Brazil is an emerging economy with a population of approximately 206 million people and nominal GDP of US $2.346 trillion in 2014. The country is rich in petroleum, hydropower, timber, and large mineral deposits which create the basis for a well-developed manufacturing industry. The service sector accounted for 71 per cent of Brazil’s GDP in 2014. Brazil has one of the world’s cleanest energy mixes given its abundance of renewable energy sources. In 2012, renewable energy, mostly from hydropower and biofuels, amounted to around 45 per cent of total energy supply (OECD, 2015).

Deforestation is a pressing environmental challenge not only in terms of the loss of biodiversity and ecosystems, but also as it accounts for approximately 70 per cent of Brazil’s GHGs emissions (EDF, 2009). Several transnational (i.e. REDD+) and national measures have been adopted in recent years. These measures have resulted in a 67 per cent decline in the area of land deforested in 2010 compared to the 1996-2005 period (UoCS, 2011) and have led to a significant decrease in Brazil’s total GHG emissions since 2004. Other environmental challenges facing Brazil relate to air pollution, waste and sewage disposal, water pollution and coastline erosion in particular due to uncontrolled urbanization and excessive groundwater exploitation (OECD, 2015).

Overall Fiscal Profile

Brazil experienced a decade of socio-economic progress between 2003 and 2013, achieving macroeconomic stability, building up foreign reserves and reducing its debt profile. The percentage of the Brazilian population living below the national poverty line decreased from 17.3 per cent in 2006 to 8.9 per cent in 2013. Brazil’s middle class is growing, and the unemployment rate is at a historic low (5.9 per cent in 2011-15) (World Bank data).

The implementation of measures aimed at addressing the country’s macro-economic imbalance and the deteriorating international economic situation has led to a slowdown in GDP growth from 4.5 per cent in 2006-10 to 2.1 per cent over 2011-14 and 0.1 per cent in 2014. Brazil had an overall deficit of 6.7 per cent of GDP in 2014. To address this deficit, the government has reduced entitlements, cut discretionary expenditures, reviewed social benefits, and lowered support to public banks and the electricity sector. Inflation has progressively decreased from 8.3 per cent in 2011 to 6.9 per cent in 2014 (Index Mundi, 2014; OECD, 2015; World Bank, 2015).

In 2012, Brazilian tax revenue accounted for 34.9 per cent of the country’s GDP, in line with OECD countries (OECD, 2014). The Brazilian tax structure is considered one of the most complex in the world with a governance structure which consists of the Union of States, 27 federative units (26 states and the Federal District), and over 5,500 municipalities. All federative units have the legal possibility to impose taxes which has led to a multilevel, intricate tax system (Gramkow, 2015; World Bank & PwC, 2014).

Policy and Legal Framework for a Green Economy

Brazil has played an important role in promoting environmental commitments at the international level, hosting the 1992 and 2012 UN Conferences on Sustainable Development. In 2002, the Brazilian Agenda 21 was launched which comprised of a series of objectives relating to sustainable development such as social inclusiveness, strategic use of natural resources and the promotion of an economy of savings and knowledge (see IISD, 2004).

In 2008, the National Plan on Climate Change was launched which encourages better production practices through more efficient use of natural, human, technological and scientific resources, promotes the diffusion of biofuels, eliminating the net loss of forest coverage by 2015, increasing energy efficiency and larger deployment of renewable energy sources (see MMA, 2008). In terms of climate change mitigation targets, in 2009 Brazil set a voluntary target to reduce GHG emissions between 36.1 and 38.9 percent by 2020 relative to BAU or 6 to 10 per cent relative to 2005 levels (EDF, 2013).

Energy independence and security have been important factors in energy policy since the 1950s. Law 9478 of 1997 established the general principles of Brazil’s national energy policy, including the use of renewable energy sources as a pillar of the country’s energy policy (IRENA, 2015). Several national policies aimed at greening Brazil’s power sector have been launched, such as the Alternative Energy Source Incentive Programme (PROINFA), the National Energy Conservation Programme (PROCEL), the National Programme for the Rational Use of Oil and Natural Gas, the National Biodiesel Production and Usage Programme (PNBP). The latter responds to Brazil’s efforts to develop its ethanol industry and biodiesel sector, which has led the country to become a world leader in the biofuels sector. The PNBP has a comprehensive approach which takes into account economic (e.g., integrated food energy systems aimed at increasing productivity), social (e.g., the Social Fuel Seal supports the integration of rural farmers into the biofuel industry) and environmental dimensions (e.g., land zoning aimed at identifying suitable land areas for biofuel production without compromising biodiversity) (UNEP, 2011a). The Light for All Programme aims to address problems with access to electricity (OIES, 2014; UNEP, 2012).

