ESG Newslleter | Forest management and concession rules amended to support carbon credit market

Recently, Provisional Measure No. 1,151/2022 (“MP”) was published, aiming to stimulate the carbon credit market  by establishing rules for the management and public concessions of forests.

According to the MP, the concession agreement for public forests may now provide for:

i. the right to sell carbon credits and offer non-timber forest services;

ii. the access to genetic heritage for purposes of conservation, research, development, and bioprospecting;

iii. management activities focused on the conservation of native vegetation; and

iv. tourism, among others.

In addition, effective concession agreements may be amended to include new business opportunities, upon meeting the following requirements:

i. express consent of the Granting Authority and Concessionaire;

ii. the Concessionaire’s compliance with financial obligations before the Brazilian Federal Government; and

iii. the Concessionaire’s compliance with investment obligations under the concession agreement.

In this sense, forest concession agreements must expressly comply with Federal Law No. 14,133/2021, also known as the “New Public Procurement Law.” Additionally, Federal Law No. 8,987/1995 (“Concession Law”) and Federal No. 11,079/2004 (“Public-Private Partnership Law”) will be subsidiarily applicable to forest concession agreements. 

The exploitation of native forests and any related vegetation of public domain must be specifically licensed by the appropriate agency of the National Environmental System, upon prior approval of the Sustainable Forest Management Plan (“PMFS”).

The right to develop and sell carbon credits and environmental services can result from:

i. the reduction or removal of greenhouse gases;

ii. maintenance or increase of forest carbon stock;

iii. conservation and improvement of biodiversity, soil and climate; and

iv. other ecosystem benefits, as provided for in the Policy of Payment for Environmental Services (Law No. 14,119/2021).

In addition, the Brazilian National Bank for Economic and Social Development (“BNDES”) may qualify public or private financial agents, or fintechs to carry out financing operations using resources from the National Fund on Climate Change (“FNMC”). Prior to the MP, only public financial agents such as the Bank of Brazil and the Federal Savings Bank could obtain such qualification.

Finally, the possibility of using native vegetation as a financial asset is only valid if it provides:

i. incentive to activities of improvement, forest restoration, conservation, and protection of native vegetation and its biomes;

ii. economic and monetary valuation of native vegetation;

iii. asset and accounting identification; and

iv. use of digital single-registration technologies that are unchangeable and present low vulnerability to cyber-attacks.

All the changes mentioned above are already in force due to the nature of the Provisional Measures established by the Federal Constitution. However, the MP will still be subject to analysis and deliberation by the Legislative Branch, which can result in changes to the wording for the enactment of the definitive version of the MP (Conversion Law).

The period for deliberation by the congress is 60 days, as of the publication of the MP on the Federal Official Gazette of Brazil (December 27, 2022), which can be extended for another 60 days, by decision of the President of Brazil. During this period, Provisional Measure No. 1,151/22 will remain in force under the terms in which it was published by the Executive Branch.

The MP will enter into force as an urgent proceeding as of March 19, 2023, and will no longer be valid after April 02, 2023, if it is not converted into law.

Demarest’s Environmental, ESG and Infrastructure teams are available to provide any further information and clarifications that may be necessary.