ICMS Ecológico is a Brazilian fiscal mechanism that redistributes state sales tax (ICMS) revenue to municipalities based on their conservation performance. Municipalities that maintain protected areas, indigenous territories, or water conservation zones receive a larger share of state tax transfers.
Introduced in Paraná in 1991, the mechanism has since been adopted by most Brazilian states. It works by making conservation economically rational for local governments: a municipality that protects a watershed or maintains a biological reserve receives measurable financial compensation, creating a counterweight to the economic incentives for deforestation.
At COP30 (Belém, November 2025), Amazon states launched new initiatives to expand conservation-based revenue models, including sovereign-backed biodiversity credits and payments for standing forest. The ICMS Ecológico model is being studied internationally as a template for fiscal approaches to conservation — turning the tax system into a tool for environmental protection rather than relying solely on regulation or voluntary carbon markets.