Case Studies
Case Study: Structuring a Carbon Project for a US Investor
How we helped an American investor navigate INCRA rules, SPV formation, and ERPA for a reforestation project.
15+
Years in Brazil
OAB
1st American to pass
USC
LL.M. International Law
EN/PT
Fully bilingual
Key Takeaway
A US-based climate investment fund committed USD 6 million to an ARR (Afforestation, Reforestation, Revegetation) carbon project across three degraded pasture properties totaling 2,400 hectares in Sao Paulo state. ZS Advogados provided end-to-end legal structuring — from SPV formation and INCRA compliance to ERPA negotiation, BACEN capital registration, and Verra certification coordination. The project reached operational status in 10 months and is expected to generate 45,000 tCO2e per year at maturity, with projected annual revenue of USD 1.35-2.25 million at current ARR credit prices.
Client Profile
| Parameter | Detail |
|---|---|
| Client | US-based climate investment fund (name withheld) |
| Investment | USD 6 million (equity) |
| Project type | ARR — native species reforestation on degraded pasture |
| Location | Three properties in interior Sao Paulo state |
| Total area | 2,400 hectares |
| Expected output | 45,000 tCO2e/year at maturity (years 7-10+) |
| Crediting period | 25 years |
| Certification | Verra VCS (VM0047 — Afforestation, Reforestation, Revegetation) |
| Timeline | 10 months from engagement to operational status |
Challenges Identified
Challenge 1: INCRA Foreign Land Restrictions
The client wanted to acquire the three properties outright. Under Law 5.709/1971, a Brazilian entity with majority foreign ownership faces the same rural land restrictions as a foreign individual — area caps per municipality, INCRA authorization requirements, and potential denial.
Risk: If the entity were structured with majority US ownership, INCRA restrictions could delay or prevent land acquisition. Two of the three properties exceeded the 3 MEI (modulo de exploracao indefinida) threshold requiring INCRA authorization.
Challenge 2: Existing Landowner Contracts
Two of the three properties had existing agricultural lease agreements (arrendamento rural) with local farmers. These leases had 3-year terms with automatic renewal rights under the Land Statute (Decree 59.566/1966).
Risk: Terminating existing leases to convert land to reforestation could trigger lessee claims, delay project initiation, and create community relations issues.
Challenge 3: Multi-Property Coordination
The three properties had different owners, different title histories, and different environmental compliance statuses. Coordinating the legal workstreams across all three simultaneously was essential to maintain the project timeline.
Challenge 4: ERPA Negotiation with Offtake Buyer
The client had a preliminary offtake agreement with a European corporate buyer, but the term sheet lacked critical protections — no delivery shortfall remedies, no credit quality specifications, and no FX provisions for cross-border payment.
Challenge 5: BACEN Capital Registration
USD 6 million in foreign capital entering Brazil required BACEN RDE-IED registration within 30 days of each capital tranche. The capital was structured in three tranches tied to project milestones.
Solution Architecture
Entity Structure: 49% Foreign / 51% Brazilian
We formed a Brazilian LTDA with:
- 49% ownership: Client’s US fund (via Delaware LLC)
- 51% ownership: Brazilian operating partner (experienced agribusiness manager recruited by the client)
- Governance: Supermajority voting requirements for all material decisions (asset acquisitions, borrowing, capital calls, ERPA execution)
- Veto rights: US fund holds veto over property dispositions, entity dissolution, and changes to corporate purpose
- Tag-along/drag-along: Standard provisions protecting minority shareholder exit rights
- Administrator: Brazilian operating partner serves as administrator with defined authority limits
Why 49/51: This structure avoids INCRA foreign land restrictions entirely. The entity is classified as Brazilian-controlled, eliminating area caps, authorization requirements, and border strip restrictions. The US fund retains effective control through governance provisions despite holding a minority equity position.
Formation timeline: 5 weeks from engagement to CNPJ issuance.
