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The exchange will have a double compliance filter that will complement current certification standards and improve the robustness of carbon credits, says Ludovino Lopes, a lawyer specializing on climate issues and GEAP’s legal advisor

Climate change is becoming increasingly visible- stressing the urgent need to reduce or offset CO2 emissions. The carbon credits market is a powerful instrument to help society reach that goal. It is undergoing a transformation period, with demand for credits of higher quality and trustworthiness. GEAP (Global Environmental Asset Platform) intends to present an answer: it will be a carbon exchange with a double compliance filter for the credits negotiated on the platform. We spoke to Ludovino Lopes, a lawyer and renowned expert on climate issues and GEAP’s legal advisor, about this and other matters related to the future of the carbon market.

Today, the voluntary carbon market is based on direct transactions between the involved parties. An organized and open transaction system, such as GEAP, changes that – and might bring benefits regarding cost, price formation, and transparency of the process. In your view, how can GEAP help the development of the carbon sector in Brazil?

The creation or the structuring of a carbon transaction platform, in itself, is not new. However, when you add certain characteristics to that platform, such as bringing full transparency to the process, when you add services that enable buyers and sellers to make sure they are purchasing an asset of high legal compliance, a structured, high-quality asset, now there’s a difference.

That means you must add to the transaction process, which already exists in other places, a set of items that guarantee the trustworthiness, robustness, and legality of those credits. The items available for sale on the platform will have to go through a set of formally consecrated compliance processes. It is not just saying the asset was certified by the A, B, C, or D standard. That is not enough anymore.     

The standards that are currently available in the market, especially voluntary standards, were designed only to certify the carbon itself, the technical and scientific side of carbon accounting, so to speak. Some of those standards include a few items, for instance, related to environmental safeguards. So, we can say some of them have additional requirements besides carbon accounting.

They include demands that require you to verify if it [the carbon credit] is positively impacting the local community, if Indigenous peoples are involved in the project, or if they are directly or indirectly affected by it. However, none of those standards deeply evaluate the legality of the project, especially the legality and origin of the assets (for instance, ownership of the land that originates the project).

A standard includes a norm that claims to demonstrate the ownership of carbon emissions. Ok? Terrific. But how is that usually demonstrated? With a contract. You bring a contract saying ‘I own the carbon that was conceded to me by such entity or company’. Great, you have a contract. The question is: does that contract demonstrate the legality and the titularity of the entity that gave you the rights? No. Most of the time it doesn’t, unfortunately.

And then what happens? The standard receives that document, and it checks a box. And everything that is behind [the document] is assumed to be complete and true. In some cases, it is. Unfortunately, however, in most cases, it hasn’t been. Then you have what is going on with the news reports, precisely because of this circumstance [cases such as Operation Greenwashing, in which the Brazilian Federal Police uncovered carbon credits that were generated through fake land ownership].

So the point, actually, is this. The platform, the exchange, for as long as we don’t have a law regulating the carbon markets, it should act as a guardian for the market. However, for the exchange to become the market’s guardian, it has to effectively assume a set of responsibilities that have a high level of compliance and complexity. So it can’t be just a platform, in the traditional financial transaction sense. It has to go beyond that.

We are in a very special moment, in a nascent market, a market that is still a child. It needs to grow up, and it will make mistakes, obviously, but it can’t make too many mistakes in order not to die in the process. Therefore, we need to look after that market, so that it doesn’t develop such a bad fever that it ends up deceased. That is the point.  

The carbon market is undergoing a transition and maturation phase, demanding credits with higher integrity and trustworthiness. GEAP will have a double compliance system for the assets, with KYC (Know Your Carbon) verification. How will it work, and what benefits can it offer the market?

The fundamental point is that the seller, on one side, will be able to submit his credits, which will be screened by the platform. On the other hand, the buyer will be able to determine which degree of trustworthiness, robustness, what type of credit he wants. He will be able to identify that robustness. And, at the same time, he will be able to rely on a set of elements that will support his decision, an informed decision, technically and legally supported.

He will count on that screening [undertaken by the platform]. It will give him peace of mind to decide to acquire credits and bring them into his company’s accounting, either to fulfill corporate commitments, legal or regulatory obligations that the company already has, in the future regulated carbon market in Brazil, or even at international markets, using it [the asset] as a credit to be potentially sold internationally. 

