Building subnational green financing mechanisms for environmental governance after the Brazilian Tax Reform

Bruna Carolina Paludo and Mariana Porto Koch

Chapter 11 in Frontiers in the Low-carbon Transition, 2026, pp 188-204 from Edward Elgar Publishing

Abstract: This chapter examines how Brazil's 2023 Tax Reform reshapes the relationship between taxation and environmental governance. While the reform reduces traditional channels of subnational extrafiscal autonomy, it simultaneously creates new normative openings for climate- and sustainability-oriented fiscal instruments. Central among these innovations is the environmental revenue-sharing criterion of the IBS (‘Ecological IBS’), which elevates environmental incentives from isolated State initiatives to a constitutionally grounded mechanism. Drawing on Brazil's three decades of experience with the Ecological ICMS (Tax on the Circulation of Goods and Services, in the Portuguese acronym) and on international integrity standards, the chapter proposes indicators and results-based metrics for mitigation, biodiversity and climate adaptation. It argues that the effectiveness of the Ecological IBS depends on a coordinated green federal agenda capable of ensuring comparability, transparency and governance. Without urgent national guidance, the transformative potential of this constitutional innovation risks fragmentation and diminished effectiveness.

Keywords: Brazil; Tax Reform; Subnational Entities; Green Tax Reform (search for similar items in EconPapers)
Date: 2026
ISBN: 9781049412115
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