The companies’ option for cheaper credit masks the objective of reducing CO2 emissions
Brazil has forests, sun, wind and, since 2024, a law that structures the largest regulated carbon market in the Southern Hemisphere. There is also a problem that the sector prefers to discuss in closed forums. Real money, which actually circulates in the daily transactions of the voluntary carbon market, still goes to the cheapest credit. And cheaper credit often does not represent any reduction in emissions, it is just paper.
Henrique Pereira, co-founder and chief operating officer of WayCarbon, an advisory firm specializing in decarbonization, knows the dilemma. “Price will always be a determining factor for the purchase decision,” he says. “Companies seek to optimize the quality of reductions according to their own criteria and minimize costs.” This means that the company buys what fits in the budget and declares the problem solved.
The voluntary carbon market works, in theory, as an offset mechanism. A company that emits CO₂ beyond what it can reduce buys credits generated by projects that removed or avoided that same amount of carbon from the atmosphere. Each credit is equivalent to one ton. Those who preserve forests, plant trees or install renewable energy generate credits. Those who pollute, buy and the market mediates.
The problem is that not all credit is equal. A cheap credit can represent a forest that would be preserved anyway, a project audited with lax methodology or, in extreme cases, a fraudulent operation with overlap with areas of illegal deforestation. An expensive, high-integrity credit represents verifiable, permanent and additional reduction, that is, something that would not happen without the project. The market today buys the cheap and calls it a climate solution.
Roberto Gonzalez, corporate governance and ESG consultant and independent director of companies, describes the mechanism. “In many cases, the corporate buyer knows exactly what he is getting. There are companies that see carbon credits as a merely reputational and short-term tool, a kind of image insurance.” When a bad credit is accepted as good, Gonzalez says, “it’s not just a commercial failure, but an option to turn climate offsetting into a license to continue emitting.”
It is not an abstract problem. Vladimir Abreu, partner at L.O. Baptista Advogados, points out concrete cases that reveal the legal dimension of the risk. The “Greenwashing” operation, conducted by the Public Prosecutor’s Office of Mato Grosso, identified carbon credit projects overlapping areas of illegal land grabbing and deforestation, with wood laundered via the sale of fraudulent credits used to offset emissions. “Real examples involve lawsuits against companies for fake carbon tokens, exposing buyers to administrative fines and reputational damage,” warns Abreu. The buyer who did not do proper due diligence did not just buy bad credit, it took on a liability.
Tatiana Cymbalista, lawyer and partner at Manesco Advogados, describes the situation. “Buying a carbon credit without proper due diligence carries the risk that, in practice, it does not effectively represent what it declares. It’s like any purchase of a product that doesn’t deliver what it promises.” Certification, he adds, offers some protection, but it is far from absolute. “That doesn’t even exist.”
The problem deepens when one examines why capital does not flow where it should. The origin of the projects, the development of new carbon reduction or removal initiatives that would feed the market with quality credits, remains blocked. Henrique Pereira lists the reasons. Ongoing reviews of key certification standards, such as Verra’s VCS 5.0, create uncertainty about which methodologies will be accepted. The regulatory framework of the Brazilian Emissions Trading System is still under construction, which leads the private sector to slow down decisions until the rules are defined. And the carbon price in the voluntary market remains too low to make most projects financially viable. The SBCE, scheduled to start operating in 2030, is the government’s bet to give the Brazilian carbon market the regulatory structure that the volunteer never had.
| Greenwashing is not only a reputational problem, but a police one
The risk is that the regulated market inherits the defects of the volunteer before correcting them. Abreu points out that projects were suspended after police investigations that revealed failures in the international certifiers themselves. Verra, the world’s largest certifier, was the subject of an investigation published in January 2023 by the British newspaper The Guardian in partnership with the German weekly Die Zeit and the journalistic organization SourceMaterial. The investigation concluded that 94% of the forest credits certified by the entity did not represent a real reduction in emissions. Verra contested the conclusions, but the impact on the credibility of the sector was immediate.
Gonzalez sees a change underway, albeit slowly. Pressure from institutional investors, stricter ESG audit requirements, and increasing scrutiny from clients and the press are starting to make greenwashing more expensive. “High-integrity credit is no longer just an ethical choice and becomes a strategic hedge against future liabilities.” The trend has not yet become mainstream, however.
Meanwhile, the system account is transferred to those who do not have a voice in the market. Cymbalista is direct: “Who pays is the population as a whole and, above all, those who are most vulnerable.” Gonzalez and Abreu come to the same conclusion by different paths. Populations exposed to extreme weather events, water insecurity, and loss of agricultural productivity pay first. Taxpayers pay later, via inspection, expertise and environmental remediation. And the carbon market pays last, when it loses the only asset that cannot be bought with cheap credit, credibility.
The Brazilian carbon market has the capacity to be the largest generator of credits in the world. There are forests, there are projects and now there is a legal framework. What is still missing is to ensure that the credit that circulates in this market does, in fact, what is written on paper.