The Paris Agreement, signed by 195 countries back in 2015, already envisioned the adoption of market mechanisms against global warming. But carbon credits are still relatively little-known and understood by the public. How, in your view, can carbon credits help fight climate change?

When we speak about carbon credits in that sense, we are talking about offsetting [CO2 emissions]. Climate change is a challenge with various drivers that produce negative effects and their impact on our societies and on nature. Credits help, fundamentally, in two ways.

First, by structuring projects that will help avoid future worsening of the scenario. We call that climate mitigation. You contribute to a paradigm change in production processes, conservation processes, and so on. And the other way is the most important one today, considering that we already went too far regarding the greenhouse effect and Earth temperature, and the changes are here, the signs are here, is the possibility of also helping adaptation [to climate change]. We are in such a moment that, as the popular saying goes, “it already went to the dogs”. So now we must adapt and create solutions to effectively reduce the impact [of climate change]. The impact is already here, so we must create and implement those solutions.

Carbon credits have that function. They enable, or will enable, certain entities with a larger capacity of making emission reductions or removals to offer [this capability to] other entities that have more difficulty, from a technological or economic standpoint, of making that effort.

However, we can’t forget that carbon credits were designed to become obsolete at a certain moment in time. We should do our homework so that we no longer need them in the future. That would be the goal. The credits’ goal is to perish, or to “retire”, in technical jargon. The perfect scenario would be, in 2050, to have half of the planet decarbonized and the other half in the process of decarbonization, with everything balanced inside nature’s structure and its capability of regenerating natural systems. We know that is a huge challenge. So carbon credits are one of the tools in our toolbox. One of the most important, but not the only one.

The other tool we have is the reduction of carbon intensive processes during production. Then you abate everything that you are doing, in terms of production efficiency and reduction of greenhouse gasses, to diminish your product’s carbon footprint – the so-called insetting. This will face the new European Union regime for importing goods, the “Carbon Border Adjustment Mechanism” [CBAM, which definitive regime starts in 2026].

Therefore, those are the two instruments that will make our achievement curve possible. Companies will be able to use the insetting structure as adequately as possible. The other ones, that are unable to, will certainly need to use the offsettingstructure.

Carbon credits used as offsetting are a fundamental instrument for the economic, productive, and environmental paradigm change to happen. They need, and this is very important, a legal and regulatory evolution. Those markets will transform, they are transforming already, into markets of high legal and regulatory intensity. So if we don’t look after this, we won’t be able to bring high integrity, high-quality credits to the Brazilian market and to the global market, in a sense.  

Therefore, the exchanges’ [such as GEAP] central role includes a few essential actors. First, the standards. Second, the registrars, that should be in charge of custody and safeguarding the structure. And third, the exchanges. Since the registrars are not ensuring the custody yet, and the standards are not looking after all the aspects that would be necessary, it has to be an exchange to play those parts at the moment. 

Bill 182/2024, which creates a regulated carbon market in Brazil, is being discussed at the Senate. How do you see the bill, as it stands today, and what does Brazil have to gain by creating a regulated market?

The bill received a lot of effort back then; we have been discussing this issue for a decade. For the last year and a half, the bill underwent several changes, had several versions. I would say the text that is up for discussion and approval is the one that was possible to bring with the multiple approaches, let’s put it this way. Now, it is very good regarding the creation of an ETS [emissions trading system], a carbon transaction market. A cap and trade, in the international definition. The bill chose the cap and trade model [with emissions limits and carbon trading]. You have several models. You can build a cap and trade model, a carbon tax model, or a fixed pricing model, so to speak. So, it adopted a model that structures or creates a competitiveness system. On that side of the equation, it is a good bill.

It has a few things that are still challenging. The first one regards the institutional structure and the governance created for the bill. And after that, some very important issues that maybe need a bit more polish, especially the legal nature of the credits and the interaction between the voluntary and regulated markets. That is necessary for us to achieve two things. First are the goals inside the domestic regulated market, which the bill aims to regulate. But also, fundamentally, an obligation the country has agreed to, called NDC [Nationally Determined Contribution, a commitment to reduce CO2 emissions agreed to by the signatories of the Paris Agreement].

