Brazil

Tax Law and Climate Change

Introduction

Tax policy is widely recognized as an instrument for discouraging or encouraging behavior and, as a tool of government intervention, for protecting, restoring, and fostering a sustainable environment.

Latin American countries – home to roughly 50% of the world’s biodiversity – are among the regions most affected by climate change. These impacts may constrain economic and social development and may exacerbate inequality. At the same time, the region remains largely dependent on natural-resource extraction and agriculture, faces underinvestment, and continues to confront challenges in controlling inflation and public deficits.

For the region, including Brazil, tax policy can play a significant role in promoting growth, environmental protection and restoration, and social justice.

In late 2023, Brazil approved a broad indirect tax reform (Constitutional Amendment No. 132/2023), marking a shift in tax policy and establishing environmental protection as a guiding principle of the Brazilian tax system under Article 145(3) of the Brazilian Constitution.

Historically, Brazil’s tax policy has made relatively limited use of taxation to promote sustainable economic development, focusing primarily on incentives to diversify the country’s energy mix – emphasizing solar and wind generation and biofuel production – without deliberately increasing the cost of carbon.

Constitutional Amendment No. 132/2023 (“CA 132/2023”) introduced a selective tax on goods and services considered harmful to the environment and public health (for example, certain minerals and vehicles as set out in Article 409 of Complementary Law n.214).It also amended article 225(1)(VII) of the Brazilian constitution to provide for preferential tax treatment for low-carbon hydrogen and biofuels to ensure taxation remains lower than what is levied on fossil fuels, though this provision depends on regulation enacted by Complementary Law. These measures are intended to improve the competitiveness of cleaner energy sources relative to fossil fuels.

General Impact & How climate change is impacting tax law

Existing Framework

Following CA 132/2023, the Brazilian government reinforced its commitment to developing tax policies aligned with energy transition objectives and a net-zero future.

With a predominantly renewable energy mix – dominated by hydroelectric power and with notable growth in solar and wind capacity – Brazil provides tax incentives and relief for infrastructure projects. At the same time, it continues to subsidize oil and gas exploration and production, reflecting the sector’s role in investment attraction and the trade balance.

Brazil, like other Latin American countries, has a distinct GHG emissions profile compared with Europe or the United States. Emissions are largely linked to deforestation and land-use change, while in many developed economies they are more closely tied to fossil-fuel use in industry and transport.

Brazil’s electricity generation is estimated to be approximately 88.2% renewable[1], while the overall energy mix (including fuels) has a renewable share of approximately 45%[2]. This performance reflects, among other factors, the expansion of wind and solar generation in recent years.

The Brazilian government has set ambitious climate targets, including a 48% reduction in greenhouse gas emissions by 2025[3] and a 50% reduction by 2030[4], as well as a commitment to carbon neutrality by 2050[5]. In 2026, the Brazilian government launched its Climate Plan which incorporates the new nationally determined contribution to reduce net greenhouse gases by 59% to 67% by 2035, using 2005 as a baseline. The country’s strategy aims to eliminate illegal deforestation by 2028 and to coordinate actions between public and private stakeholders to reduce emissions under the Climate Plan.

Brazil also seeks to advance the development of new energy technologies, including offshore wind and low-carbon hydrogen, to support innovation and attract investment.[6]

Brazilian Emissions Trading System (SBCE) – Law No. 15,042/2024

Law No. 15,042/2024 establishes the Brazilian Emissions Trading System for Greenhouse Gases (“SBCE”), enabling trading in Brazilian Emission Quotas (“CBE”) and Certificates of Verified Emission Reduction or Removal (“CRVE”). The SBCE lays the foundations for a regulated market for decarbonization instruments.

The legislation characterizes carbon credits, CBEs, and CRVEs as fungible and tradable assets. When traded in the financial and capital markets, they are treated as securities and are therefore subject to the regulatory regime of the Brazilian Securities and Exchange Commission.

For corporate income tax (“CIT”) purposes, Article 17 generally provides for taxation under capital-gain rules, meaning that only the realized profit margin is taxed. A similar approach applies to transactions on stock, commodity, and futures exchanges and in regulated over-the-counter markets, where tax is levied on realized net gains. For developers that initially issue carbon credits, CBEs, or CRVEs, taxation generally follows the regime applicable to the taxpayer (for example, under a deemed-profit regime).

