The Function of the Distribution of ICMS Tax Collection in Brazil (Ecological ICMS) as a Potentially Beneficial Measure for Reducing Greenhouse Gas Emissions

Abstract

The global effort to combat climate change hinges on the effectiveness of local actions. Consequently, Brazil, being a crucial carbon sink, confronts a multifaceted challenge: the imperative to reduce emissions originating predominantly from wildfires and deforestation across various municipalities within the framework of Fiscal Federalism. Therefore, the Ecological ICMS (or Green ICMS) involves using sustainability criteria for the distribution of this tax, in Portuguese Imposto sobre Circulação de Mercadorias e Serviços (ICMS). This book chapter conducts a study of the extra-fiscal function of the Ecological ICMS as a potentially benefit measure to reduce greenhouse gas emissions (GHG). We will use a bibliographic review and documentary sources. We hope to discover trends that show correlations of this fiscal instrument with qualitative implementation of low-emission areas.

1. Introduction

In the global pursuit of addressing climate change, the effectiveness of local actions becomes paramount. This holds particularly true for Brazil, a crucial carbon sink facing a complex challenge in reducing emissions stemming mainly from wildfires and deforestation across diverse municipalities within the framework of Fiscal Federalism. The Ecological ICMS, also known as Green ICMS, is a type of extra-fiscal measure that plays a pivotal role by incorporating sustainability criteria into the distribution of this tax (Imposto sobre Circulação de Mercadorias e Serviços—ICMS in Portuguese).

This system, referred to as ICMS Verde, operates by the State reallocating percentages of tax collections in accordance with specific socio-environmental requirements. Essentially, it incentivizes municipalities to meet certain environmental goals by offering financial rewards based on their performance in areas such as conservation, sustainable development, and biodiversity protection. Through this mechanism, funds are directed toward initiatives that promote environmental sustainability and community well-being, fostering a more balanced and eco-friendly approach to economic development at the local level.

On a national scale, initiatives geared toward reducing greenhouse gas emissions are poised to make significant contributions to the Global Stocktake. This is an instrument of The Paris Agreement, a paramount international regulation, that binds participating states to progressively submit nationally determined contributions with escalating ambition. This commitment aligns with the overarching framework of the United Nations Framework Convention on Climate Change.

This book chapter delves into an exploration of the extra-fiscal function of the Ecological ICMS, examining its potential as a beneficial measure in reducing greenhouse gas emissions (GHG). This study examines the potential impact of a particular instrument on the distribution of ICMS tax collection, aiming to assess its effectiveness as a measure for mitigating greenhouse gas emissions. The study relies on bibliographic and documentary reviews to inform its analysis and findings. The research is structured into three main sections, apart from this introductory section and concluding remarks. Section 2 comprises three distinct topics: firstly, an exploration of the theoretical underpinnings of greenhouse gas emissions in the Brazilian context; secondly, a succinct discussion on the ecological ICMS tax; and lastly, an endeavor to establish a connection between these two domains.

2. The paths of development in research

2.1 Brazilian greenhouse gas emissions

Climate change stands as one of the most pressing and far-reaching challenges of our time, casting a profound impact on ecosystems, weather patterns, and human societies worldwide. Characterized by a discernible alteration in Earth’s climate, driven largely by human activities such as the burning of fossil fuels and deforestation, climate change poses unprecedented threats to the environment and biodiversity. Rising temperatures, extreme weather events, and shifts in precipitation patterns are becoming increasingly apparent, underscoring the urgent need for a concerted global effort to mitigate the causes and adapt to the consequences of this complex and interconnected phenomenon.

As the world grapples with the multifaceted implications of climate change, there is a critical call for collaborative solutions, sustainable practices, and informed policies to safeguard the planet for future generations. Brazil, renowned for its breathtaking natural diversity, grapples with significant challenges regarding greenhouse gas (GHG) emissions. While the country’s economy thrives in sectors such as agriculture and livestock, the foremost source of these emissions is unequivocally linked to deforestation, particularly in the vast expanse of the Amazon and Cerrado biomes [1].

National Greenhouse Gas Inventories play a crucial role in global efforts to address climate change, and the United Nations (UN) is at the forefront of coordinating such endeavors. The UN, through its specialized body, the Intergovernmental Panel on Climate Change (IPCC), provides guidance and methodologies for countries to develop comprehensive inventories of their GHG emissions [2].

