**2. Voluntary markets: Do they work?**

Over the years, many companies have received incentives or mandatory rules in order to develop initiatives to reduce their GHG emissions.

A voluntary market is one that comes from a no mandatory initiative, decided by a country or by a corporation in order to make a sensitive contribution to one "cause."

In this chapter, the focus is centered on an initiative that contributes to reduce GHG emissions and to help in the fight against climate change made by volunteered initiative of one of the biggest energy trader in Brazil.

Even the USA, a country that has not to date adhered to formal agreements and remains adamant in resisting international cooperation, has hundreds of voluntary initiatives of their own to reduce emissions. Here, we list some of the strategies that have been used: (i) regional legislation, (ii) sectorial policies, (iii) initiatives by industry associations, unions, and nongovernmental organization (NGOs), and (iv) business initiatives. Each one of the initiatives has its own motivation, and they may or may not be limited to their corresponding industry.

<sup>1</sup> The other two authors of original paper allowed the present authors to use the primary information.

Take for example, the carbon disclosure project (CDP) [6], which in 2017 involved more than 6300 of the largest companies around the world to reveal progress in avoided emissions. Around 89% of them now have their own emission reduction target. Such initiatives can foster best practices around the world by helping people and companies think strategically about climate change. More than this, most of the companies also included their suppliers in their reduction targets. If met, the targets could be relevant contributions to the required GHG abatement to cap global warming at no more than +2°C. The CDP report disclosed reductions equivalent to 551 million tons of CO2 in 2017, with associated cost savings of US\$ 14 billion [6].

A review of the literature on voluntary markets [7–16] indicates that when information is available, the behavior of customers could be affected, also the demand for environmental friendly products. Companies with voluntary initiatives can benefit from them by gaining a positive image with final consumers.

Delmas and others [10] found that once energy is required to produce goods and services, consumers can drive change by choosing goods and services associated with renewable or "green" energy [10]; a good example of its importance is that renewable energy market in United States of America (USA) in the last 10 years (2007–2017) has grown up 5.4% yearly [16].

Delmas and others [9] found that a deregulated industry where competition is still incipient will be more affected by consumer perception and sensitivity to the issue, favoring the insertion of renewable sources, as can be better explained in following sections. The same perception can be reported by the authors of this chapter, in their experience in Brazil. Some of the clients of Comerc are very proud about their certificates. However, Delmas and others [9] note that sources of low cost such as coal can affect the decision process with the low price being the winner.

Kotchen, on the other hand [11], put on doubt if simple low-cost public policies can effectively promote stable voluntary initiatives, and whether such initiatives will continue to be effective, especially if more centralized policies are required in future.

Are voluntary and mandatory initiatives complementary or substitutes? In the opinion of authors, and likely in the opinion of anyone who reads the 2018 CDP Report [6], all parties, government and customers, must be involved in the effort. The figures cited by Hamilton [14] (volunteer markets could be US\$ 100 million/ year) probably will be much more impressive with a successful Paris Agreement.

The initiatives give companies the tools they need to be prepared to lead the way in GHG regulation. "This market is growing fast, perhaps doubling each year." Hamilton's recommendation, however [14], centered in the needs of tools to measure the emissions targeted, an opinion that the authors share. This need comes from a pattern that will be required for compliance of the goals self-established.

There is no unanimity about the efficiency of volunteer markets; Ferguson, by instance [15], believes in many barriers, high costs, and complexity in reporting trustable results. Higher costs in voluntary markets result from the nonexistence of deterministic goals, as obvious. The agent can always decide not to invest in reducing its emissions, while others in doing so make its operation more costly. In regulated industry, usually the regulator does not recognized costs that are not strictly related with regulation, so even an action that could be defensible may impact in economic results of a goodwill initiative.

Reporting results is always complex. There are several alternatives in the way to report the figures, per unit of production or through corporations and their subsidiaries, especially in different countries with different legislations. Some emissions come directly from the company and the others from the suppliers in chain production. Due to avoiding double accounting, this kind of information must be carefully reported and checked.

**133**

*Voluntary Certification of Carbon Emission in Brazil - The Experience of an Electricity Trader*

More than this, there are the difficulties related to the "leaks" that can occur along the chain production. Just to focus on the electricity industry, one can use the example of a wind power plant (carbon-free by definition) but that needs a high

Kim and Lyon [12] share the pessimist view because only projects with low marginal costs are likely to succeed, as the regulatory risk is too high. Regulatory risks should be especially considered because if there are no rules, a subsequent emergence of these rules can make impossible to account for past initiatives. The hypothesis of the emergence of rules is not contradictory even in voluntary markets, since a country can voluntarily create its goals in international diplomacy, and to accomplish them, needs to encourage their fulfillment by incentive or even by mandatory regulation in some segments of the economy. A cap and trade environ-

Other beliefs from Hofmann [8] are connected with the junction of a public policy with some associated benefit, such as Brazilian incentives in transmission tariffs for small renewable generators, and volunteer markets. The authors would add to this, the goodwill or favorable image associated with environmental marketing.

