This article focuses on voluntary initiatives that contribute to reducing GHG emissions. Our main goal here is to develop a clean energy certification program process and encourage its use in Brazil, a country that still has no official methodology for recording and keeping track of GHG emission abatement from the use of renewable energy sources.

What drives us to this objective?

The Conference of Parties (COPs) has been unable to significantly promote diplomatic agreement, and it is unlikely that the US will adhere to international commitments unless high-emitting developing nations do the same. If emerging nations, and in particular India, China, Brazil and Indonesia adhere to the commitments, the situation could be different.

We believe that government measures and coordinated actions under the umbrella of UN agreements alone will not be enough to fight climate change. Thus, in addition to government initiatives and related legislation, new and better market tools and voluntary self-regulation are required.

This is a hugely serious matter, as for the very first time in 3 million years the concentration of CO₂ in the atmosphere has passed the 400-ppm mark. This level means that we will have to cope with climate change for a long time, as it seems inevitable that temperatures will rise by at least 2 °C.

Thousands of references in scientific publications from all over the world confirm a worsening trend in Climate Change. One example would be the 4^th IPCC Report [1]. Other examples of the many publications on this topic that describe the anthropogenic effects on climate change are those by Mann [2], [3], Dell [4], Thompson [5] and the National Research Council [6].

However, there is no unanimity about how to tackle climate change, or even if it needs to be tackled. Those who oppose the need to address climate change normally (1) discredit the existence of the climate change phenomenon, (2) recognize that climate change exists, but play down its effects and consequences, or (3) recognize the phenomenon but do not accept it is at all anthropogenic. Regardless of what they base their arguments on, they all believe there is nothing humans can do to reverse or fight the effects of climate change. Among the publications opposing or skeptical of the climate change argument are those by Lal [7], Carter [8], Idso [9], Milloy [10] and Lomborg [11].

Many businesses have received incentives to develop initiatives to reduce GHG emissions.

Even the US, which has yet to adhere to formal agreements and remains a paradigm of resisting international cooperation, has hundreds of initiatives to reduce emissions. Here we list some of the strategies that have been used, including by nations with no objective obligation to reduce GHG emissions:

• Regional legislation;

• Sectorial policies;

• Initiatives by industry associations, unions and NGOs;

• Business initiatives.

Each of these initiatives has its own motivations, and may or may not be facilitated by the boundary conditions of each industry.

Take for example the Carbon Disclosure Project (CDP), which in 2012 involved more than 400 companies listed in the Global 500 index. Initiatives such as this one can further best practices around the world by helping people and companies think strategically about climate change.

The 2012 CDP Report shows that 82% of the companies listed in the CDP initiative have set targets to reduce emissions. If met, these would account to 25% of the required GHG abatement to keep global warming to no more than 2 °C.

A review of the literature on voluntary markets (Desgagne, [12]; Hoffman, [13]; Delmas, [14], [15]; Kotchen, [16]; Kim [17]; Bisore, [18], Simpson [19], Hamilton [20], Fergurson [21]) indicates that information availability affects consumer concerns and consequently the demand for products.

Energy is required to produce goods and services, and consumer pressure can affect the choices people make in terms of choosing goods and services associated with renewable or clean energy [15]. This same author [14] found that a deregulated industry where competition is incipient will be affected by consumer perception and sensitivity to the issue, favoring the insertion of renewable sources.

Delmas [14] notes that the intense use of coal generation may inhibit this process because of its low cost. In the following section, we analyze the predominant sources of power in Brazil.

Kotchen [16] attempts to answer if simple, relatively low cost government programs can effectively promote voluntary initiatives, and whether such initiatives will continue to be effective if more centralized policies are required in future.

Are voluntary and mandatory initiatives complementary or substitutes? In our opinion, and likely the opinion of anyone who reads the 2013 CDP Report [22], all parties must be involved in the effort. According to Hamilton [2], the voluntary carbon market “represents a volume of over USD 100 million”, and gives companies the tools they need to prepare for, and demonstrate leadership in GHG emission regulation. "This market is growing fast, perhaps doubling each year”. Hamilton [20] also believes that a first step to go into a voluntary market is to measure the emissions that are the target of the effort, an opinion that is in line with this paper.

Ferguson [21], in a report for the US Environmental Agency, has a completely different view of the possibility that voluntary markets will succeed. He found that the main barriers to voluntary actions are the high cost to reduce emissions, and the complexity of the reporting disclosures.

Other authors share his pessimistic view of voluntary markets. Kim [17] reports that only projects with low marginal costs are likely to succeed, as the regulatory risk is usually considered high. This situation could be reversed if a "cap and trade" policy were used.