These inventories serve as valuable tools for understanding the sources and trends of emissions, aiding in the formulation of effective climate policies. Each country, in accordance with UN guidelines, prepares its National Greenhouse Gas Inventory, detailing the emissions from various sectors such as energy, agriculture, and industrial processes. These inventories are submitted periodically to the UN Framework Convention on Climate Change (UNFCCC) as part of the reporting obligations. The data collected allows for comparisons across nations, facilitating a better understanding of global emission patterns and helping to identify areas where collective efforts to achieve containment of greenhouse gas emissions.

Based on Figure 1, it is possible to observe that the agriculture and forestry and other land use sectors together represent the main sources of greenhouse gas emissions in Brazil. As suggested by the Guidelines of IPCC for National Greenhouse Gas Inventories: Enteric Fermentation, some of the subcategories included Land Converted to Cropland, Grassland Remaining Grassland, Biomass Burning, Urea Application, etc.

Figure 1.

Brazilian emissions in CO2e (t) by sectors according to GWP-AR5. Yellow—Agriculture; green—Forestry and other land use; red—Energy; Brown—Industrial processes and product use; blue—Waste. Source: Adapted from greenhouse gas emissions estimation system (SEEG) of the climate observatory [3].

In this sense, two of these subcategories place Brazil in 5th place in the ranking of largest emitters, deforestation, and wildfires. At the top of the list are China, the United States, the European Union, and India, due to the industry and energy sectors.

If compared to data from The Global Carbon Project (GCP), which integrates knowledge of greenhouse gases for human activities and the Earth system, it is possible to observe that Brazil has become a significant emitter of GHGs due to the increase in deforestation [4].

This trajectory deprives this country of a very important source of mitigation, as the tropical forest is a large carbon sink. Brazil possesses significant potential for mitigating greenhouse gas emissions through a variety of strategies.

Some of these include expanding renewable energy sources like wind, solar, and hydropower to diminish emissions from the energy sector; implementing sustainable agricultural practices such as precision farming and improved fertilizer management to reduce emissions from agricultural activities; conserving existing forests and restoring degraded lands to enhance carbon sequestration and mitigate emissions from land use change and forestry; and improving waste management techniques like recycling, composting, and landfill gas capture to decrease emissions from the waste sector.

Instead of valuing the form of mitigation, what has been happening is the reduction of Amazon’s capacity to act as a carbon sink [5]. This situation is very worrying, as the easiest way for Brazil to achieve its mitigation goal is to maintain its forests.

As the international community intensifies its focus on mitigating climate change, accurate and transparent GHG inventories are indispensable for tracking progress, assessing the effectiveness of climate policies, and fostering collaboration between countries. The UN’s commitment to facilitating the development and exchange of these inventories underscores its role as a pivotal force in the collective global response to the challenges posed by greenhouse gas emissions.

Brazil has adopted various policies and initiatives to combat deforestation, including the implementation of stricter environmental laws, enhanced surveillance, and the promotion of sustainable practices in agriculture. Therefore, the primary source of greenhouse gas emissions in Brazil is intrinsically linked to human activities of land use and land cover changes. As a result, it alters surface-atmosphere interactions, changing the timing and magnitude of energy fluxes, which impacts the partitioning of available energy, and consequently, the climate and water balance [6].

Between 1999 and 2018, Brazil witnessed a total of 16,141,383 fire foci, with the Cerrado and Amazon biomes being the most impacted, constituting 41.56% and 38.34% of the total, respectively. Carbon emissions resulting from these fires totaled 8089.17 Tg between 1999 and 2018, with the Amazon contributing 60.71% and the Cerrado 32.04%. Despite an increase in fire foci in the Cerrado from 2010 onwards, the Amazon remained the primary source of carbon emissions. Future projections indicate a rise in carbon emissions, in Ref. [1].

2.2 Considerations on the ecological ICMS

Environmental protection necessitates an environmental consciousness grounded in ethical values, transcending the commodification of the environment [7]. Within this framework, the Brazilian Constitution upholds the environment as an inherent right for all citizens, necessitating collaborative, multidisciplinary endeavors to secure its preservation. Article 225 of the 1988 Federal Constitution explicitly affirms the entitlement of every individual in Brazil to an environment that is ecologically balanced, underscoring the joint responsibilities of both the government and the collective to safeguard and preserve it for the benefit of present and future generations [8].

