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INTERVIEW-Rio de Janeiro state eyes carbon market by 2012

by (c) Copyright Thomson Reuters 2011. Click For Restrictions. http://about.reuters.com/fulllegal.asp | Thomson Reuters Foundation
Tuesday, 1 March 2011 16:07 GMT

* Preliminary carbon market could start next year

* Effort to boost transition toward green economy

By Brian Ellsworth

RIO DE JANEIRO, March 1 (Reuters) - Brazil's state of Rio de Janeiro is studying the creation of a carbon market that could begin by 2012, an effort to lead South America's largest nation toward a greener economy.

The system would seek to use caps on carbon emissions to increase energy efficiency and spur the use of alternatives such as solar and wind, Suzana Kahn, Deputy Secretary of Environment for Rio state, said in an interview last week.

Brazil, the world's 17th biggest emitter of greenhouse gases, is shifting climate efforts toward industry after recent success in lowering deforestation in the Amazon region-- the country's largest source of carbon emissions.

But the Rio proposal, which would coincide with next year's start of a carbon market in California, could boost costs and lower the competitiveness of Rio-based companies in industries such as petroleum and steel.

"We're analyzing other schemes like the Kyoto Protocol or what's been done in the United Kingdom -- the idea is to 'tropicalize' what's already been done," Kahn said. "It's a preliminary proposal that's being discussed with other agencies involved." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Graphic on Brazil greenhouse emissions:

http://r.reuters.com/ryt23r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

Operations would initially be restricted to a limited group of sectors or companies, with emissions credits trading on the stock exchange in Sao Paulo, said Kahn, who represented Brazil in the 2009 Copenhagen climate talks.

Brazil's government does not have a nationally mandated carbon market, though it -- along with the state of Sao Paulo -- has created a target for reducing future emissions.

Environmental authorities are carrying out studies to determine which sectors could participate and how to determine an appropriate emissions cap, which would be part of a broader effort to expand low-impact industries such as eco-tourism, Kahn said.

Though Rio is known for its natural beauty including tropical beaches and scenic mountains, it is also home to industries with considerable environmental impact.

These include steelmaker CSN's <CSNA3.SA> Volta Redonda mill and steel producer CSA, a joint venture between Germany's Thyssenkrupp <TKAG.DE> and Brazilian mining giant Vale <VALE5.SA>.

State oil giant Petrobras <PETR4.SA> pumps most of its crude in shallow waters off the state's coast. It is seeking to limit its climate impact by capturing CO2 contained in offshore reservoirs and storing it below the ocean's surface.

Putting a price on carbon emissions could boost costs in a country already struggling to remain competitive in the face of an appreciating currency that makes exports less competitive.

"Clearly, if you put the cap too low then you run that risk, that's why we are studying this with other sectors to avoid this type of problem," Kahn said.

Luis Augusto Carneiro, Environmental Manager for Rio de Janeiro industry federation FIRJAN, said companies want to contribute to climate change mitigation, but added a state carbon market could burden companies that are already energy efficient and possibly weaken their competitiveness. (Editing by Stuart Grudgings and Marguerita Choy)

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