The law also provides that these tax rules apply regardless of differences arising from accounting methods and criteria under commercial law (Article 20). This is relevant because accounting treatment for SBCE instruments and carbon credits remains an area of uncertainty.

Costs associated with reducing or removing greenhouse gas emissions in connection with generating certificates and carbon credits – including administrative and financial costs related to issuance, registration, trading, certification, or bookkeeping – may be deductible for corporate income tax purposes.

Finally, Article 19 exempts the sale of carbon credits, CBEs, and CRVEs from PIS and COFINS (turnover contributions). However, as part of Brazil’s indirect tax reform, these contributions are expected to be phased out in 2027 and replaced by the Goods and Services Contribution (“CBS”), and the legislation does not currently provide an equivalent exemption for the carbon market under CBS.

Existing Tax Relief / Incentive Programmes

Brazil’s tax policy has historically focused on incentives to promote sustainable economic development. Since 2023, the Brazilian government has launched additional initiatives to support the energy transition, including the Fuel of the Future Law, the low-carbon hydrogen framework, and existing regimes such as REIDI.

In 2024, the Brazilian government approved Law No. 14,992 (the Fuel of the Future Law), which aims to attract private investment and foster technological development for low-carbon fuel initiatives. The law encourages the use of low-carbon fuels and supports research and development of technologies for producing and using alternative fuels. According to the Brazilian government, the program is expected to avoid 705 million tons of carbon dioxide (CO2) emissions by 2037, strengthening the country’s commitment to reducing greenhouse gas emissions.

MOVER (IPI Verde)

The MOVER is a recent government initiative to modernize and decarbonize the Brazilian automotive industry, as provided by Law No. 14,902/2024 and Decree No. 12,435/2025.

The MOVER offers tax benefits and tax credits intended to reduce carbon emissions and promote technological innovation in the automotive sector, including incentives related to biofuel production and the development of renewable energy projects.

Key benefits under the program include the granting of financial credits linked to R&D investments and lower Excise Tax (IPI) rates applicable to energy-efficient vehicles.

REIDI

Introduced in 2007 by Law No. 11,448/2007, the Special Incentive Regime for Infrastructure Development (REIDI) provides for the suspension (later converted into an exemption) of PIS and COFINS on the acquisition of certain assets and services for transport, ports, energy, basic sanitation, and irrigation infrastructure projects in Brazil.

In recent years, REIDI has become a relevant instrument for Brazil’s energy transition by providing a material reduction in capital expenditures for renewable energy generation and transmission projects, increasing their economic viability. For example, as of April 2023, approximately 90% of REIDI-approved projects were energy-related, primarily solar and wind.[7]

To be able to enjoy such benefits, the taxpayer must submit its infrastructure project for approval from regulatory and tax authorities.

SBCH / Rehidro

Law No. 14,948/2024 created the National Low-Carbon Hydrogen Policy, which integrates the country’s National Energy Policy.

The law assigns the National Agency of Petroleum, Biofuels, and Natural Gas (“ANP”) authority to authorize, regulate, and oversee activities across the low-carbon hydrogen value chain.

It also provides for the Brazilian Hydrogen Certification System (“SBCH”) and introduces the Special Incentive Regime for the Production of Low-Carbon Hydrogen (“Rehidro”), a tax regime intended to foster technological and industrial development, competitiveness, and value addition in national production chains.

Rehidro is broadly comparable to REIDI but is intended to support the low-carbon hydrogen industry’s technological and industrial development and competitiveness in Brazil.

In this regard, Law No. 14,948/2024 provides that eligible low-carbon hydrogen infrastructure projects must follow REIDI’s admission and enjoyment procedures to benefit from a similar CAPEX reduction.

PHBC

On September 27, 2024, Law No. 14,990/2024 introduced the Low-Carbon Hydrogen Development Program (“PHBC”).

The PHBC aims to foster the energy transition through the use of low-carbon hydrogen; to develop low-carbon hydrogen and renewable hydrogen for domestic use; to support energy transition initiatives; and to encourage the use of low-carbon hydrogen in hard-to-abate sectors, such as fertilizers, cement, steel, chemical and petrochemical industries, and heavy-duty transportation.