Consequently, environmental protection and the fight against pollution have become a shared responsibility among the Union, States, the Federal District, and Municipalities, article 23, VI, in Ref. [8]. Examining this constitutional provision prompts a question: How can municipalities effectively fulfill this constitutional mandate and protect the environment. Considering their financial constraints, municipalities, generally weaker compared to the Union and States, face budgetary limitations, except for major metropolises such as São Paulo, Rio de Janeiro, Belo Horizonte, Salvador, and Recife.

Despite being the weakest entity in the Brazilian federal system in financial and budgetary terms, municipalities play a significant role by opting for greater participation in the distribution of the amount collected by the State through the ICMS in exchange for embracing the Ecological ICMS.

The ICMS, a key state tax, holds significant importance in shaping the financial framework of local governments in Brazil. Nevertheless, its conventional distribution approach tends to benefit economically advanced municipalities, creating difficulties for areas characterized by environmental conservation efforts. To counter this imbalance, the notion of Green ICMS surfaced, seeking to rectify disparities and promote eco-friendly practices.

By adhering to the Ecological ICMS, municipalities commit to establishing and maintaining conservation units, public parks with green areas, protection of water supply catchment areas, environmental sanitation, selective waste collection, preservation of historical and cultural heritage, indigenous reserves, and other potential actions aimed at environmental protection. These actions, as counterparties, benefit society, extend beyond municipal boundaries, and ultimately contribute to the welfare of the entire community. The Ecological ICMS transcends the scope of Tax Law, traditionally concerned with the establishment, supervision, collection, and revenue of taxes; it serves as a significant mechanism within Financial Law, enabling the implementation of environmental policies through extra-fiscal means.

The criteria for distributing the ICMS are outlined in Article 158, Section IV, and the sole paragraph, II, of the Brazilian Constitution. Municipalities are entitled to 25% of the total ICMS collected, with 1/4 (one-fourth) of this amount being transferred according to State Law. They were supported by the 1988 Federal Constitution, under Section IV, sole paragraph, II, allowing for up to one-fourth, in accordance with state law, in Ref. [8]. This provision enables the implementation of public policies, allowing federated states to influence environmental preservation behaviors in municipalities through the Ecological ICMS.

The state of Paraná, in the southern region of Brazil, was the first to institute the Ecological ICMS in 1991. This initiative aimed to compensate municipalities for land use restrictions in areas protected by conservation units, where economic activities may be restricted or prohibited to ensure environmental preservation [6]. The experience in Paraná yielded positive results, with an increase in the number of municipalities benefiting from the Green ICMS and a rise in the volume of financial resources allocated. Additionally, there was an observed increase in municipal expenses related to environmental programmatic functions, in Ref. [9].

Several other states in the federation have also implemented the Ecological ICMS, with distribution criteria tailored to their realities and interests. Beyond environmental factors, other considerations may include the number of children enrolled in elementary education, dropout rates, infant mortality rates, the availability of hospital beds, etc. [10].

Moreover, as per the author’s findings, among the 27 states comprising the Brazilian Federation, 17 have formally adopted the Ecological ICMS, (vide Table 1) while the remaining 10 are yet to enact dedicated legislation on the subject. However, it is crucial to note that not the entire collected revenue is allocated toward sustainability initiatives. For instance, in São Paulo, a mere 0.5% of the total collected funds is directed toward specific actions, and in Minas Gerais, this figure stands at 1.1%. This distribution pattern suggests that the extra-fiscal function is diffused across various aspects of public administration.

	States of the federation	Tax legislation	%
1	Acre	1.530/04	5,00
2	Amapá	322/96	1,40
3	Cerará	14.023/07	2,00
4	Goiás	complementary law 90/11	5,00
5	Minas Gerais	18.030/09	1,35
6	Mato Grosso	complementary law73/00	7,00
7	Mato Grosso do Sul	4.216/12	5,00
8	Pará	7.638/12	8,00
9	Pernambuco	11.899/00	3,00
10	PernanbucoB	9.600/11	5,00
11	Paraná	9.491/90	5,00
12	Piauí	6.581/14	5,00
13	Rio de Janeiro	5.100/07	2,5
14	Rio Grande do Sul	13.188/09	7,00
15	Rondônia	complementary law 147/96	5,00
16	São Paulo	17.348/21	2,00
17	Tocantins	2.959/15	13,00

Table 1.

Brazilian states with legislation on ecological ICMS and percentage allocated to municipalities.

