The way that carbon emissions from purchased electricity are reported is changing

Traditionally, Scope 2 corporate accounting has been quite straightforward – requiring the multiplication of electricity consumption by an easily available supplier, utility grid or regional conversion factor to result in an emissions value. However, since this methodology was developed, the electricity market has evolved to become more complex, and there is more concern about double counting. An example of this potential double counting would be where renewable electricity delivered to a regional grid is accounted for both by an organization which has a contract or certificate that conveys the emissions attributes for that electricity to it (in the US, the simplest example would be RECs) as well as organizations which are using the regional grid average factor that includes this renewable electricity.

Over the last 4 years, the WBCSD/ WRI GHG Protocol team (as well as CDP and UK’s DEFRA) have been working to address this issue to reflect the changing market and emerging thinking around how electricity emissions should be accounted. The recently announced changes to the GHG Protocol hinge around there being 2 “types” of electricity. The first represents the source of electricity that comes out of the socket, called ‘location based’. The second is representative of the source of electricity that you contract, called ‘market based’.  In future years, conformance to the GHG Protocol (as well as CDP reporting starting in 2016, reporting on 2015 activities) will require reporting of two Scope 2 emissions values, one to reflect ‘location-based’ electricity and the other to reflect ‘market-based’ electricity.

Location-based and Market-based

The location-based figure is similar to the previous methodology where a factor specific to the delivered electricity (or where this is not available, a regional, sub national or grid wide emission factor) is used, such as those provided by the US EPA’s eGRID database. Conversely, the market-based figure is potentially more complex and is dependent on the type of contractual agreements that an organization might have. If the company has specific electricity attribute certificates or power purchase contracts with a utility supplier, then the direct associated emission factor should be used. Typically in the case of renewable purchasing, the factor would be zero or an extremely low factor. The GHG Protocol outlines some quality criteria that these must meet: including needing to convey specific GHG information, be exclusive, or retired after use and sourced from the same market as the company and same inventory period.

Residual Mix

If a company doesn’t have any specific certificates (e.g. RECs) or contracts for its electricity that convey specific emissions attributes, then they may use a supplier specific emissions factor if available. If this is unavailable, then the company must revert to the residual mix: this is the grid factor minus any electricity assigned to renewable contracts or certificates and will in most (if not all) cases be a higher value (i.e. more carbon intensive) than the grid average factor that would be reported using the location-based approach. Residual mix data is currently available for European Union countries via the RE-DISS project but not widely available yet in the US. Some states are providing this information, but the US EPA has yet to provide a comprehensive database for companies to use in the current reporting year (e.g. CY 2014 reporting).  If residual mix factors are unavailable, the grid average factor is used as a last resort.

While all companies who wish to report in conformance with the GHG Protocol must report 2 values (unless they do not operate in any markets that provide a choice over electricity supplier or product), companies may use either the location or market based figure for the purpose of baseline calculations and goal setting and performance evaluation. The implications of this option are worthy of a whole other blogpost, and we’ll be sure to provide some insights following this reporting season!

CDP Alignment

CDP is also changing to reflect this way of thinking about Scope 2 reporting.  In its 2013 Technical Guidance note, CDP recommended an approach which is very similar to the GHG Protocol market based reporting. In the 2015 Technical Guidance Note released in February, it states that a locational figure may additionally be reported in the ‘Further Information’ section of the Climate Change survey; however, this is not yet required.  For reporting in 2016 and subsequent years, CDP will require 2 values in line with the GHG Protocol, which means companies should start thinking about how they will collect, analyze and report these 2 values.

This, of course, represents quite a shift in the way carbon emissions from electricity are reported. Electricity purchase choices will now be reflected in the emissions that companies report. It remains to be seen whether this will encourage companies to take more responsibility in their choices and/or remove barriers to greater investment in renewable electricity.

Two experts at Anthesis, Craig Simmons and Ellen Upton, are involved in the Technical Working Group for the GHG Protocol revisions, so we have a clear understanding of the changes and practical implications for business and continue to stay involved as companies begin to interpret and apply these guidelines.