Two decades after the creation of the United Nations Framework Climate Change Convention (UNFCCC), the parties (countries) remain firm in their decision to contribute to the reduction of GHGs, but the debate continues about how to share the burden among the parties, especially because of the substantively different development levels. The problem of coordinating actions has also been

The previous experience with the Kyoto Protocol, where responsibility was distributed differently between developed and undeveloped countries, did not work. Countries such as the United States and Canada did not ratify the protocol in the belief that the effort and cost faced by developed countries would be wasted by developing countries, which had no deterministic emission reduction targets at the

The established targets and metrics were also questioned, so after the Kyoto Protocol expired, no new agreements with similar methodologies could be established. An interesting example of such divergences may be the case of China: the country's emission indicators are higher than those in the USA, yet are substantially smaller if considered on a per capita basis. A parallel reasoning can be applied to the analysis if we consider the useful life of emissions in the atmosphere: in a cumulative calculation, Chinese emissions remain far below those produced over decades

This deadlock was bypassed in the Paris Agreement, which declares the sovereignty of each country in choosing and setting possible goals within a process of goodwill. Article 6 of the Paris Agreement states that countries may cooperate internationally in different ways in order to reach climate goals and defines broad enough conditions, so that the targets set voluntarily by the parties, known as

The UNFCCC targets established that the average world temperature not exceed

There is a mood of relative optimism, or at least, it seems to be overcoming the pessimism that followed the expiration of the Kyoto Protocol; however, there are

2°C at least with a probability of 50%, so the goals for different countries, even

Nationally Determined Contributions (NDC), can be achieved.

defined in voluntary way, need to take in count a common objective.

voltage line of interconnection, which demands some deforestation.

ment could help the management of this kind of uncertainty.

**3. Paris Agreement: understanding the main issues**

considered very important.

by developed countries.

still many adjustments to be made.

time [17].

*DOI: http://dx.doi.org/10.5772/intechopen.81185*

*Voluntary Certification of Carbon Emission in Brazil - The Experience of an Electricity Trader DOI: http://dx.doi.org/10.5772/intechopen.81185*

More than this, there are the difficulties related to the "leaks" that can occur along the chain production. Just to focus on the electricity industry, one can use the example of a wind power plant (carbon-free by definition) but that needs a high voltage line of interconnection, which demands some deforestation.

Kim and Lyon [12] share the pessimist view because only projects with low marginal costs are likely to succeed, as the regulatory risk is too high. Regulatory risks should be especially considered because if there are no rules, a subsequent emergence of these rules can make impossible to account for past initiatives. The hypothesis of the emergence of rules is not contradictory even in voluntary markets, since a country can voluntarily create its goals in international diplomacy, and to accomplish them, needs to encourage their fulfillment by incentive or even by mandatory regulation in some segments of the economy. A cap and trade environment could help the management of this kind of uncertainty.

Other beliefs from Hofmann [8] are connected with the junction of a public policy with some associated benefit, such as Brazilian incentives in transmission tariffs for small renewable generators, and volunteer markets. The authors would add to this, the goodwill or favorable image associated with environmental marketing.

### **3. Paris Agreement: understanding the main issues**

Two decades after the creation of the United Nations Framework Climate Change Convention (UNFCCC), the parties (countries) remain firm in their decision to contribute to the reduction of GHGs, but the debate continues about how to share the burden among the parties, especially because of the substantively different development levels. The problem of coordinating actions has also been considered very important.

The previous experience with the Kyoto Protocol, where responsibility was distributed differently between developed and undeveloped countries, did not work. Countries such as the United States and Canada did not ratify the protocol in the belief that the effort and cost faced by developed countries would be wasted by developing countries, which had no deterministic emission reduction targets at the time [17].

The established targets and metrics were also questioned, so after the Kyoto Protocol expired, no new agreements with similar methodologies could be established. An interesting example of such divergences may be the case of China: the country's emission indicators are higher than those in the USA, yet are substantially smaller if considered on a per capita basis. A parallel reasoning can be applied to the analysis if we consider the useful life of emissions in the atmosphere: in a cumulative calculation, Chinese emissions remain far below those produced over decades by developed countries.