Source: Elaborated by the authors.

Furthermore, municipalities within the 17 states that have implemented the Ecological ICMS, upon participation, not only operationalize the mandate prescribed in Article 23, VI of the Constitution but also contribute substantively to Brazil’s adherence to commitments outlined in international treaties and agreements, particularly those with organizations such as the UN. This collective effort is oriented toward advancing sustainability objectives and promoting environmental preservation.

2.3 Unraveling the connection between greenhouse gas reduction and the green ICMS

At the national level, initiatives aimed at reducing greenhouse gas emissions are poised to make a substantive contribution to the Global Stocktake. Among the paramount international regulations is the Paris Agreement, wherein each participating State commits to submit its nationally determined contributions progressively and with escalating ambition. This commitment is integral to the overarching framework of the United Nations Framework Convention on Climate Change [11].

Brazil has adopted several initiatives to reduce greenhouse gas emissions (GHGs), reflecting the country’s commitment to mitigating climate change. One of the main strategies is the reduction of deforestation in the Amazon, considered one of the country’s largest sources of carbon emissions. Brazil has implemented monitoring and control policies for deforestation, such as the Real-Time Deforestation Detection System (Deter), Terra Brasilis Project, and MAPBiomas Alerta project.

The Terra Brasilis Project is an initiative by the National Institute for Space Research (INPE) aimed at monitoring and combating deforestation in the Brazilian Amazon. Utilizing remote sensing technologies, particularly high-resolution satellite imagery and advanced data processing algorithms, the project provides precise and up-to-date information on deforestation activities in near real time.

The MAPBiomas Alerta project is an innovative initiative focused on monitoring land use changes and deforestation across Brazil. Developed by a consortium of research institutions, including the Amazon Environmental Research Institute (IPAM) and the Federal University of Minas Gerais (UFMG), the project utilizes cutting-edge satellite imagery analysis and machine learning algorithms to detect and alert stakeholders to changes in land cover in near real time.

By providing timely and accurate information on deforestation, forest degradation, and land use conversion, MAPBiomas Alerta and The Terra Brasilis Project empowers government agencies, environmental organizations, and local communities to take proactive measures to combat illegal logging, land clearing, and other destructive activities. Through its open-access platform and collaborative approach, the project facilitates data-driven decision-making and supports efforts to conserve Brazil’s precious natural resources and biodiversity.

The Action Plan for Prevention and Control of Deforestation in Legal Amazon (PPCDAm) and the Plan for Prevention and Combating Deforestation and Fires in the Cerrado (PPCerrado) are initiatives implemented in Brazil aimed at addressing deforestation and wildfires in specific regions. PPCDAm focuses on the Legal Amazon region, offering strategies for monitoring, law enforcement, and sustainable land management to reduce deforestation rates and promote conservation efforts in this critical biome. On the other hand, PPCerrado targets the Cerrado biome, aiming to prevent and combat deforestation and wildfires through strengthened enforcement of environmental laws, promotion of sustainable agricultural practices, and community engagement.

The discontinuation of the PPCDAm and PPCerrado projects represents a concerning interruption in efforts to combat deforestation and wildfires in two of Brazil’s most important and vulnerable regions: the Legal Amazon and the Cerrado biome. These projects have played a crucial role in reducing environmental degradation, protecting biodiversity, and promoting sustainable development in these areas. However, the lack of continuity of these initiatives may lead to an increase in deforestation rates, loss of natural habitats, and a rise in greenhouse gas emissions, exacerbating climate change and harming local communities that depend on natural resources for their livelihoods.

Furthermore, Brazil has invested in renewable energy, primarily in hydroelectric, solar, and wind power generation. The country’s energy matrix is one of the cleanest in the world, with a significant portion of its electricity coming from renewable sources. Brazil also has incentive programs for the production and consumption of biofuels, such as sugarcane ethanol, which replaces part of fossil fuels and reduces greenhouse gas emissions in the transportation sector.

REDD+ (Reducing Emissions from Deforestation and Forest Degradation, as well as conservation, sustainable forest management, and enhancement of forest carbon stocks) is a global initiative aimed at combating climate change by incentivizing deforestation reduction and forest conservation. The program seeks not only to mitigate carbon emissions resulting from forest loss but also to promote biodiversity conservation, protect the livelihoods of local communities, and contribute to sustainable development. REDD+ provides financial incentives to developing countries that implement effective forest conservation policies and practices, providing a framework for financing projects that combat deforestation and promote sustainable management of natural resources.

