Approximately 40 percent of the world’s greenhouse gas emissions come from energy generation, and about half of that energy is consumed by industrial or commercial users. If a fifth of the world’s emissions come from the energy that keeps the world’s businesses running, how does business report those emissions?
Companies following the GHG Protocol Corporate Standard report purchased electricity, steam, heat and cooling as scope 2 emissions and have identified multiple possible methods in the 11 years since its publication. Wider consumer choice in electricity suppliers and products has made it more complicated, with inconsistent and incomparable data that slows progress in consumer-driven demand for low-carbon electricity.
WRI, in partnership with the World Business Council on Sustainable Development and a global, multi-stakeholder task force, is launching new clarifying Scope 2 Guidance. This guidance amends and adds to the original requirements of the Corporate Standard, the most widely used tool for accounting and reporting corporate emissions in the last decade.
The new guidance helps corporations navigate scope 2 emissions accounting by resolving three important questions:
1. How should companies calculate and report electricity emissions?
Some companies calculate the emissions from their local power grid, which we call the location-based method. Others look to contracts with their electric utilities, which we call the market-based method.
The guidance: The guidance (and the Corporate Standard with this amendment) requires that companies use both methods. The location-based method reveals what the company is physically putting into the air, and the market-based method shows emissions the company is responsible for through its purchasing decisions. Both pieces of information tell an important story about the company’s carbon footprint and carbon reduction strategy.
As part of their reporting on their 2012 carbon footprint, Facebook used the both-methods approach. Together, the two figures provided a more complete picture by detailing the emissions associated with the actual contractual arrangements as well as the emissions associated with the regional or country-level mix of generation resources.
2. What types of energy purchases can count towards corporate emission reduction targets, using the market-based method?
Many electricity markets, including those in the United States, European Union, Australia, Japan, India and many Latin American countries, use a variety of so-called contractual instruments traded between electricity generators, utilities and consumers in order to convey emissions information about purchased power. They include renewable energy certificates (RECs), Guarantees of Origin (GOs) and other tradable certificates. These instruments form the basis for regulatory and voluntary programs tracking renewable energy worldwide. However, every electricity market handles, regulates and structures these instruments differently. Some are designed for corporate claims and some are not.
The guidance: There are eight Scope 2 Quality Criteria that all contractual instruments must meet in order to be a reliable data source for a GHG inventory.
For example, EDF Energy—one of the largest electricity suppliers in Europe—offers residential and business customers low-carbon energy product choices. Following the market-based method and quality criteria, EDF ensures transparent, contractual links between customers and the supply of low-carbon power (both nuclear and renewable). Creating these products required alignment with both the United Kingdom fuel label regulatory regime and the GHG Protocol Scope 2 Guidance.
3. How can we ensure that corporate energy purchases are leading to real growth in low-carbon electricity and lower emissions in the sector over time?
Voluntary markets for renewable energy bring together the demand of multiple companies to bring a change in electricity supply. The market-based method reveals emissions from electricity that companies are buying today. The market effect is cumulative, and some procurement methods make a bigger impact in the short term than others.
The guidance: To give decision-makers and stakeholders a clearer picture of how their company’s energy purchases drive change in the energy market, the Guidance recommends companies disclose additional information about energy generation facilities and policy context reflected in their contractual instruments.
For example, in going beyond the Scope 2 Quality Criteria and focusing on impact, Google prioritizes contracts that support new energy built on the grids where their data centers operate. They frame these criteria as:
Bringing new sources of green power on the grid, rather than sourcing renewables from built or operating projects
Buying power from within the same grid regions as its data centers
Creating a positive impact on the industry by providing capital for renewable energy project developers, who use the cash flow from one project to finance the next, thereby expanding the industry
Strengthening corporate action
The new guidance will improve the clarity, consistency and comparability of corporate inventories worldwide, amplifying corporate demand for renewable energy. Companies buying low-carbon electricity will be able to clearly document their actions, while those that haven’t yet acted will see a clearer path to credible goals to reduce emissions and take substantive climate action.