Proposal for the implementation of a carbon pricing instrument in the brazilian industry : assessing competitiveness risks and distributive impacts

Abstract

After the COP 21 and the adoption of the Paris Agreement in December 2015, the outlook for carbon pricing policies has been widened. During the conference, Brazil has announced a target to reduce its GHG emissions by 37%, compared to 2005 levels, by 2025, and the intention to reduce 43% of such emissions by 2030. However, considering the industrial sector, there are neither details nor precise quantifications. This gap can represent a strategic opportunity to implement carbon pricing instruments (CPI), such as emissions trading schemes (ETS) or carbon taxes, in this sector. Therefore, this thesis aims to assess institutional frameworks for CPI in the Brazilian industry seeking to reduce its domestic vulnerability and international trade exposure. For this purpose, a qualitative and quantitative analysis is carried out taking into account the lessons from a review of the international experience, besides the assessment of the CPI impacts on sectorial policies and the exposure to the risk of carbon leakage scrutinized under different methodologies. Results show that different institutional frameworks are better or worse depending on main objectives and the impacts to be minimized. Considering the reduction of effects on sectorial competitiveness and families purchasing power as main drivers, an EIS covering total industry emissions, distributed considering a free allocation method and grandfathered-based seems to be a more politically-palatable way to implement a CPI in the Brazilian industry.