Finocchio & Ustra Sociedade de Advogados | View firm profile
Luciana Camponez Pereira Moralles, partner
The carbon credit market is an economic instrument created to assign value to greenhouse gas (GHG) emissions and promote their reduction, encouraging society’s transition to a low-carbon economy. However, its credibility and integrity can be seriously compromised by fraudulent schemes, which undermine investor confidence and harm global environmental objectives.
When discussing the reputational crisis of forest carbon credits and the consequent weakening of the voluntary market due to fraud in REDD+ carbon credit projects (Reduction of Emissions from Deforestation and Forest Degradation, Conservation of Forest Carbon Stocks, Sustainable Forest Management, and Enhancement of Forest Carbon Stocks) in areas of the Amazon—such as the Federal Police’s Greenwashing Operation in 2024—it becomes clear that the entire carbon credit system is impacted.
With the enactment of Federal Law No. 15,042/2024, which established the Brazilian Emissions Trading System (SBCE), as well as CVM Resolution No. 218, the industrial sector, as the legal obligor under the new legislation, must immediately begin preparing its GHG emissions inventories to demonstrate its emissions under Scopes 1 and 2. This requirement imposes a new environmental obligation related to the carbon footprint of business activities, demanding that GHG emissions inventories be linked to the company’s accounting information, as this information will be useful for users of sustainability reports. According to IFRS2, climate risks can affect a company’s cash flows, access to financing, and increase input costs. Thus, fraud related to climate governance will become increasingly relevant in this new corporate scenario.
Currently, the voluntary carbon market already allows the trading of carbon credits without the need for a regulatory framework. However, the new legislation lays the foundation for a regulated carbon credit market in Brazil, bringing greater transparency, legal certainty, and consolidating practices that define its structure and legal boundaries.
With the consolidation of this new market, risks related to fraud in the issuance of carbon credits arise, which can directly impact the pricing of these assets and generate distrust among investors and regulators. Companies and regulatory bodies have already identified vulnerabilities in this process, which may result in administrative and criminal sanctions.
To avoid such fraudulent practices, GHG emissions inventories must adopt methodologies recognized by certifying entities and regulatory bodies, ensuring that the information presented to public authorities is reliable. An example of existing oversight is the requirement of the São Paulo State Environmental Company (CETESB), through Board Decision No. 83/2024, which mandates that companies in certain sectors annually submit their emissions inventories.
As mentioned above, fraud is also identified in carbon credit projects based on Reducing Emissions from Deforestation and Degradation (REDD+), especially in the Amazon, where there are cases of dubious land ownership and irregular documentation. The absence of legal proof of ownership of these areas can invalidate the credits generated and expose companies to significant legal risks. This is so relevant to the market that Article 43, paragraph 16, of Federal Law 15,042/2024 establishes rules so that buyers of carbon credits are not held liable for defects related to the properties where the credit-generating projects were developed, except when their bad faith is proven.
Other types of fraud include intentional underreporting of emissions, manipulation of measurements to artificially reduce reported numbers, and falsification of financial reports regarding climate risks affecting operations. Similar cases have already been identified in international markets, leading to lawsuits and severe penalties for companies.
In the consumer sector, there are examples of fraud in carbon offset programs offered by aviation, tourism, and hospitality companies. In these cases, manipulated calculations increase the prices charged to customers without real compensation for the emissions, resulting in possible environmental class actions and consumer protection claims.
Given this scenario, the first step for companies is to develop an environmental fraud risk management plan, implement strict controls to monitor carbon credit-related transactions, and prepare auditable emissions inventories. Conducting periodic audits, combined with the adoption of traceability technologies such as blockchain, can ensure greater transparency and regulatory compliance, strengthening confidence in both regulated and voluntary carbon markets.
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