The Action Plan for the Prevention and Control of Deforestation in the Legal Amazon (PPCDAM) adopted in 2003 coordinates actions aimed at reducing deforestation in the Amazon. This commitment has been further strengthened through Decree 6321/07 and the launch of the Amazon Fund in 2007 which introduced the first national REED programme based on grant funding rather than market mechanisms (see EDF, 2009). The long-term objective of the PPCDAM is to reduce the annual rate of deforestation by 80 per cent by 2020.

Brazil has progressively linked environmental protection to efforts aimed at reducing socio-economic inequalities. Most notably, the Bolsa Verde Environmental Conservation Support programme, launched in 2011 within the framework of the Brasil Sem Miséria poverty eradication initiative, encourages low-income families to pursue environmentally sustainable livelihoods. By committing to refrain from illegal logging and poaching, beneficiaries receive quarterly payments of roughly US$160 over a two-year extendable period and training in forestry management. It has been estimated that Bolsa Verde has reached 73,000 smallholder families mainly living in national forests or protected areas, (see UNDP, pp. 34/37, 2012). Since 2009, the Brazilian Government has included green jobs as a key element in its national development policy. The International Labour Organization (ILO), in partnership with UNEP, has provided support to the conceptual development and practical implementation of a green jobs strategy in Brazil (ILO, 2010).

Green economy efforts are also taking place at the sub-national and municipal level. For example, a cross-sector green economy programme is being implemented in the state of São Paulo which coordinates efforts aimed at driving investments and leveraging capital to enable green technology development and adoption (Sao Paulo State Government, 2014). In this regard, research by the Federation of Industries of the state of Sao Paulo (FIESP) indicated that of 1300 Brazilian enterprises, 71 per cent have adopted environmental management systems and most have implemented programmes to reduce waste and energy use (Worldwatch Institute, 2010). At the municipality level, the city of Curitiba, capital of Parana State, is a prime example of how innovative urban planning, city management, and transport planning can result in improved social economic and environmental conditions for its residents (UNEP, 2011b).

Fiscal Measures for a Green Economy

In order to meet its GHGs emission reduction targets in a cost-effective way, Brazil is considering the implementation of carbon pricing instruments, such as an emission trading scheme (ETS) and a carbon tax, or a combination of both. In 2014, 21 companies set up a voluntary ETS simulation to gain practical experience and build support for a mandatory national ETS. The simulation includes an assessment of company emission submissions, auctioning and bond markets as well as fines for non-compliance. The allocation process and trading is managed by the Rio de Janeiro Green Stock Exchange (BVRio). Phase I of the ETS simulation runs until the end of 2015. Phase II is scheduled for 2016-2020 and Phase III for 2021-2030 (see EDF, 2015; ICAP, 2015; World Bank 2015).

Environmental taxation follows the above-mentioned governance structure. At the state level, the state value added tax (ICMS) constitutes approximately 90 per cent of state revenue, of which 25 per cent must be allocated to municipalities. In turn, 75 per cent of that quarter has to be allocated according to the fiscal added value of each municipality, and the other 25 per cent (i.e., 6.25 per cent of the total ICMS revenue) can be allocated back to municipalities according to criteria directly defined by each State. Some states have created an Ecological ICMS (ICMS-e), which redistributes some of the above-mentioned remaining revenue according to municipalities’ performance on pre-defined quantitative and qualitative conservation and environmental indicators. This system of ecological fiscal transfers has gradually become an incentive for expanding the number and size of protected areas across the country. In particular, 16 of 26 Brazilian states have introduced the ICMS-e and 13 are actively implementing ecological fiscal transfers (Gramkow, 2015; Peters, 2012). Moreover, in a number of Brazilian states an ICMS tax exemption is available for companies that deploy used PET bottles as an input in the plastics industry. This fiscal incentive has not only increased recycling of PET bottles but also promoted job opportunities as PET bottles collection is usually carried out by cooperatives of waste pickers (Denny et. Al., 2013). Other green sub-national fiscal measures are an exemption from the tax on automotive vehicles (IPVA) for less polluting vehicles (e.g., electrical cars), and exemptions from the tax on urban real estates (IPTU) for estates that preserve green areas.