Therefore, the bill should be seen in an integrated way, harmonized with a first level, that is the internal, domestic market effort. And then a second level, which is the contribution to that effort of reaching the NDC, and the items 6.4 and 6.2 of the Paris Agreement. So, we still have a bunch of things to evaluate, analyze, and put into that structure.

The bill has some interesting characteristics. It brought to itself part of the voluntary market, with the issue of [carbon] registration. It has a system that allows the transition of credits from the voluntary to the regulated market. That interoperability is quite important. We still have a lot of work to do in order to create that interoperability, both domestic and international.

Because we will only be able to succeed if we have a significant amount of financial resources, and part of those resources will have to come from the international scenario. So you need to adopt the same language. You need to work on a taxonomy that connects internally defined elements with the financial markets and the international carbon market. We cannot create a legal concept that doesn’t connect to anything else.

In 2026, the CBAM (Carbon Border Adjustment Mechanism) will start its definitive regime. Which impact will it have on Brazilian exporters and the Brazilian carbon market?

There are two different impacts. The first one is not even on Brazilian exporters; it is over tradings. Tradings are those entities that will have to explain to the European Union the composition of their products. They are the ones at the frontline of this question. So, yes, that is going to have a large impact. First, regarding products. Cement, mining, steel, fertilizers. Those will be the first industries to face that challenge. But there is a risk that it later spreads to the other commodities, soy, meat, and so on.

So the first impact is this. Even if you export, for instance, to China, if your product is sold on the [production] chain with a final destination to Europe… People are saying it only affects those who [directly] sell to Europe. No. I’m sorry. That is not how international commerce and the connected world work. There is another requirement in place called “traceability”, or tracking the product’s origin, that was recently regulated in several certification systems, especially in the European market context. If your final product ends up there, in a way [it will be subjected to traceability requirements and the CBAM]. Those are the first points.

The subsequent point is the tendency, at the moment, that several countries all over the world also adopt those forms of protection. It is not only Europe. The US is discussing the CBAM, Australia is discussing the CBAM, and Brazil is discussing an internal CBAM. So, we will have a world that is increasingly impacted by a currency called carbon.

The companies that are going to win this game will be the ones situated in countries with a lower carbon footprint. Today, CBAM contemplates only its Scope 1, but the biggest challenge lies in Scope 2, which is the energy scope. We must not forget that CBAM, at the moment, focuses on Scope 1 [the emissions directly generated by the production of the goods]. So you will have to read the impact first on those companies, those sectors that have difficulty with Scope 1, in terms of carbon impact.

Later on, we will probably have Scope 2 and, no one knows when, Scope 3 [that comprises emissions derived from consumption, transportation, and disposal of the products]. Therefore, the impact has to be measured according to those characteristics. Some sectors have more difficulty performing, let’s say, the CBAM [insetting] in its Scope 1 impact structure. That will later grow towards Scope 2 and Scope 3.

Brazil is more competitive on Scope 2, due to our renewable energy. So that is the analysis. The first analysis is on the sectors that have that difficulty. They will be very much impacted, for sure.

To the carbon market, CBAM’s impact is the following. As the CBAM legislation gets tougher, you will need more carbon credits to offset what you weren’t able to do through insetting. And that will depend on the receptiveness of the European regulator, if it accepts offsetting [using carbon credits to compensate CO2 emissions] inside your insetting. The sum of those parts will determine your carbon pricing and, therefore, your competitiveness.

That is why we must work together to bring robustness, integrity, and compliance to the carbon market, starting by implementing tools and solutions such as those GEAP will bring to the country.  

Environmental assets exchange is poised to transform the current scenario, with a unified electronic negotiation that will enable greater liquidity and trust, prices displayed on screen, and a double compliance system for the credits

Today, the voluntary carbon market is based on direct negotiations between counterparts: the company or organization that wants to acquire credits has to reach out to other companies or entities willing to sell them. This means the market is dispersed, limited to bilateral negotiations, and opaque, without transparent mechanisms for the credits’ price formation.

Also, it is up to the buyer to check the trustworthiness of the credits he is purchasing. This need presents high costs and is not always adequately fulfilled: over the last few years, the market has witnessed cases that evidenced the shortcomings of the current carbon verification mechanisms. Those two issues, transparency and trustworthiness, have limited the development of the carbon market – whose growth is essential against climate change.

GEAP (Global Environmental Asset Platform) is a digital exchange that brings innovative solutions to both issues. First, it will act as an organized market for buying and selling environmental assets, with an electronic negotiation front-end.