Cost: USD 4,500 (legal fees + registration costs).
See company formation guide for the standard process.
Land Rights: Surface Rights Agreements (Not Purchase)
Rather than acquiring the three properties, we negotiated surface rights agreements (direito de superficie) with each landowner:
| Property | Area | Term | Annual Fee | Key Provision |
|---|---|---|---|---|
| Property A | 1,100 ha | 30 years | USD 25/ha/yr | Carbon rights explicitly assigned to SPV |
| Property B | 800 ha | 30 years | USD 30/ha/yr | Existing lessee bought out (USD 40,000) |
| Property C | 500 ha | 25 years | USD 20/ha/yr | Clean title, no encumbrances |
Advantages of surface rights over purchase:
- No INCRA foreign ownership restrictions (even with 49/51 structure, this eliminates any future risk)
- Lower upfront cost (no land purchase price)
- Landowner retains underlying ownership (easier negotiation)
- Registered at Cartorio de Registro de Imoveis (enforceable against third parties)
Carbon rights clause: Each surface rights agreement explicitly assigns all carbon credits, emission reductions, and environmental services generated on the property to the SPV for the duration of the agreement. This clause was essential — without it, carbon credit ownership could be disputed between landowner and SPV.
Existing lease resolution: For Property B, we negotiated a buyout of the existing agricultural lessee. The Land Statute grants lessees preferential renewal rights, so termination required mutual agreement plus compensation. Total buyout cost: USD 40,000 (paid by the SPV from initial capital).
ERPA Negotiation
We restructured the preliminary offtake term sheet into a comprehensive ERPA:
| ERPA Parameter | Negotiated Term |
|---|---|
| Term | 25 years |
| Volume | 45,000 tCO2e/year (estimated at maturity); 10,000 tCO2e/year ramp-up during years 3-7 |
| Pricing | Milestone-based: USD 25/tCO2e (years 1-5), USD 30/tCO2e (years 6-10), USD 35/tCO2e (years 11-25) |
| Delivery shortfall | 15% tolerance; beyond that, makeup in subsequent year or price credit |
| Credit specification | Verra VCS VM0047, vintage within 2 years of delivery, CCBS Gold level |
| SBCE eligibility | Best-efforts to obtain; price premium of +15% if achieved |
| Payment | USD, quarterly upon delivery confirmation |
| FX provisions | Buyer pays in USD; seller bears BRL/USD conversion risk |
| Tax gross-up | Buyer pays stated price net of all Brazilian taxes; seller handles withholding |
| Dispute resolution | ICC arbitration, Sao Paulo seat, English language, Brazilian law |
| Force majeure | Narrowly defined; fire/drought covered; regulatory change handled separately |
Key negotiation wins for the client:
- Milestone-based pricing rather than fixed — incentivizes project performance and provides price upside as the project matures
- SBCE premium clause — if credits achieve SBCE compliance eligibility, the buyer pays a 15% premium, rewarding the seller for regulatory alignment
- Delivery shortfall remedy — makeup obligation prevents the seller from walking away from underperformance
- CCBS Gold requirement — ensures biodiversity and community co-benefits, commanding market premium
See ERPA contract guide for standard clause analysis and ERPA review service for our review process.
BACEN Capital Registration
The USD 6M investment was structured in three tranches:
| Tranche | Amount | Trigger | BACEN Registration |
|---|---|---|---|
| Tranche 1 | USD 2M | Entity formation complete, surface rights signed | RDE-IED within 10 days |
| Tranche 2 | USD 2M | Planting initiated on all three properties | RDE-IED within 15 days |
| Tranche 3 | USD 2M | Verra VCS validation submitted | RDE-IED within 15 days |
Each tranche required a FX contract through an authorized Brazilian bank, with BACEN RDE-IED registration completed within 30 days of capital entry. See cross-border transactions.
