Structure and Operation of the Brazilian Voluntary Carbon Market

Keywords: Voluntary Carbon Market, New Institutional Economics, Brazil.

1. Justification

Given the international discussions on global warming, in 1997 signed the Kyoto Protocol (KP), having as one of the principles to protect the climate system for the benefit of present and future generations, based on the common principle but differentiated for each signatory. It is in this context that the regulated market for carbon credits, which trades carbon credits that work like a new "currency", a tonne of carbon equivalent reduced.

In this scenario, also emerged a parallel market, called the voluntary carbon market (VCM). Initially used by companies and individuals from countries not signatories to the KP - as the United States - over time the VCM has also become an alternative to strict criteria of the regulated market. Driven by different objectives, users of this system are moving a significant number of active carbon.

The existence of an alternative market to the market is regulated by KP in environments in which negotiations of carbon credits, called Verified Emission Reduction (VER), occur through a variety of agents such as governments, businesses, nongovernmental organizations (NGOs), individuals, etc. (Simoni, 2009).

Both carbon markets (regulated and voluntary) operate under the same conceptual basis, but with different governance structures. The operation and interests of actors operating in them are different resulting in changes in terms of property rights and production costs. Particularly the VCM, in the absence of a central governing body, has a distinct structure and functioning of the regulated market and little known.

2. Research Problem

In this study intends to understand the structure and functioning of the Brazilian voluntary carbon market, identifying and characterizing its different actors with different roles and interests and transaction costs in light of the New Institutional Economics (NIE).

To achieve this goal, the methodology of this research combined (i) primary sources, obtained from face and telephone consultations with key actors in that market (consultants, NGOs, companies and organizations participating, etc.) with the support of a structured questionnaire, with (ii) secondary sources, including reports and websites of institutions that deal with the subject and specialized references and literature review on the New Institutional Economics.

4. Discussion

Understanding the role of state actors and non-state on the VCM part of the understanding that the goal is to create a structure that facilitates the interaction of interests, from the establishment of rules, regulations, contracts and laws, making it possible for business transactions of these assets occur efficiently. Although behavioral changes related to the environment are being internalized by society, instruments of enforcement are necessary to give the speed demanded by the global ecosystem, being legitimized the importance of institutions to regulate this market.

Scholars believe that the carbon market is in one of the most effective tools and lower transaction costs to generate demand for cleaner technology, while also grants a price on polluting act of promoting incentives for the actors to stop polluting (ECOSYSTEM MARKETPLACE, 2009). This occurs because the carbon market allows channeling resources more cost-effective for the reduction / mitigation of GHG emissions. Thus, the carbon market lacks the necessary rules and institutions that allocate property rights to carbon credits and organizations that make their operation viable.

5. Expected Results

Identify key institutions, organizations and transaction costs involved in structuring the voluntary carbon market in Brazil, in light of the New Institutional Economics.