With the rise of scientific evidence about the causes and consequences of climate change, a variety of market and political institutions have been developed to govern those issues globally, nationally, and locally. Despite the low price of carbon, due to recent crises in the carbon market, and criticism of its ability to promote cleaner technologies and sustainable development, there is an important role for carbon markets in national and sub-national climate change regimes (Streck and Lin 2008; Okereke, Wittneben, and Bowen 2012; Michaelowa 2012; CDM Policy Dialogue 2012). The Brazilian government, though not committed to compulsory targets for reducing greenhouse gas (GHG) emissions because the country is not included in Annex B of the Kyoto Protocol, enacted Law 12.187/2009, which established the National Policy on Climate Change, committing to undertake a number of sectoral actions aimed at mitigating and adapting to climate change; one of these is the rise in investments in clean energy.

The different mechanisms for responding to climate change are creating opportunities in some of the ‘green’ industries, such as renewable and clean energy. Brazil already has an outstanding share of renewable energies, dominated by its naturally endowed huge potential of hydro energy, providing a share of 74.5 per cent of the domestic electricity supply in 2014 with a total hydro power resources and reserves of 110.3 GW (EPE, 2015). The country has created some incentive mechanisms such as the Programme of Incentives for Alternative Electricity Sources (PROINFRA, Programa de Incentivo a Fontes Alternativas de Energia Eletrica) established by Law 10438/2002, which gives subsidies and incentives for clean electricity projects using the special financial mechanisms of the Brazilian National Development Bank (BNDES, Banco Nacional de Desenvolvimento Economico e Social). However, this ‘clean’ energy profile could change considerably depending on the growth of electricity demand, the availability of resources for generation, environmental constraints, the distribution networks, and the cost of exploiting resources. Indeed, Brazilian emissions in the energy sector have increased considerably in recent years through the use of non-renewable energy sources (MME 2015). Thus the research examines how the CDM and other markets and policies have stimulated the development of and investments in renewable energies in Brazil. By collecting and comparing different political and economic preconditions, structures, and the overall development in the two states and projects, the research identifies pitfalls and opportunities for new strategies and mechanisms for boosting clean energy in Brazil.

As part of a federal republic, the Brazilian states play a key role in climate and energy initiatives, as they have a certain amount of autonomy in the way they create new policy mechanisms and implement national policies. Several states have advanced their own climate policies, stating the level of emission reductions to be made, with these sometimes being even more stringent than the national targets, and planning to establish different mechanisms such as emission trading (CNI2011). This was particularly the case around the time of the UNFCCC COP-15 in Copenhagen in December 2009 (Forum Clima 2012). Most of the Brazilian state climate policies are a response to national directive (Law 12.187/2009, which established the National Policy on Climate Change). Only two out of 27 states—Sao Paulo and Santa Catarina—established their climate policies before the National Policy on Climate Change. However, recently, states have been becoming more active in climate policies. In 2015, in response to targets set nationally, 16 out of 27 Brazilian states set their own voluntary targets for emissions; four states (Sao Paulo, Rio de Janeiro, Mato Grosso do Sul, and Paraiba) had already defined their compulsory targets for emissions and seven others were in the process of defining their state climate policies (Forum Clima 2015).

One of the main mechanisms in Brazil for motivating GHG emission reductions has been the CDM. There were more than 7,740 projects registered at UNFCCC in December 2016 (UNFCCC 2016). Brazil registered the first CDM project in the UNFCCC and has been one of the leading countries in executing CDM projects with 330 projects at the end of 2014 (MCTI2014). In Brazil, energy projects comprise the majority of CDM projects (55 per cent), which are spread through various states across the country. Thus, this research seeks to understand the political economy of the sub-national clean energy initiatives in Brazil and the links with international energy and carbon mechanisms such as carbon markets and, particularly, the Clean Development Mechanism (CDM) of the Kyoto Protocol.

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