Brazil: The Position Of The Brazilian Regulator About Carbon Credits

On July 21, 2009, the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM) informed to the market1 that the Certified Emission Reductions, or CERs, also known as carbon credits2, are not derivatives or assets to which investment funds are linked (títulos de investimento coletivo), and consequently shall not be treated as securities (valores mobiliários) or regulated as such by CVM at least for the time being, and consequently are not subject to the requirements of the Brazilian Securities Law3. They are deemed to be assets whose sale can occur to meet emission-reduction goals or for investment purposes.

CERs are instruments issued by the CDM Executive Board, a body created under the United Nations Framework Convention on Climate Change. This body supervises the Clean Development Mechanism (CDM)4 that represents the voluntary reduction emissions of a certain quantity of greenhouse gases (GHGs), which hold heat within the surface of the Earth and contribute to its global warming.

However, some carbon credit products related to CERs, such as certificates, synthetic instruments or derivatives, depending on their specific characteristics and in view of their nature, may be considered as securities by CVM on a case-by-case basis. If this happens, such products will be subject to the Brazilian Securities Law.

Brazilian investment funds are duly authorized to acquire CERs or other carbon credit certificates or derivatives by force of the applicable rules which govern these funds5. In this regard, among the authorized financial assets, investment funds can apply their resources in warrants, trading contracts for the purchase and sale of products, merchandise or services for future delivery or future provision, titles or certificates representing such contracts and any other credits, titles, contracts and operational modalities if expressly stated in the funds´ regulation6.

CERs are financial assets issued abroad (i.e. outside Brazil) and their acquisition is permitted by investment funds provided that this possibility is expressly stated in the fund´s regulation and the CER is admitted to negotiation in the stock exchange and in the commodities and futures exchange, or is registered in the registry, custody or financial liquidation systems duly authorized in their original countries and supervised by a recognized local authority7. This registration shall also be performed in specific accounts opened directly under the name of the fund8.

In case of credit carbon certificates or derivatives issued in Brazil, then it is important to note that the fund's portfolio can only be composed of financial assets approved for trading on either the stock exchange or the futures and commodity exchange9, or recorded in the registration system, with custody or financial net liquidation duly authorized by the Central Bank of Brazil (Banco Central do Brasil – Bacen) or CVM, in their respective areas of competence10. This registration shall be performed in specific accounts opened directly under the name of the fund11.

CVM concluded that the Brazilian market already has certain mechanisms developed to the finance and structure of projects which enable the issue of carbon credits and which do not need to be regulated at this stage. However, if and when the need arises, CVM will analyze in the future the implementation of specific rules governing fund-raising structures and financial products derived from carbon credits.


1. The CVM notice about carbon credits is available at

2. One carbon credit is equal to one ton of carbon.

3. The Brazilian Securities Law (Law No. 6.385, of December 7, 1976, as amended by Law No. 10.303, of October 31, 2001) disciplines the securities market and creates the regulatory entity (CVM). For the purposes of the Brazilian Securities Law, the term "securities" comprises the following: (i) shares, debentures and subscription bonuses; (ii) coupons, rights, subscription receipts and split certificates relating to the securities indicated in the previous item (i); (iii) certificates of deposit of securities; (iv) debentures certificates; (v) shares of mutual funds investing in securities and shares of investment clubs investing in any type of assets; (vi) commercial paper; (vii) futures, options and other derivatives agreements whose underlying assets are securities; (viii) other derivatives agreements regardless of the respective underlying assets; and (ix) when publicly offered, any other collective investment instrument or agreement that creates the right of participation on profits or remuneration, including as a result of the rendering of services, and whose profits derive from the efforts of the entrepreneur or from the efforts of third parties. All securities are subject to the supervision and control of CVM. Federal, State, or Municipal government bonds and negotiable instruments guaranteed by a financial institution (other than debentures) are not deemed to be "securities" within this context and are subject to the supervision and control of the Central Bank of Brazil and not of CVM.

4. The concept underlying the CDM is that of the voluntary reduction of GHGs emitted by an industrial process or their sequestration from the atmosphere by a company based in an emerging country, creating credits which can be traded in the global carbon market with industrialized countries (or with their companies) in need of these credits to meet their emission reduction targets in accordance with the Kyoto Protocol. This flexibility mechanism, therefore, enables countries to reducer their global GHG emissions while also providing an attractive alternative method to foster sustainable development in the emerging market countries. The CDM is the only mechanism applicable to Brazil.

5. The current basic regulations on the incorporation, administration, operation and disclosure of information of the investment funds in Brazil have been approved by CVM Instruction No. 409, of August 18, 2004, published in the Official Gazette of the Union (Diário Oficial da União – DOU) of August 24, 2004, and subsequently amended by: (i) CVM Instruction No. 411, of November 26, 2004, published in the DOU (Brazil) of December 1, 2004; (ii) CVM Instruction No. 413, of December 30, 2004, published in the DOU (Brazil) of December 31, 2004; (iii) CVM Instruction No. 450, of March 30, 2007, published in the DOU (Brazil) of April 3, 2007; and (iv) CVM Instruction No. 456, of June 22, 2007, published in the DOU (Brazil) of June 26, 2007. All these regulations and the consolidated and updated text are available at

6. As per the provisions of article 2, item VIII of CVM Instruction 409/2004.

7. This rule is contained in paragraph 5 of article 2 of CVM Instruction 409/2004. Paragraph 5 has been added by CVM Instruction 450/2007 and amended by CVM Instruction 465/2008.

8. This rule is contained in paragraph 8 of article 2 of CVM Instruction 409/2004. Paragraph 8 has also been added by CVM Instruction 450/2007.

9. In the case of Brazil the exchange responsible for stock and futures and commodity is BM&FBOVESPA S.A. – Securities, Commodities and Futures Exchange (BM&F BOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros), a new legal entity created in 2008 with the integration between the two major Brazilian exchanges, the Brazilian Mercantile & Futures Exchange (BM&F) and the São Paulo Stock Exchange (Bovespa), which is deemed to be the third largest exchange worldwide in terms of market value, the second largest in the Americas, and the leading exchange in Latin America.

10. This rule is contained in paragraph 3 of article 2 of CVM Instruction 409/2004. Paragraph 3 has been added by CVM Instruction 450/2007.

11. Please refer to footnote 8 above. The same paragraph 8 mentioned therein is also applicable to domestic financial assets.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
Adriana Maria Gödel Stuber
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