“The history of ‘manual’ markets, operated by phone or, in ancient times, even by using blackboards, shows that technology and price formation are essential to their evolution. There are countless examples of this in several financial and commodities markets”, says Dan Parke, GEAP’s CEO. “Michael Bloomberg, founder of the giant data provider, news agency, and electronic negotiation platform, started his company exactly this way: providing information about US Treasury bonds, showing prices on screen, calculating average prices, curves, offering calculators and analysis and, eventually, electronic on-screen negotiation,” he reminds.

“And the result of this? It was to put buyers, the institutional ‘buy side’, the managers, on a similar information level to the ‘sell side’, banks and brokers, that up until that point held all the information. It led to a more standardized, more transparent, fairer market, with smaller spreads, that led to more liquidity and resulted in a fixed-income market that was healthier and more robust, with more abundant credit”, Parke says.  

GEAP intends to bring those same benefits to the carbon sector. “Our goal on VCM [voluntary carbon market] is similar. We know there is a significant challenge on the supply side, and it will take time to build an ample reserve [of credits] and gain ‘real-time’ liquidity. But, just as Bloomberg started way back then, in the 1980s, we will not give up, because we know an organized liquidity pool such as GEAP is essential to bring transparency, credibility, and broader access to the carbon credits market”, he adds.

Besides the credits brought by market participants, the platform will start with a significant amount of carbon already available: credits equivalent to 100 million tonnes of CO2 generated by forest conservation projects at the State of Acre. GEAP is also developing a partnership with Rio de Janeiro, currently at the MOU (Memorandum of Understanding) stage, to offer credits equivalent to 350 million tonnes of CO2, and maintains conversations with other Brazilian states.

The carbon sector’s other big challenge is related to asset quality: the trustworthiness of carbon credits. The market was impacted by the revelation, back in 2023, that carbon projects certified by Verra, an American certification entity, did not always correspond to effective CO2 reductions. More recently, in June 2024, the Brazilian Federal Police conducted Operation Greenwashing, which uncovered a scheme to generate carbon credits through fake land ownership. 

Situations like those emphasize the need for a more robust verification system that enables buyers to purchase credits with confidence and safety. GEAP intends to present an answer to that as well, because it will have a double compliance system for the assets – that will add itself to the certification processes that exist today. Before carbon credits can be offered at the platform, they will have to go through a rigorous onboarding process, developed by GEAP, that will include KYC (Know Your Carbon) e AML (Anti Money-Laundering) verifications.

“An item available for sale at the platform will have to go through a set of formally consecrated compliance processes. It is not just saying that it was certified by the A, B, C, or D standard. That is not enough anymore”, says Ludovino Lopes, a lawyer specialized in climate issues and GEAP’s legal advisor.  

The currently available certification standards, he adds, were designed to perform the technical side of carbon certification – but do not deeply evaluate legal aspects, such as titularity (real ownership) of the land used to generate the credits. GEAP intends to fill that gap by applying a set of verifications that will enhance credit trustworthiness. “The platform, the exchange, as long as we don’t have a law regulating carbon markets, it should be the market’s guardian”, Lopes says. “But to be the guardian, it has to effectively assume a set of responsibilities with a high degree of complexity and compliance requirements. So it can’t be just a platform, in the traditional financial transaction sense. It has to go beyond that”, he adds.

By adding transparency, trustworthiness, and price formation mechanisms to the carbon market, GEAP intends to revolutionize the sector – and, by doing so, foster the utilization of carbon credits and other environmental assets in the fight, that is becoming more urgent every day, against global warming.   

The state’s mangroves store upwards of BRL 500 million in carbon, study says; Rio creates tax benefits, builds up a project to include civil society in the carbon market and gets ready for the launch of GEAP, a platform that will enable electronic carbon negotiation

Mangroves are rich in the so-called ‘blue carbon’ because their humid soil has high CO2 absorption. In 2022, a group of scientists from Cambridge University (UK), Louisiana State University (US) and Paraiba Federal University (Brazil) published a study^[1] showing that Brazilian mangroves are able to retain up to 4.3 times more carbon per hectare than forests. They are, therefore, essential for Brazil to accomplish its international commitments to CO2 reduction and control.