Another significant initiative is the Low Carbon Agriculture Program (ABC), which promotes sustainable agricultural practices such as no-till farming, integrated crop-livestock-forest systems, and land restoration. These practices not only reduce carbon emissions but also contribute to climate change adaptation, increase the resilience of agricultural systems, and promote food security.

Brazil also actively participates in international agreements on climate change, such as the Paris Agreement, in which the country committed to reducing its emissions by 37% by 2025, with a perspective of reducing by 43% by 2030, compared to 2005 levels. To achieve these goals, the country has sought to promote sustainable development policies, incentivize the adoption of clean technologies, and strengthen international cooperation in combating climate change.

In summary, Brazil has implemented a series of initiatives to reduce greenhouse gas emissions, addressing key areas such as deforestation, energy, agriculture, and transportation. These efforts are crucial to contribute to global efforts to combat climate change and promote more sustainable and resilient development in the country. Furthermore, the lack of ongoing commitment to environmental conservation undermines Brazil’s credibility on the international stage and hampers global efforts to protect the environment.

Currently, one of the most significant initiatives is Brazil’s Nationally Determined Contribution (NDC) under the Paris Agreement, which outlines the country’s commitment to reducing greenhouse gas emissions and addressing climate change. Brazil has pledged to decrease its emissions by 37% below 2005 levels by 2025, with an additional indicative target of 43% by 2030. The NDC underscores Brazil’s acknowledgment of its role as a major emitter and its dedication to transitioning toward a low-carbon economy while concurrently fostering sustainable development.

Consequently, Nationally Determined Contributions are influenced by self-determination, the steps taken to mitigate greenhouse gases appear to be more of a political decision-making process rather than a purely technical necessity driven by the imperative to curb global temperatures [12].

Therefore, “the Green ICMS policy has been operational in several Brazilian states for several years, serving as an economic off-budget mechanism designed to fulfill constitutional objectives related to environmental preservation, the advancement of tax justice, and the encouragement of voluntary initiatives by municipalities to augment their revenue sources” [13]. A successful example of extra-fiscal measures policy has been observed.

The complete legitimacy of utilizing extra-fiscal mechanisms is achieved as stipulated in the Federal Constitution, when the aim is to champion fundamental rights, particularly in environmental protection, while simultaneously reconciling national economic development with the responsibility to preserve the environment and advance socio-environmental justice [14].

Extra-fiscality, serving as an instrument of fiscal (tax) policy, not only caters to fundraising requirements but also emerges as a tool to fortify fundamental socio-environmental rights and foster socio-environmental justice. Extra-fiscality aligns with the concept of social responsibility, striving not only to finance the State but also to enhance social well-being through public policies focused on sustainable social development, in Ref. [13].

Despite the existence of an old norm provision, it can still be regarded as an incipient instrument in Brazilian law due to its limited usage. Currently, two major categories of tax solutions are employed to attain an ecologically balanced environment: the imposition of environmental taxes, relying on conduct standards and cost internalization, and the establishment of incentives for sustainable production, utilizing the “incentive-awards” model to prompt ecologically responsible decisions in both industry and its products.

The statement suggests that the Green ICMS can be easily introduced as an instrument based on the existing system with only a change in the State’s law. It indicates that its impact is limited to the revenue transferred by the State to cities for compensating environmental efforts. The underlying logic is straightforward, proposing that economic development, achieved primarily through land use, compensates those unable to utilize it or protect practical sustainable use. The Green ICMS is presented as a financial option for municipalities struggling to generate sufficient sales tax to ensure a high income, in Ref. [13].

The Green ICMS model, already implemented in Brazilian states, anticipates diverse distribution criteria, with conservation units being the most prevalent. Within the spectrum of conservation units, various levels of protection are established. The Integral Protection Conservation Unit strives to preserve nature by permitting only indirect utilization of its natural resources, except in cases specified by law. Conversely, the Sustainable Use Conservation Unit endeavors to harmonize nature conservation with the sustainable exploitation of a portion of its natural resources. Additionally, there exists an interplay between policies concerning solid waste management, biodiversity conservation, and the safeguarding of indigenous and quilombola territories.

Indigenous and quilombola areas stand out in mitigating climate change due to sustainable land management, preservation of forest cover, and active resistance against predatory activities such as deforestation and mining. Their practices of subsistence agriculture and biodiversity conservation contribute to carbon emissions reduction, while their traditional knowledge promotes sustainability and climate resilience.

