Brazil must create a carbon credit market for biofuels by 2020, under a law that took effect March 16.

The law sets up a carbon credit market in which companies that produce biofuels such as ethanol and biodiesel are issued credits, called CBIOs, for each metric ton of carbon dioxide emissions that’s lower, based on the prior year’s volume and carbon content.

The regulatory National Oil Agency (ANP) is authorized to set the criteria by which biofuel producers...