissions will be reduced or removed through implemented practices. Tools like PEC Calc can help determine these emissions and identify opportunities for reduction.

2. Can reducing emissions from my current activity generate carbon credits?

Yes, reducing GHG emissions through sustainable management practices and low-emission technologies can result in carbon credits in the voluntary market. However, it is important that these reductions are additional to existing legal requirements and are verified and certified by an independent entity.

3. Can I generate carbon credits if I have reserve areas on my farm that go beyond what is required by law, without taking into account other practices on the farm?

Yes, legal reserve areas that exceed legal requirements can generate carbon credits if they are considered additional. This means that conservation of these areas must go beyond what is already required by law, and these actions must be documented, monitored, and certified to be eligible for carbon credit generation.

4. What are the first steps for a dairy farm to start generating carbon credits?

The first steps include taking an inventory of current emissions, identifying sustainable practices that can reduce or remove GHGs, and developing a carbon project. It's essential to find an internationally accepted methodology and undergo validation by an independent audit. After these steps, the project must be registered, and emissions reductions must be reported annually.

5. How can I ensure that my carbon project will be recognized and marketable?

To ensure a carbon project is recognized, it must follow international methodologies and undergo a rigorous audit and certification process. This includes choosing reputable certification bodies, such as Verra or Gold Standard, and ensuring that the project is additional, measurable, and verifiable.

6. Is there a deadline to validate past emissions reductions and generate carbon credits?

Yes. In the voluntary market, it is possible to validate emissions reductions that occurred up to five years before the sale of the credits, as long as these reductions are properly documented and certified. This means that even emissions reductions already achieved, if certified, can be recognized and traded as carbon credits.

What we read to write this text:

• Carbon Market Regulation in Brazil and its Impacts on the Economy: This text offers a detailed overview of the economic implications of carbon market regulation in Brazil. [ Read more ]

• Dairy Farmers of America purchases first verified carbon credits: This article highlights the transaction of the first verified carbon credits by Dairy Farmers of America. [ Read more ].

• How Cattle Ranchers in Brazil Could Help Reduce Carbon Emissions: A discussion on how Brazilian cattle ranchers can contribute to reducing carbon emissions. [ Read more ].

• Voluntary Carbon Market in Brazil: Reality and Practice: FGV Agro's Bioeconomy Observatory presents a detailed analysis of the voluntary carbon market in Brazil. The study explores the viability, regulations, and challenges faced by producers in participating in this market, highlighting the importance of sustainable practices and carbon credit certification. Learn more about the reality and practice of this market in Brazil through this study. [ Read more ].

• Carbon Credit Market Gains Ground in Brazilian Agriculture: This Globo Rural article discusses how the carbon credit market is expanding in the Brazilian agricultural sector. The text highlights the opportunities and challenges faced by rural producers in entering this market, especially in the context of sustainable practices and mitigating greenhouse gas emissions. [ Read more ].

• Senate approves bill on the regulated carbon market; Understand: An explanatory article about the recent approval of a bill regarding the regulated carbon market in Brazil. [ Read more ].

• About agribusiness and other issues in carbon market regulation: This article addresses the current situation and prospects of agribusiness in the context of the Brazilian carbon market. [ Read more ].

• The Voluntary Carbon Market: Climate Finance at an Inflection Point : This briefing paper from Bain and the World Economic Forum discusses the actions needed to create a functioning voluntary carbon market. [ Read more ].

• The green hidden gem – Brazil's opportunity to become a sustainability powerhouse: An analysis of how Brazil can become a leader in global sustainability. [ Read more ].

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