IPTU Verde

The so-called IPTU Verde (Green Land Tax) is a municipal initiative under which taxpayers may receive a reduction in their Municipal Property Tax (“IPTU”) if they can demonstrate the adoption of sustainable practices in relation to their properties, including installing photovoltaic solar panels, implementing rainwater collection and reuse systems, recycling and selective waste collection, afforestation, and using reforested wood, eco-friendly bricks, and non-toxic paints.

How tax law may help drive the net-zero transition and address climate change

Brazil’s commitment to a net-zero transition is reflected in recent government measures intended to advance climate and energy transition objectives. Of particular note is the enactment of CA 132/2023, which introduced a long-awaited consumption-tax reform.

The reform represents a structural change in Brazil’s tax system and is aimed at simplification, tax justice, and sustainability. Among its provisions, certain measures are intended to promote more responsible consumption and support the energy transition. Environmental protection is also referenced in multiple provisions of the constitutional text (for example, arts. 43, §4º; 145, §3º; and 225, §1º, VIII).

Notable measures reflected in Complementary Law No. 214/2025 include:

• The Selective Tax (“IS”) is expected to apply to goods and services deemed harmful to health or the environment, with the aim of discouraging consumption of products such as cigarettes, alcoholic beverages, highly polluting vehicles, and non-renewable minerals.
• The IS is expected to apply to the production, sale, or import of covered items, with rates to be set by specific legislation. The measure is scheduled to take effect in 2027.
• Article 175 of the reform also provides for reduced tax rates for low-carbon biofuels and hydrogen, with rates ranging between 40% and 90% of the rate applied to fossil fuels.
• In addition, the reform provides for a 60% reduction in the standard tax rate applicable to certain environmental services in Article 137, including reforestation, restoration of degraded areas, and biome conservation, which may encourage investment in nature-based solutions.

[1] Brazil. Ministry of Mines and Energy (Ministério das Minas e Energia – MME). Brazil generates 88% of its electricity from renewable sources. Brasília: MME. Available at: https://www.gov.br/mme/pt-br/assuntos/noticias/brasil-gera-88-da-sua-energia-eletrica-a-partir-de-fontes-renovaveis,

[2] Brazil. Ministry of Mines and Energy (Ministério das Minas e Energia – MME). Renewable sources reach 49.1% in the Brazilian Energy Matrix. Brasília: MME, 2025. Available at: https://www.gov.br/mme/pt-br/assuntos/noticias/fontes-renovaveis-atingem-49-1-na-matriz-energetica-brasileira.

[3] Chiaretti, Daniela. Brazil rectifies climate ambitions, targets 48% emission cut by 2025. Valor Internacional, São Paulo, September 1, 2023. Available at: https://valorinternational.globo.com/politics/news/2023/09/21/brazil-rectifies-climate-ambitions-targets-48percent-emission-cut-by-2025.ghtml.

[4] World Economic Forum. New research reveals Brazil’s climate financing challenges and suggests potential solutions. New York: WEG, 2023. Available at https://www.weforum.org/press/2023/08/new-research-reveals-brazils-climate-financing-challenges-and-suggests-potential-solutions/

[5] Brazil. Presidency of the Republic. Brazil at COP28: Climate leadership and expectations for a sustainable future. Brasília. Planalto, 2023. Available at: https://www.gov.br/planalto/en/latest-news/2023/11/brazil-at-cop28-climate-leadership-and-expectations-for-a-sustainable-future.

[6] Global Wind Energy Council. Brazilian Senate passes offshore wind bill which sets course for sector’s rapid growth in country. December 12, 2024. Available at: https://www.gwec.net/gwec-news/brazilian-senate-passes-offshore-wind-bill-which-sets-course-for-sectors-rapid-growth-in-country.

[7] Brasil Energia. Solar e eólica respondem por mais de 90% dos projetos enquadrados no REIDI. São Paulo: Brasil Energia, 2024. Available at: https://www.editorabrasilenergia.com/energia/panorama/solar-e-eolica-respondem-por-mais-de-90-dos-projetos-enquadrados-no-reidi.