The implementation of the Ecological ICMS (Tax on Circulation of Goods and Services) faces several challenges, predominantly rooted in administrative complexities, inadequate monitoring systems, and insufficient financial resources.

The lack of continuity in updating data produced by the Brazilian government stands out, for example, the last National GHG Inventory was published in 2016.

Another weakness is the fact that policies to combat and prevent deforestation in the Cerrado and Amazon biomes are no longer legally valid between 2019 and 2023, with deforestation reaching the mark of 13 thousand km² in 2021, which has not occurred since 2006, moving the country away from the goals established in international agreements [15].

The Cerrado, as a hot spot for biodiversity and the source of nine river basins, receives little legal protection to combat deforestation. One of the main difficulties lies in the lack of standardized criteria to determine the distribution of funds between municipalities, leading to disparities and potential disputes between local governments. The reason for this can be pointed out to be the fact that there are 5568 Brazilian municipalities, plus two districts (Fernando de Noronha and Distrito Federal). Therefore, the individualities of each location must be taken into account, making the process of standardizing ICMS Verde implementation criteria difficult.

Additionally, there are challenges related to accurately measuring and verifying environmental indicators, such as biodiversity conservation and ecosystem services, which are crucial in determining each municipality’s eligibility for funding.

Furthermore, the effectiveness of the Ecological ICMS depends on the availability of adequate financial resources, which may be limited due to competing budgetary priorities and economic constraints. These restrictions make command and control action by inspection bodies unfeasible.

Overcoming these challenges requires robust governance structures, better data collection mechanisms, and greater cooperation between government agencies, between federal entities, and local stakeholders to ensure the equitable and transparent implementation of the Ecological ICMS. Ultimately, concerted efforts are required to overcome these obstacles and effectively implement the Ecological ICMS, ensuring the conservation of Brazil’s natural resources for future generations.

3. Conclusions

The Ecological ICMS holds significant importance as a tool for environmental preservation and as an incentive for municipalities that adhere to it. In summary, the recognition of this importance is mainly attributed to the following factors:

It has proven to be an excellent instrument for encouraging municipalities to establish or advocate for the creation of new conservation areas and improve the quality of existing protected areas. This represents a significant increase in their revenues due to a greater share in the distribution of the collected amount, as outlined in Article 158, IV, § unique, II, of the Brazilian Constitution.

The Ecological ICMS provides an opportunity for the Federal State to influence the process of sustainable development in municipalities, allowing for the compensation of environmentally desirable activities. This makes the revenue sharing with the ICMS a crucial instrument for public policy and the operationalization of a set of innovative principles to enhance Brazilian environmental management, particularly that of the provider-receiver.

Extra-fiscality through the Ecological ICMS, besides being an important source of revenue for many municipalities, serves as a tool to promote sustainable development, nature conservation, and biodiversity protection. This is manifested by: (a) an increase in the number and extent of conservation units and other specially protected areas (quantitative dimension); (b) the regularization, planning, implementation, and pursuit of sustainability of conservation units (qualitative dimension).

The implementation of the Ecological ICMS (Tax on Circulation of Goods and Services) encounters numerous challenges, mainly due to administrative complexities, inadequate monitoring systems, and insufficient financial resources. A critical issue lies in the irregular updates of data provided by the Brazilian government.

Another significant obstacle is the absence of standardized criteria for distributing funds among Brazil’s vast number of municipalities, leading to disparities and potential disputes among local governments.

Furthermore, accurately measuring and verifying environmental indicators such as biodiversity conservation and ecosystem services pose significant challenges in determining each municipality’s eligibility for funding. Furthermore, the effectiveness of the Ecological ICMS hinges on the availability of sufficient financial resources, which are often constrained due to competing budget priorities and economic limitations, rendering enforcement actions by inspection bodies impractical.

Addressing these challenges requires robust governance structures, improved data collection mechanisms, and enhanced cooperation among government agencies, federal entities, and local stakeholders to ensure equitable and transparent Ecological ICMS implementation. It is imperative to prioritize regular updates of environmental data, strengthen legal enforcement measures against deforestation, and develop standardized criteria for fund distribution among municipalities. Furthermore, investing in innovative technologies and capacity-building initiatives can enhance monitoring systems and facilitate accurate measurement of environmental indicators and instruments that already exist.