Brazil to launch environmental exchange

Rio
de Janeiro is establishing what is likely to be Latin America’s first
market for trading a wide range of environmental assets, as Brazil’s
seaside capital seeks to carve a niche as an alternative financial
centre.

The new market, to be known as the Bolsa Verde do Rio de Janeiro and
led by a former UK-based entrepreneur and carbon trader, Pedro Moura
Costa, will be launched on Tuesday.

Backed
by the state and city governments, it will trade environmental assets
ranging from straight carbon credits to securities related to Brazil’s
controversial forest code, which requires farmers to maintain certain
levels of vegetation on their properties.

“The first step is to build a framework to create the underlying
assets, the next is to choose the trading platform,” said Eduarda La
Rocque, Rio municipal finance secretary.

The launch of the market comes as the city is undergoing an economic
resurgence thanks to plans to host the 2014 football World Cup and the
2016 Olympics as well as the discovery of giant oil fields offshore.

Although São Paulo remains Brazil’s industrial and financial centre,
Rio has been seeking to establish itself as an alternative financial
services centre after attracting Direct Edge, the fourth-largest US
exchange operator, to launch an equities platform in the city.

Rio was also awarded a higher credit rating by Moody’s Investors
Service this month, pushing it further up into investment grade status
in spite of the weakening global economy and in contrast to threats of
ratings downgrades in developed markets.

The announcements mark a turnround for the city, which despite its
natural beauty and beach lifestyle has over the past decade been losing
business to São Paulo, with its better transport links and security.

Rio’s green exchange, known as BVRio, will face a number of serious
headwinds, including a deep downturn in global carbon credit markets.

It will also face formid-able competition from the São Paulo-based
exchange, BM&F Bovespa – Latin America’s largest bourse and the
world’s fourth largest by capitalisation – which has a carbon trading
programme and is refusing to share its clearing system with rival
exchanges.

But Rio Verde will aim to distinguish itself by trading a diverse choice of environmental assets.

These would include “carbon credits from the planned statewide
cap-and-trade scheme as well as credits for liquid effluents in [Rio’s
port area of] Guanabara Bay, forest reserve credits and recycling
credits”, said Suzana Kahn, a sub-secretary with Rio de Janeiro state
environmental secretariat.

The forest code credits are expected to be innovative. Farmers
complain that rules curbing how much of their properties they can clear
of forest mean they are forced to perform an “environmental service”
with no compensation.

A forest credit scheme would let those with more forest than the
legal minimum sell this as a credit to those falling short of the
minimum requirement.