This paper studies how environmental policies should respond optimally to economic cycles in Brazil. We use a real business cycle (RBC) model with pollution externalities to address this question. The results indicate that the cost of mitigation of carbon emissions is lower than the cost of pollution in Brazil, what supports the adoption of restrictive policies. Also, facing productivity shocks, mitigation should be procyclical, where emission taxes and quotas rise in moments of expansion and fall in periods of crisis. We also define a decision rule to the optimal path of mitigation.