At the federal level, the income tax (IR) incorporates environmental criteria, as individuals and legal entities can deduct up to 50 per cent of their expenditure on afforestation and reforestation projects from IR. In 2005, an ecological IR (IR-e) was proposed in the National Congress which would provide IR deductions to donations and sponsorships made to non-profit entities to support projects related to sustainable use of natural resources and environmental protection. However, after 10 years of debate, the IR-e has not yet been approved (Gramkow, 2015). Other federal-level green fiscal measures are the CIDE on the oil and oil-based products industry, which is a contribution aimed at funding, among other things, environmental protection projects. There is also an exemption from the rural property tax (ITR) for properties that comprise preserved natural areas.

Green fiscal support schemes have played a crucial role in greening the Brazilian power sector. Between 2002 and 2006, the PROINFA scheme targeted bioelectricity, small hydro installations, and wind sources, establishing a fixed feed-in tariff for each technology for electricity produced over the first 20 years of operation (see KPMG, p.9, 2011). Due to problems of design and implementation of PROINFA (especially concerning information asymmetries between suppliers and government), from 2007 Brazil has implemented technology-specific auctions which offer mid- and long-term contracts ahead of delivery in an investment market for new electricity capacity. This new system has led to encouraging results. For example, PROINFA generated 1,299 MW of cumulated wind capacity for a wind energy price of USD150/MWh, whereas the auction scheme generated 8,059 MW of cumulated wind capacity for a wind energy price of USD 53/MWh in 2011 (Barroso, 2012: Cunha et. al., 2012).

Within the framework of Brazil’s efforts to develop its biofuel industry, the government has historically employed several fiscal instruments. Since the 1970s, beneficial tax treatment has made ethanol competitive with gasoline and incentives provided to automobile manufacturers to produce biofuel cars. Current biofuel policy includes fiscal reductions applicable to Brazilian producers and importers of biodiesel through the Social Integration Program (Programa de Integração Social) and the Contribution to the Social Security Fund (Contribuição para o Financiamento da Seguridade Social). A similar, special tax regime is applied to producers, importers and distributors of ethanol (IPC, 2010; KPMG, p.14, 2014).

Fossil Fuel Subsidy Reform

During the 1970s, Brazil gradually introduced fossil fuel subsidies, targeting industry, consumers, and users of liquified petroleum gas (LPG). Fossil fuel support was strengthened in the 1980s in response to the oil crises. In order to liberalize Brazil’s energy sector, an articulated reform agenda was implemented in the 1990s, through a gradual approach to deal with strong opposition from key interest groups. The removal of fossil fuel subsidies was considered crucial to encouraging competition and leveraging private investments. In turn, reform of fossil fuel subsidies was seen as a means to promote energy efficiency and increase government revenue (IISD, 2010; IMF, 2013). Fossil fuel prices have been liberalization since 2002. The 2007–08 escalation of the international oil price and the discovery of large offshore oil resources led to the reintroduction of larger petroleum subsidies in 2008. According to OECD estimates, Brazil’s budgetary support to fossil fuels amounted to about BRL 5.2 billion and tax expenditure on fossil fuels amounted to about BRL 60 billion in 2014 (OECD Data). The Brazilian government has yet to define long-term price subsidies based on the country’s new oil production and revenue. The government recently set up a Social Fund (Fundo Social do Pre Sal) with revenues from oil production. Along with a percentage of the signature bonuses from production sharing agreements, resources for the Social Fund are gathered from the royalties allocated to the Brazilian federal government in pre-salt domains and areas. In terms of the use of revenues in the Fund, 50 per cent of oil revenue channeled into the Social Fund will be used for education-related programmes, the rest will be invested in culture, sports, public health, technology and the environment , including renewable energy (IISD, 2010; OIES, 2014a).

References and additional reading

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Denny, D. M. T., Pedro, A. F. P., Mekhitarian, K. C., Silva, E. M., Fiorini, K., Libardi, I., Medici, F. (2013).Estímulos Fiscais para a Economia Verde. In 4th International Workshop Advances in Cleaner Production. Sao Paulo: Advances in Cleaner Production Network,

Droste N. et. Al, (2015). Ecological Fiscal Transfers in Brazil – Incentivizing or refinancing conservation? Third Annual Conference of the Green Growth Knowledge Platform (GGKP) Fiscal Policies and the Green Economy Transition: Generating Knowledge – Creating Impact. 29 – 30 January 2015, Venice.

Domingues J. M. (2012). Tax System and Environmental Taxes in Brazil: the case of the electric vehicles in a comparative perspective with Japan. Osaka University SAKA UNIVERSITY LAW REVIEW No. 59 (February 2012) 37

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EDF (2013). Brazil – The World’s Carbon Markets: A Case Study Guide to Emissions Trading. Environmental Defense Fund,

EDF (2015). Brazil: an Emissions Trading Case Study. Environmental Defense Fund. https//

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