Maybe you don’t remember, but in March 2022, there were several news about the fact that Rio de Janeiro would have a stock exchange dedicated to the carbon market and other sustainable assets, such as energy, climate and forests. The protocol of intentions was signed in New York by Governor Cláudio Castro, with Nasdaq and the Global Environmental Asset Platform (GEAP), being the first step towards the implementation of the platform in Brazil.
That’s why in a world increasingly concerned with environmental issues, carbon credits ended up gaining a lot of prominence. Next, see more about it and understand how the market works.
What we will see in this article:
carbon market
You must be curious about how the carbon market is and works. Credits are sold by countries that have reduced emissions to other countries that have yet to meet their greenhouse gas (GHG) reduction targets.
As a result, financial resources are invested in greenhouse gas emission projects. This new market will generate jobs and attract national and international companies. Another point is that it will make Rio de Janeiro a leader in the low-carbon economy.
The goal is to bring private sector environmental assets to be traded through the Nasdaq platform. This is because the state of Rio de Janeiro has 31% of its area covered by natural forests, corresponding to 1.3 million hectares. By 2050, the government’s expectation is to increase the Atlantic Forest area in the state by 10%.
How much does carbon cost? Find out here.
Decarbonization of the economy
According to information from the Brazilian Stock Exchange (B3), organizations from various sectors in Brazil – Amaggi, Auren, B3, Bayer, BNDES, CBA, Dow, Natura, Rabobank, Raízen, Vale, Votorantim and Votorantim Cimentos – have joined forces to develop the carbon market on a voluntary basis in Brazil, in order to contribute to the global market of carbon credits.
This is because the decarbonization of the economy is a priority for several countries, representing more than 90% of global GDP. The voluntary carbon market is part of the set of solutions for the decarbonisation of the global economy.
The main objectives to be achieved, according to the Brazilian Stock Exchange are:
- Enable offering through best-in-class certification/verification processes and support regulatory discussions;
- Develop the necessary financial instruments to align demand with supply;
define requirements for a “curated” marketplace and address key tax implications;
design the independent governance body to coordinate the market; - Develop the engagement strategy with key stakeholders, as per the official definition.
What are carbon credits?
In a practical and summarized way so that you are never in doubt again, carbon credits are like alternative investments and represent a ton of carbon that is no longer emitted into the atmosphere, that is, contributing to the reduction of the greenhouse effect.
Carbon credits can be generated in several ways, a good example is the replacement of fuels in factories, in a way that companies stop using polluting resources and start using renewable biomass. This lessens the impact on nature and also helps to reduce deforestation.
It is possible to calculate how much carbon is no longer emitted, thus generating carbon credits, which is the currency used in the carbon market. Following this logic, companies that have a very high emission level can buy carbon credits to offset their emissions. In the end, even if indirectly, they help balance the level of greenhouse gas (GHG) emissions in the atmosphere.
How does this market work?
One institution pays another for the right to emit gases that cause the greenhouse effect, such as the famous carbon dioxide (CO2). Those who receive this money can invest in renewable energy sources, since each credit is equivalent to the global warming caused by one metric ton of CO2.
This growing market is demanded mainly by the companies that pollute the most, airlines, for example. Even countries that signed the Paris climate agreement also demand credits because offsets can serve as a good and cheaper alternative than simply greatly reducing the use of fossil fuels.
There are already some fintechs specialized in the area that allow the purchase and sale of this type of asset in the financial market by companies and individuals alike. Pricing works like commodities, where value is determined by supply and demand.
One of the main business organizations that operate in this type of business within the carbon credit market in Brazil is Moss. Taking this company as a parameter, they developed a platform that makes it possible to buy and sell these credits in minimum lots smaller than R$ 1,000, to promote greater accessibility to investors.
Have you ever thought about investing in companies with a focus on sustainability? The iShares Carbon Efficient Index is an ETF and can help with this task. Thus, it is interesting for investors who consider social and environmental well-being as criteria.
The appreciation of this theme has grown all over the world and it is not new. In investments, the subject has also gained attention and even produced results. This is because companies with a sustainable bias can present good economic prospects.
For this reason, investing with such a vision can be a good alternative. And the iShares Carbon Efficient Index ETF makes that possible. Read more about it here.
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