Verra Certification Coordination
While ZS Advogados does not perform technical carbon project development, we coordinated the legal dimensions of the Verra VCS certification process:
- Ensured all surface rights agreements contained provisions required by Verra’s land tenure requirements
- Drafted the legal section of the Project Design Document (PDD)
- Confirmed Forest Code compliance (CAR validation, Legal Reserve adequacy)
- Coordinated with the client’s technical team on community engagement documentation (CCBS requirements)
- Verified no overlapping carbon project registrations on the target properties
Timeline
| Month | Milestone |
|---|---|
| 1 | Engagement, structure planning, document preparation |
| 2 | SPV formation filed, CPF obtained for US fund principals |
| 3 | CNPJ issued, surface rights negotiations initiated |
| 4 | Surface rights agreements signed (Properties A and C), Tranche 1 wired and registered |
| 5 | Property B lessee buyout completed, surface rights signed |
| 6 | ERPA negotiation completed, bank accounts operational |
| 7 | Tranche 2 wired, planting initiated on Property A |
| 8 | Planting initiated on Properties B and C |
| 9 | Verra VCS PDD submitted for validation |
| 10 | Tranche 3 wired, full operational status |
Total: 10 months from engagement to operational status. Planting will continue through year 3. First credit verification expected in year 3-4.
Financial Projections
| Year | Credits (tCO2e) | Revenue (USD) | Cumulative Revenue |
|---|---|---|---|
| 1-2 | 0 | 0 | 0 |
| 3 | 5,000 | 125,000 | 125,000 |
| 5 | 20,000 | 500,000 | 1,125,000 |
| 7 | 35,000 | 1,050,000 | 3,225,000 |
| 10 | 45,000 | 1,350,000 | 7,350,000 |
| 15 | 45,000 | 1,575,000 | 14,475,000 |
| 25 | 45,000 | 1,575,000 | 30,225,000 |
IRR projection: ~18-22% over the 25-year ERPA term, depending on SBCE premium realization and actual growth rates. Does not include potential land appreciation or residual value of the reforested properties.
For current pricing benchmarks, see Carbon Credit Pricing in Brazil.
Lessons Learned
| Lesson | Application |
|---|---|
| 49/51 structure works | Effective foreign control without INCRA risk. Governance provisions are key. |
| Surface rights > purchase | Lower cost, faster execution, no INCRA exposure |
| Existing leases require negotiation | Budget for lessee buyouts; do not assume vacant possession |
| Milestone-based ERPA pricing | Aligns incentives and provides upside for both parties |
| Parallel workstreams | Running entity formation, land negotiations, and ERPA negotiation simultaneously saved 3-4 months |
| BACEN registration must be timely | Late registration blocks profit remittance. Register within 30 days. |
Frequently Asked Questions
Could the client have structured with 100% foreign ownership? Technically yes, but INCRA restrictions would have required authorization for each property (3-12 months each) and potentially limited property size. The 49/51 structure eliminated this risk entirely.
What if the Brazilian partner wants to exit? The Contrato Social includes buy-sell provisions (shotgun clause) and the US fund has a right of first refusal on any proposed transfer by the Brazilian partner.
How does the client monitor the project remotely? Monthly reports from the Brazilian administrator, quarterly site visits by the client’s technical consultant, and real-time satellite monitoring (PLANET data subscription) for deforestation alerts.
What ongoing legal work is required? Annual corporate compliance (tax filings, BACEN census), periodic ERPA amendment negotiations, and regulatory monitoring for SBCE developments. Covered under a retainer engagement.
Why ZS Advogados
This case study demonstrates the integrated legal capability that carbon investments require: corporate structuring, land rights negotiation, cross-border compliance, ERPA drafting, and regulatory coordination — all managed by a single firm. ZS Advogados, founded by the first American admitted to the Brazilian Bar (OAB/SP 351.356), provided every element of this engagement from our interior Sao Paulo office, with direct access to the project properties, local Cartorios, and state environmental agencies.
See our full service offerings or browse additional case studies.
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