By Mary Elizabeth Sotos - June 04, 2012

This article was originally posted on the WRI blog, Insights.

I recently presented at the 7th Product Carbon Footprint (PCF) World Forum Summit, a gathering of experts brought together by Berlin-based think tank Thema1 “to foster and facilitate international discussion on how to assess, reduce, and communicate the impact of goods and services on the climate.” This group historically has focused on the life cycle of greenhouse gas (GHG) emissions and product-level emission inventories. But this year’s theme included an additional focus: whether and how renewable energy purchases should be reflected in corporate GHG emissions calculations.

Renewable energy sources like wind and solar have no GHG emissions associated with generation and thus play a vital role in reducing overall emissions from electricity use. Many companies seek to purchase this energy and use the zero-emissions rate in calculating their indirect emissions from electricity consumption (also known as scope 2 emissions). However, several uncertainties surround how this practice should be used in GHG accounting—or whether it should be permitted at all.

Need for Standardization

Companies at the PCF Summit emphasized three main ways they purchase and make claims about their electricity emissions:

• Certificates: Called renewable energy certificates (RECs) in the United States and Australia and Guarantees of Origin in European countries, these certificates track energy production from generation to end-users or suppliers

• Supplier Programs: Many electricity suppliers offer a “100-percent renewable” program or tariff

• Contracts: Power purchase agreements and other contracts between energy producers and purchasers

The exact roles and definitions of these instruments vary around the world, and therefore so do GHG accounting practices. Some local policymakers and program designers have set conditions under which such instruments could be used for corporate accounting. Others recommend against the practice altogether, instead using a statistical grid average to calculate scope 2 emissions.

These inconsistencies have left companies without a clear link between their energy-purchasing strategies and GHG-reduction goals. In turn, verifiers, voluntary reporting programs, and NGOs lack a clear way to evaluate energy emissions reported in corporate GHG inventories.

Issues and Questions

The GHG Protocol is working to create international guidelines that harmonize accounting procedures for renewable energy purchases, a necessary move to ensure consistent emissions reporting and effective management. During the PCF Summit, attendees highlighted many of the technical and conceptual accounting issues the guidelines will address, including:

1. Certificates vs. offsets: The relationship between energy certificates and offset credits can be confusing and leads companies to purchase either product with a misleading expectation in mind.

2. 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 scope 2 inventories.

3. 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 in a purchasing company’s unique claim?

4. Determining whether to standardize eligibility: Certificate or supplier programs may set rules or criteria about what type of energy is eligible for their program, in order to fulfill their consumer’s goals about supporting sustainable technologies, buying energy that is not being used to meet state-mandated supplier quotas, or driving new production quickly. Some argue that the GHG Protocol should establish consistent, international criteria; others say it should be left up to individual programs.

5. 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 energy efficiency are important, but often capital-intensive options. 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 installing renewable generation?

New GHG Protocol Guidelines and Next Steps

The PCF Summit’s focus on renewable energy accounting coincided well with the GHG Protocol’s emerging set of guidelines to calculate scope 2 energy emissions. Due out in Fall 2012, this guidance will clarify standard accounting procedures and best practices associated with different types of energy-purchasing instruments. Equipped with a clear analytical framework, companies will be able to more clearly assess and report on energy-purchasing options, ensuring informed, strategic decision-making.

Photo credit: Flickr/Wayne National Forest