This deadlock was bypassed in the Paris Agreement, which declares the sovereignty of each country in choosing and setting possible goals within a process of goodwill. Article 6 of the Paris Agreement states that countries may cooperate internationally in different ways in order to reach climate goals and defines broad enough conditions, so that the targets set voluntarily by the parties, known as Nationally Determined Contributions (NDC), can be achieved.

The UNFCCC targets established that the average world temperature not exceed 2°C at least with a probability of 50%, so the goals for different countries, even defined in voluntary way, need to take in count a common objective.

There is a mood of relative optimism, or at least, it seems to be overcoming the pessimism that followed the expiration of the Kyoto Protocol; however, there are still many adjustments to be made.

*Green Energy Advances*

billion [6].

Take for example, the carbon disclosure project (CDP) [6], which in 2017 involved more than 6300 of the largest companies around the world to reveal progress in avoided emissions. Around 89% of them now have their own emission reduction target. Such initiatives can foster best practices around the world by helping people and companies think strategically about climate change. More than this, most of the companies also included their suppliers in their reduction targets. If met, the targets could be relevant contributions to the required GHG abatement to cap global warming at no more than +2°C. The CDP report disclosed reductions equivalent to 551 million tons of CO2 in 2017, with associated cost savings of US\$ 14

A review of the literature on voluntary markets [7–16] indicates that when information is available, the behavior of customers could be affected, also the demand for environmental friendly products. Companies with voluntary initiatives

Delmas and others [10] found that once energy is required to produce goods and services, consumers can drive change by choosing goods and services associated with renewable or "green" energy [10]; a good example of its importance is that renewable energy market in United States of America (USA) in the last 10 years

Delmas and others [9] found that a deregulated industry where competition is still incipient will be more affected by consumer perception and sensitivity to the issue, favoring the insertion of renewable sources, as can be better explained in following sections. The same perception can be reported by the authors of this chapter, in their experience in Brazil. Some of the clients of Comerc are very proud about their certificates. However, Delmas and others [9] note that sources of low cost such

Kotchen, on the other hand [11], put on doubt if simple low-cost public policies can effectively promote stable voluntary initiatives, and whether such initiatives will continue to be effective, especially if more centralized policies are required in future. Are voluntary and mandatory initiatives complementary or substitutes? In the opinion of authors, and likely in the opinion of anyone who reads the 2018 CDP Report [6], all parties, government and customers, must be involved in the effort. The figures cited by Hamilton [14] (volunteer markets could be US\$ 100 million/ year) probably will be much more impressive with a successful Paris Agreement. The initiatives give companies the tools they need to be prepared to lead the way in GHG regulation. "This market is growing fast, perhaps doubling each year." Hamilton's recommendation, however [14], centered in the needs of tools to measure the emissions targeted, an opinion that the authors share. This need comes from a pattern that will be required for compliance of the goals self-established. There is no unanimity about the efficiency of volunteer markets; Ferguson, by instance [15], believes in many barriers, high costs, and complexity in reporting trustable results. Higher costs in voluntary markets result from the nonexistence of deterministic goals, as obvious. The agent can always decide not to invest in reducing its emissions, while others in doing so make its operation more costly. In regulated industry, usually the regulator does not recognized costs that are not strictly related with regulation, so even an action that could be defensible may impact in

Reporting results is always complex. There are several alternatives in the way to report the figures, per unit of production or through corporations and their subsidiaries, especially in different countries with different legislations. Some emissions come directly from the company and the others from the suppliers in chain production. Due to avoiding double accounting, this kind of information must be carefully

can benefit from them by gaining a positive image with final consumers.

as coal can affect the decision process with the low price being the winner.

(2007–2017) has grown up 5.4% yearly [16].

economic results of a goodwill initiative.

**132**

reported and checked.

Among the most relevant points that could be mentioned is the need to create metrics to compare the efforts expended by countries, since different ethical concepts can be raised, involving, for example, the "polluter pays" principles [18] (especially defended by Brazilian Diplomacy).

Other aspects include the principle of equity, in other words, the right each party has to guarantee its citizens can have access to the planet**'**s natural resources; the principle of capability, the capacity to produce actions that are feasible for the country, and finally, the principle of sovereignty, that involves the discussion of whether countries should have proportional targets or whether the sovereign right to decide according to their circumstances would apply. It should be noted that with regards to the "polluter pays" principle, it would be necessary for the carbon "price" to be evenly defined to avoid "polluter havens" [16].

Most of the points above are included in the COP 24 agenda—the summit will take place in Poland in 2018 to discuss accounting principles, legislation, procedures, compliance with the targets defined by the NDCs themselves, as well as the rules to report reductions achieved through market mechanisms, including voluntary certifications.
