New Brazilian law permits inclusion of carbon credits in forest concession contracts

On May 25, 2023, Law No. 14,590 was published amending the rules of Law No. 11,284/2006 (Public Forest Management Law). Taking effect on the same day it was published, the new legislation allows public forest concession contracts to provide for transferring carbon credit ownership (from the granting authority to the concessionaire) during the term of the concession. It also gives concessionaires the right to trade certificates representing carbon credits and associated environmental services, except when related to areas occupied or used by local communities.

The new law results from the conversion of Executive Order No. 1,151/2022, which, after amendments, was approved by Brazil’s Congress and sanctioned by the President.

Although the Public Forest Management Law already provided for the possibility of including in the object of the concession the right to trade carbon credits linked to the reforestation of degraded areas or areas converted for alternative land use, this was prohibited for carbon credits linked to avoided carbon emissions in natural forests.

Concessions associated with protected areas (unidades de conservação), public lands, and federal entities’ assets may also include projects regarding payments for environmental services (PES) and carbon credit trading within their scope, according to terms that will be established in future regulations.

Another important aspect of the new legislation is that it requires concession contracts to include essential provisions related to ecological and biodiversity conservation services, as well as actions to benefit local communities. This includes giving these communities access to revenue derived from carbon credits or environmental services – adding environmental and social concerns that were not previously provided for in legislation.

The changes introduced by Law No. 14,590/2023 are significantly important. They provide incentives for expanding the Brazilian voluntary carbon market, and simultaneously enable new sources of revenue that improve the economic viability of concessions involving public forests and conservation units.

For more information on this subject, please contact Mattos Filho’s Environmental Law & Climate Change and ESG practice areas.