For those of us who work in the exciting world of GHG emissions accounting, January 2015 was a significant month. The World Resources Institute (WRI), published revised guidance for how entities should report GHG emissions from their purchases of electricity, steam, heat, and cooling. The 2015 Scope 2 guidance outlines a dual accounting methodology for purchased electricity and calls for entities to calculate emissions according to both the ‘location’ and the ‘market’-based methods.

The location-based method reflects the electricity that is physically delivered to an entity’s sites. It captures the attributes of the local grid, for example through EPA eGRID sub-region and IEA country level emission factors, and does not account for any specific contracts or instruments that may be purchased by an entity.

In contrast, the market-based method reflects the entity’s contractual purchases. It requires entities to calculate emissions based on their specific electricity contracts, suppliers and instrument purchases. Entities follow a hierarchy to account for their purchases, including ‘energy attribute instruments’ (such as renewable energy certificates or RECs) and utility/supplier level emission factors for delivered electricity.

Prior to the 2015 guidance it was common for renewable power to be double counted, for example where entities accounted for their emissions through a combination of grid data and REC purchases. Bearing in mind that grid emission factors incorporate all renewables on the local grid, under the new market-based approach entities should apply delivered electricity or, in the absence of these, residual mix emission factors which exclude any voluntary sales of renewable power to other entities. The logic follows that if you have not made any voluntary renewable purchases then under the market approach, you shouldn’t take any credit for the renewable portion of the grid that is associated with voluntary purchases by other parties.

Following publication of the new guidance, CDP asked companies to report their Scope 2 emissions per the market- and location-based methods in their 2016 responses. The RE100 technical advisory group has also stated that RE100 member companies should align with the market-based approach when tracking progress towards their 100% renewable goals.

Now that the new guidance is over a year old, what has the practical implementation experience been like so far?

While many experienced initial shock once they understood that they now have not 1 but 2 sets of emissions calculations to complete - uptake of the new dual accounting approach, even in its first year, seems to have been extensive.

However, accurately applying the market-based method comes with a range of challenges, including:

• Patchy availability of delivered electricity supplier emission factors due to an absence of standardized or ‘regulated’ reporting frameworks in key markets including the US
• Lack of residual mix grid data outside of Europe.  While the Center for Resource Solutions has published residual mix emission factors for the US and Canada, the regional boundaries are larger than those for the grid average factors used for the location approach. This can result in some sites (counter intuitively) appearing to have lower market-based emissions using the residual mix emission factors compared to location-based grid factors.
• Varied understanding and interpretation of the new standard among verifiers who are still figuring out (with the rest of us) what evidence is required to support market-based claims
• Lag time involved with upgrading and customizing software-based GHG emission accounting solutions
• Difficulty in updating historic year data to align with the market-based method due to a lack of supplier emission factors and residual mix data for earlier years -- This presents particular challenges for companies that have a market-based GHG emissions goal with a historic baseline year.

Despite the challenges, applying the new guidance is already helping companies to further develop their understanding of how electricity is delivered to their sites and the role their energy contracts and purchasing decisions have. This in turn means that they are more informed when it comes to developing emissions reduction and renewable purchasing strategies and engaging with various stakeholders about these.

Looking ahead - what do we expect / hope to see?

• Market-based emission factors becoming more globally available and accompanied by standard frameworks to promote consistency
• Greater clarity in terms of the evidence required to support market-based claims, for example, for the purpose of third party verification
• Guidance from standards agencies around what Scope 2 emissions and RE claims can be made by different stakeholders ‘affected’ by a green power purchase

You are not alone in this new Scope 2 journey. Watch this space! 

If you  would like to speak to Anthesis about GHG emissions accounting or any related issues contact Emma Armstrong.