After three years of consultation, draft guidance is under review to clarify the rules around Scope 2 emissions reporting, in particular the impact of green tariffs and renewable energy certificates. The changes are intended to recognize corporates that invest in low or zero carbon tariffs and enable them to account for this within their carbon reporting.
The World Resources Institute (WRI) has proposed a series of changes to the GHG Protocol, specifically around the way that Scope 2 carbon emissions should be reported. The major change relates to the way green electricity is accounted for. According to the new WRI guidance, companies will now have to report their Scope 2 emissions in two ways: total emissions calculated using the regional average grid-mix (also known as the location-based approach), and total emissions calculated using the company’s specific use of renewable energy (the market-based approach).
Historically reporting the carbon emissions from renewable energy and green tariffs, has been viewed as complex and controversial. This is mostly due to the potential for ‘double counting’ carbon emissions used within the grid and in green power products. Instead, companies have measured their electricity usage and then used national or regional emissions factors to calculate their Scope 2 emissions for purchased electricity.
Of course, the result has been that companies have looked to cutting energy consumption and optimizing energy efficiency as their principal means of reducing Scope 2 emissions. Until now, they haven’t been able to include aspects such as power purchase agreements, renewable energy certificates, Guarantees of Origin, and utility green power programs. The current guidance represents three years of consultation to try and bring greater accuracy to Scope 2 emissions reporting.
The key changes are:
- Companies must report Scope 2 in two ways: one total based on the location-based method, and one total based on the market-based method where applicable and Quality Criteria outlined in the guidance are met.
- Companies must ensure that contractual instruments used in the market-based method meet the Quality Criteria.
- Companies must disclose the relationship between energy attribute certificates used in the market-based method and compliance instruments present in the same market.
- Companies must identify which Scope 2 total – location-based method or market-based method – serves as the basis for goal-setting and for Scope 3 data uses.
- Companies should disclose key features about their contractual instruments for added transparency regarding the context of the procurement choices.
- Companies may report avoided emissions from projects or actions separately from the scopes using project-level methodology.
Challenges facing reporting companies
Many companies are conscious that reporting two sets of figures instead of one will increase the reporting burden. Additionally, as the GHG Protocol has remained largely unchanged since 2001, companies have grown accustomed to the current way of reporting. Now, environment and energy managers will have to determine how to measure and report their Scope 2 emissions in line with the new rules; this is likely to require increased effort, time and cost.
It will also be important to communicate clearly to stakeholders around what the new figures mean, in order to avoid confusion and ensure that companies’ sustainability reports remain as meaningful as possible.
Opportunities to Cut Scope 2 Emissions
In essence, the idea behind the new guidance is that reporting Scope 2 emissions in this way will be fairer and more accurate, and that companies will have more control over their carbon footprint by opting for green energy and claiming it as a reduction (in addition to reducing energy consumption).
Many companies are getting to a point where they have implemented most energy efficiency options open to them, and therefore the new guidance gives organizations the opportunity to create reduction strategies that include a portfolio of green energy.
Companies using the CRedit360 system to track and report their carbon emissions have access to a central database of emissions factors. This acts as a point of reference for customers and means they can calculate their emissions automatically via the system, avoiding the risk of inaccurate manual calculations. We plan to adapt to the new guidance by holding the national emissions averages without green electricity in the system, enabling customers to comply with the first element of the new regulation.
Energy providers will be able to provide an emissions factor per unit of energy used, and the increased scrutiny of green energy usage could ultimately trigger more interest among reporting companies in buying renewable energy.
With the public consultation on the guidance ending on 21st April 2014, we could see the final publication of the guidance within months. Companies will need to review all the options and decide how best to embrace this opportunity.
Tom Caldicott is an implementation consultant with CRedit360.