Finally, Hoffman [13] believes that voluntary markets could change the production chain as players opt for lower emission technologies, especially if there is some associated benefit, such as carbon credits. We would add to this the goodwill or favorable image associated with environmental marketing.

The Brazilian electric power system is characterized by a preponderance of hydroelectric power plants. These plants operate within an interconnected system, which is among the largest in the world, similar in size to the continent of Europe. This system consists of 64,000 miles of transmission lines, with planned additions of over 30,000 miles by 2021 [23]. Table 1 shows the composition of the installed generation capacity in Brazil as of January 2013 [24].

Renewable sources of energy account for approximately 70% of capacity, while thermal power plants (including nuclear) account for the remaining 30%. However, even in hydrologically unfavorable years such as 2012, most of the power is generated by hydroelectric plants. The disproportionate role in output stems from dispatching HPPs whenever reservoirs have enough water. It is uneconomical to dispatch power plants that use costly fossil fuels (remembering that these have both direct and indirect costs in the form of GHG emissions). Table 2 shows the technology breakdown for the total output of 513.81 TWh in 2012 [25].

Currently Brazil is the largest nation that is highly dependent on hydroelectric power. Table 3 is a ranked list published in 2010 [6] of countries producing hydroelectricity. These statistics exclude exports from Paraguay to Brazil (from its share in the power plant of Itaipu Bi-national, usually of the order of 36 TWh yearly).

This list places Brazil among the major countries with a large share of renewable electricity generation. However the acceptance of renewability as adequacy in relation to the environment is far from being accepted unanimously.

The debate over the impact of hydroelectric power plants occurs in the policy arena and in academic literature. Non-governmental organizations such as Greenpeace and the World Wildlife Fund (Movimento Gota D’água [27], Amazon Watch [28], Sant'Ana [29]) have presented a case against electricity from hydro sources. In addition, social movements and celebrities highlight concerns regarding the dams and reservoirs and their impact on the local population and environment (flora and fauna)^†.

Within the academic community, a sampling of those arguing the case against Hydroelectric Power Plants (HPPs) includes several examples (McCully [30], Bermann [31], Cernea [32], McCormick [33], Fearnside [34]). For these reasons, the Designated National Authority normally does not consider large hydro plants as being emission-free. However the system is almost entirely interconnected, which leads to an important question regarding the reduction of GHG emissions in regulated and non-regulated markets: how can one separate the wheat from the chaff?

The method used to calculate these numbers is described below. It is based on the trading chamber (CCEE) "ME001" (energy consumed) and "EI002" (TUSD incentive discount) reports.

First the weekly consumption of energy reported in ME001 (energy consumed) reports is added up to come up with the total for the month. The amount of energy traded at a given percent discount (TUSD or wire discount) is added and divided by the total volume, to arrive at:

where:

• TD is the Total Discount;

• VE is the Volume of Energy;

• D is the Discount.

Consumption is then multiplied by the discount to arrive at the incentive that applies to the volume of energy:

where:

• MIAE is the Monthly Incentive Applicable Energy;

• WE is the Weekly Consumption.

The difference between monthly consumption and the amount of incentivized energy is then used to calculate the GHG emissions avoided each month, reported as tons of CO₂ equivalents. This is calculated as a specific emission factor such as tons of CO_2eq/MWh:

where:

• AE are the Avoided Emissions;

• TMC is the Total Monthly Consumption;

• IAEC is the Incentive Applicable Energy Consumption;

• EF is the Emission Factor.

The procedures described herein abide by the generally accepted principles for calculating inventory, which are Relevance, Universality, Precision, Transparency and Consistency. Calculating avoided GHG emissions is a simple and reliable process if one has access to the customers reports issued by the CCEE regarding electricity consumption, specifically ME001 and EI 002.

The results obtained are substantial and represent a pioneering initiative in voluntary measures to reduce GHG emissions in Brazil.

Table 4 presents the results of 120 different companies that have been using this methodology since 2011.

We have also calculated the equivalent amount of reforestation required to yield the same result. This should make the methodology easier for the lay public to understand, and help customers using this methodology issue sustainability reports, thus making the methodology more attractive. For this conversion, we used a reforestation project in Brazil that has received carbon credits under CDM procedures.

The procedures described herein abide by the generally accepted principles for calculating inventory, which are Relevance, Universality, Precision, Transparency and Consistency. Calculating avoided GHG emissions is a simple and reliable process if one has access to the confidential reports issued by the CCEE regarding electricity consumption, specifically ME001 and EI 002.

This methodology fills a gap in certification of avoided GHG emissions in Brazil, and may be a first step in an official certification initiative.