Rio de Janeiro is rich in mangroves: they occupy 14.7 thousand hectares, an area equivalent to more than 14,000 soccer fields – and store CO2 equivalent to more than BRL 500 million (USD 90 million) in carbon credits. Those were the main findings by Mangues do Rio, a research project undertaken by 18 scientists from UFRJ (Rio’s federal university) in partnership with energy company Enauta.

Rio also has forests. According to data from INPE (Brazil’s National Institute for Space Research), they cover 18.6 percent of the state, which also has the largest amount of preserved Mata Atlântica: 1.3 million hectares (30.7 percent of the original area).   

Those characteristics are the starting point for a series of green initiatives that Rio has been adopting over the last few years – and can transform the state into a global hub for sustainable assets trading. The Governor of Rio, Cláudio Castro, signed a letter of intent with Nasdaq and GEAP (Global Environmental Asset Platform), to establish an electronic negotiation platform for carbon credits and other environmental assets. It will become the central hub for the market, enabling Brazil to develop its carbon sector – and become more than just a carbon credit generator.  

“We cannot limit ourselves to being just a commodity exporter, making an analogy of carbon credits as a commodity. We must ‘process’ those carbon credits here in Brazil, and processing means negotiating them, making the financial market happen here”, says Nelson Rocha, director of Rio’s Chamber of Commerce and Industry (Caerj) and former Finance secretary of the state of Rio. “We must allow those resources to be in Brazil, utilizing Rio’s sustainable assets exchange, which will be the world’s largest, led by GEAP and Nasdaq,” he adds. 

Rio has been positioning itself as a pioneer in the carbon market. In June 2023, the city of Rio approved a bill conceding fiscal incentives to the carbon sector, with a reduction of the state services tax (ISS) from 5 percent to 2 percent. It also created Neutral ISS, a program that aims to bolster the carbon market by allowing companies to use carbon credits to pay part of their taxes. According to the Mayor’s office, 20 companies are already participating. The project’s goal, which will run until 2030, is to transform Rio into the capital of the green economy.

Rio envisions another fiscal incentive, with a direct focus on citizens: after paying the IPVA (the state’s annual car property tax), citizens will receive carbon credits that can be traded on the market. Besides helping to develop the carbon market, the initiative puts the green economy in the spotlight.

“The main goal is to raise awareness regarding the need to prevent CO2 emissions”, says Rocha, who worked on the project. “The idea is, when citizens take actions that are beneficial to the environment, they gain something from that, as a form of cashback”, he adds. “At the end of the day, carbon credits belong to everyone. They are not property of the state. They belong to the population, to society as a whole.”

The state of Rio also signed a technical cooperation agreement with Embrapa (Brazil’s state-owned agricultural research company). It foresees joint research and development initiatives, with activities in several fields. In the first one, Embrapa will use satellite maps and other data sources to calculate the distribution of carbon in Rio’s soils. Embrapa will create a tool to determine, to a high degree of precision, the carbon contained in Rio’s forests. It will also develop a program to identify and stimulate good agricultural practices that can increase carbon sequestration in the soil.

The environmental, fiscal, and scientific efforts undertaken by Rio put the state at the forefront of the green economy – which is expected to grow exponentially due to the necessity of fighting climate change. Rocha estimates that USD 57 trillion are currently invested, globally, in sustainable companies and initiatives; if Brazil becomes able to attract a small percentage of them, around 3.5 percent, it could double its GDP, he says. “The scenario is as favorable as possible. Between 2025 and 2035, Brazil is poised to become the global investment hotspot”, he says.  

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^[1] Brazilian Mangroves: Blue Carbon Hotspots of National and Global Relevance to Natural Climate Solutions. AS Rovai and others, 2022.

GEAP not only provides a platform for negotiating environmental assets offered by companies and organizations, it also holds institutional alliances that give access to a significant stockpile of carbon credits – which will be available on the platform.

These credits are certified using rigorous methodologies, with independent audits and registered in recognized systems, ensuring transparency and reliability in transactions. The resources raised from the sale of credits are directed to environmental conservation and sustainable development initiatives, in accordance with local regulations. 

GEAP is in talks with several states interested in participating in this initiative, aiming to strengthen the supply of jurisdictional credits. Through this collaboration, GEAP and the states seek to promote environmental conservation and advance the climate mitigation agenda through reliable and affordable carbon credits.