By Mary Sotos
Published July 26, 2012
For multinationals, varied instruments and different accounting procedures that conflict by country are a problem. As a result, companies are left without a clear link between their energy purchasing strategies and goals to reduce GHG emissions.
By documenting and publicly reporting on their GHG emissions based on instruments with unclear accounting procedures, companies expose themselves to reputational risk.
Now, those who seek to reduce their electricity consumption to reach their goals may be able to reconcile the disparity between the two.
Building off its Corporate Standard, the GHG Protocol will be issuing international guidelines on whether power purchase instruments such as renewable energy certificates, contracts and electricity supplier programs should be used to quantify electricity consumption (also known as scope 2 emissions) in a GHG inventory.
The clarity that will be gained by including scope 2 emissions will be a necessary move to ensure consistent emissions reporting and effective management of those emissions.
Calculating scope 2 emissions: Two approaches
With this possible development, questions abound about the right way to measure and report electricity consumption in a GHG inventory. Should any of these renewable energy purchases be used to quantify scope 2 emissions? Do these purchases actually convey the right to claim the use of zero emissions electricity? And should they meet certain criteria in order to convey that claim?
In addition to these questions, things get complicated when a company has to calculate scope 2 emissions that take into consideration the contractual instruments it has in place (such as RECs or a supplier’s tariff, for instance).
It’s much easier to simply calculate scope 2 emissions on a consumption basis. This procedure uses an emissions factor that averages GHG emissions from power plants in a given grid region which approximates the emissions associated with the electricity physically consumed by company facilities.
By contrast, calculating scope 2 based on the company’s possession of various contractual instruments—like RECs or a supplier’s tariff—yields a different picture: It shows the electricity emissions associated with what a company has purchased, not necessarily what it’s physically consumed.
There are good arguments in support of both approaches, but the contractual approach raises a host of questions: Which types of instruments can be used for this calculation purpose? Does it matter whether the MWhs associated with the certificates have been used for a supplier’s mandatory requirements? Does the age of the renewable energy power plant matter? Should only newer plants be eligible? And is a contractual scope 2 profile fundamentally a “better” picture of a company’s performance—one that’s more accurate, relevant, complete, consistent and transparent—as compared with a consumption profile?
What should be included in the scope 2 guidelines
Companies and experts who have joined the GHG Protocol stakeholder process have highlighted many of these technical and conceptual accounting issues the new guidelines will need to address. These include:
- Certificates vs. offsets: The relationship between energy certificates and offset credits can be confusing and leads companies to purchase either product with misleading expectations. For scope 2 accounting purposes, energy certificates convey an emissions rate, not “avoided emissions” or “emission reductions” like offsets do.
- Double counting: Currently, if one consumer claims zero emissions associated with a purchasing instrument, other consumers may claim that same zero-emissions rate as part of the grid average (i.e., the mix of coal, natural gas, oil and renewables) they use in calculating their scope 2 emissions. This creates “double counting” between the generation emissions reflected in scope 2 inventories.
- Fairness: Some countries that heavily subsidize construction of new renewable energy projects question the fairness of allowing private companies to claim zero indirect electricity emissions from such projects. That is, if all ratepayers or taxpayers in a region have financially supported the project, should the low-emissions rate claim be “public” (i.e., a statistical average for the area) rather than included in a purchasing company’s unique claim?
- Determining whether to standardize eligibility: Certificate or supplier programs may set rules about what type of energy is eligible for their program. This is usually done for various reasons, such as to fulfill consumers’ goals about supporting sustainable technologies, buying energy that’s not being used to meet state-mandated supplier quotas, or quickly driving new production. Some argue that the GHG Protocol should establish consistent, international criteria, while others say it should be left up to individual programs.
- The role of energy choice in corporate performance: Companies looking to reduce their emissions typically have several options. Installing on-site renewable energy facilities or conducting significant retrofits to improve efficiency are important, but they’re often capital-intensive projects. Buying certificates is currently a much less expensive option in most markets. But should a company get the same zero emissions for purchasing renewables as a company that installs renewable generation to replace power purchased from the grid?
The GHG Protocol’s international guidelines on power purchase instruments are due to be published later this year. Equipped with an analytical framework, companies will be able to more clearly assess and report on energy-purchasing options, ensuring informed, strategic decision-making. In turn, verifiers, voluntary reporting programs, and NGOs will have a defined way to evaluate energy emissions reported in corporate GHG inventories.
The guidelines are currently being drafted in Technical Working Groups, which are open for anyone to join. A draft for public comment will be available in Fall 2012. If you are interested in learning more about the work or joining a Technical Working Group, please contact Mary Sotos at email@example.com.