Brazil Is Key to Slowing Global Warming. But Its Carbon Market Has Struggled.
A new attempt to create a regulated cap-and-trade system that is seen as critical to corporate competitiveness and economic resilience faces political headwinds
A new attempt to create a regulated cap-and-trade system that is seen as critical to corporate competitiveness and economic resilience faces political headwinds
With Brazil struggling in its efforts to create a regulated carbon market, the country’s new president is moving to scrap his predecessor’s approach and start anew. But success is still far from guaranteed.
The administration of President Luiz Inácio Lula da Silva is putting the finishing touches on a proposal laying the groundwork for a new, regulated cap-and-trade system, which he is expected to send to Congress later this month. The approach is starkly different from that of his right-wing predecessor Jair Bolsonaro, who last year issued a decree relying on the private sector to establish the basis for a carbon market, which never happened.
In either case, the system would set emission caps for certain industries and allow some companies to temporarily offset their excess pollution by buying allowances from those that cut more emissions than required. One credit would amount to one metric ton of carbon dioxide either removed from or prevented from being emitted into the atmosphere. Over time, the cap would be lowered to reduce emissions.
Financing carbon-capture projects such as reforestation could also generate carbon credits. Proponents say it is a way to protect the Amazon rainforest and other biomes, an approach that could also become an income stream to millions of impoverished residents currently making money off deforestation.

Yet despite broad support from exporters, who deem a regulated carbon market necessary to maintain key consumer markets overseas and attract investment, the initiative faces significant political hurdles at home and may not be enough to tackle the deforestation that is responsible for nearly half of the nation’s carbon footprint.
Brazil prides itself on getting nearly half of its energy and almost all of its electricity from renewable sources. It also already has an active market in voluntary carbon credits, where corporations buy credits from certified environmental projects to offset their emissions to meet self-imposed targets. But all that may still not be enough in a world increasingly worried about climate change.
“There is a global green arms race. Do we want to just sit on our achievements and watch while the tortoise outruns us?” said Gustavo Pinheiro, coordinator of the low-carbon economy portfolio at the nonprofit Institute for Climate and Society. “We need to price rising emissions,” he said, “and a regulated market is the least traumatic way to do it.”

As home to nearly 60% of the Amazon rainforest, Brazil is crucial to slowing global warming. Brazil was responsible for about 1.3% of global carbon-dioxide emissions in 2021, according to European Union data, and its population, economy and footprint are expected to grow, pushing the country further away from its commitments in the 2015 Paris global climate agreement and underscoring the need for a regulated carbon market. A cap-and-trade system could also beef up the country’s troubled economy, as global trade increasingly requires cleaner supply chains, some experts say.
“Having a regulated carbon market would be good for the overall economy, [and] would put our corporations in a better position to compete,” said Luiz Gustavo Bezerra, a partner at law firm Tauil & Chequer, which is associated with Mayer Brown.
Local exporters say they could benefit from regulation compatible with rules already in place in key overseas markets, which increasingly demand low-carbon supply chains. For example, a local regulated carbon market could help exporters avoid the carbon border adjustment mechanism the EU plans to charge on some imported products from 2026.
Brazil is one of the largest exporters of iron used to make steel for a range of things, such as home appliances, vehicles and wind turbines. Iron-ore exporter Vale, which aims to have net-zero emissions by 2050 and uses an internal price of $50 per metric ton for its greenhouse-gas emissions, said in emailed answers that initiatives to price carbon are “important for the competitiveness of Brazilian industry.”
The nation is also a major global supplier of soybeans, corn and beef, products often associated with deforestation. Farming group Roncador, a producer of grains and beef, said it is worried about increasing global restrictions to products lacking environmental certificates.
“Since Brazil still doesn’t have a regulated [carbon] market, we are developing our own research and have developed our own protocol to ensure our activities have a positive impact on the environment,” the group’s Chief Executive Pelerson Penido Dalla Vecchia said.
Exporters also hope a regulated market would help repair Brazil’s abysmal environmental reputation, a product of its history of deforestation. “We have great expectations that the government will better regulate carbon markets,” said Antônio Queiroz, vice president of innovation, technology and sustainable development at Braskem, one of the world’s largest petrochemical companies.
A regulated market could also help lure green-economy investments, according to lawyer Bezerra: “We are always approached by private-equity firms looking for areas in Brazil to invest in reforestation or forest preservation.”
The country could earn up to $120 billion through 2030 on carbon credits, assuming an “optimistic scenario” of $100 a metric ton of carbon, according to a study by the Brazilian division of the International Chamber of Commerce and local carbon consulting firm WayCarbon. While that price is multiples of current voluntary market credits—lately valued at about $1—the EU credits have recently been trading around €82 a metric ton, equivalent to $88, according to OPIS.
Brazil has a goal of reforesting an area bigger than Pennsylvania, said Ana Toni, head of the National Secretariat for Climate Change: “How many countries have that?”
But carbon-capture projects based on forest preservation are typically traded in the so-called voluntary markets, often not covered by government regulation. Many have come under scrutiny recently after failing to fulfil their promises. For example, a Wall Street Journal investigation into a reforestation project in Peru found little of the money designated for rainforest preservation actually reached locals.
Despite these and other problems that bedevil this form of credit, Brazil’s Ministry of Development, Industry, Trade and Services said its proposal will allow credits from the voluntary market to be used, to a certain extent, in the new regulated one.
The da Silva administration plans to have a carbon market operating in a couple of years, Toni said. But da Silva lacks a majority in Congress, and in any case is expected to give priority to major fiscal and tax legislation ahead of the carbon-market bill.
And in a sign of the difficulties ahead, lawmakers recently passed legislation to weaken the Environmental Ministry led by sustainability advocate Marina Silva, who is backing the effort to create a regulated carbon market.
Annie Groth, head of advocacy and policy at Biofílica Ambipar Environment, a developer of carbon projects in the Amazon and other biomes, said there is hope that carbon legislation could be approved before the United Nations Climate Change Conference in Dubai beginning Nov. 30.
But she cautioned, “It’s the most optimistic scenario.”
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Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
A sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.
The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.
The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.
The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.
This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.
Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.
Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.
JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.
The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.
That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.
A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.
When interest rates rise, those assumptions become less forgiving.
September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.
The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.
CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.
Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.
Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.
The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.
Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.
Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.
The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.
That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.
The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.
What has changed is the market’s willingness to overlook the price and financing structure of that growth.
The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.
More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.
For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.
Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.
The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.
Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026
Philadelphia Semiconductor Index: Down approximately 11.4 per cent
Micron Technology: Down approximately 14.6 per cent
Samsung Electronics: Down approximately 18 per cent
SK Hynix: Down approximately 24 per cent
US September inflation: 3.7 per cent annually
Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion
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