The 2012 forest code in Brazil allows landowners with illegal deforestation carried out up to 2008 to comply with their environmental obligations by purchasing Environmental Reserve Quotas (CRA), a mechanism that rewards other landowners who conserved more forest than legally required. CRA may be a promising instrument in the coming years, given the need to provide positive incentives to reduce deforestation, in addition to existing command and control mechanisms. However, there are few studies assessing the potential of this instrument in Brazil. As a contribution to the recent literature on this topic, this study makes an in-depth assessment of the CRA market potential in Para State that combines high rates of deforestation with a significant forest area. The assessment takes into account biophysical and governance characteristics that may influence this market development. In particular, the study assesses CRA demand and supply based on land tenure status of rural properties and on a simulation of validation of data from the environmental rural registry (CAR). Moreover, there is a focus on evaluating potential oversupply of CRA reported in the literature and in discussing measures to avoid such a scenario. Results indicate that regulatory decision regarding the supply side will be fundamental for determining whether CRA will contribute to forest conservation, or if it will serve as a low cost alternative to help illegal deforesters comply with legislation. Following previous literature, the study indicates regulatory options to limit the market and increase additionality of the areas eligible for CRA supply. Finally, the study demonstrates the importance of including governance aspects in addition to biophysical characteristics when assessing CRA supply and demand scenarios, to avoid overestimation of its potential use.