May 20 – An arcane change to how companies account for the emissions from their energy use has turned controversial.
The Greenhouse Gas Protocol is considering changes to how companies should assess their efforts to cut the emissions caused by the energy they buy for their own operations, which are known as Scope 2 emissions.
The way Scope 2 emissions are accounted for today allows corporates to claim that they are 100% renewable on an annual basis – they work out how much energy they have consumed over the course of a year and then match that with an equivalent amount of clean energy that they have either procured or produced.
If they have not produced enough to match their consumption, they buy renewable energy certificates to cover the shortfall.
A working party in the protocol has proposed switching to a more granular framework, where claims of renewable power use more closely reflect where and when that power is consumed. That would make it easier to work towards clean energy being available 24 hours a day, seven days a week.
The protocol, established in 1998, is used by 97% of S&P 500 companies to measure and report their emissions, but was last revised in 2015.
“In the early days, there was not a lot of renewables penetration, so the main thing was getting clean power on the system, even if that was with a broad-stroke framework – and no power system actually worked like that, on an annual basis,” says Killian Daly, executive director of Energy Tag, a NGO focused on increasing the availability of 24/7 renewables.
“What we need to focus on now is the times of the day when we’re very reliant on gas. Today’s protocol is completely unable to do that.”
Competing proposals to change the protocol have split the tech sector, which has been the largest corporate market for renewables, at a time when companies such as Meta and Amazon are commissioning gas-generating capacity to power new data centres they are building to meet the demands of AI.
The partnership argues that companies’ investments in renewable energy should be focused on the dirtiest grids to achieve the biggest reduction in emissions, regardless of where those companies are consuming electricity.
On the other, companies led by Google and Microsoft want to see more granular accounting, with the ultimate aim of encouraging companies to procure more 24/7 carbon-free energy that reflects the times and places that they use power.
Many observers argue that the system needs to change to reflect the growth of renewables and the increasing divergence of claims from reality.
Under existing rules, a data centre in Ireland can use certificates from solar power generated in the summer in Spain to cover its energy consumption in Ireland during the winter and claim that it is 100% renewable.
Thomas Day, analyst at New Climate Institute, says the proposal for companies to match their claims on renewable energy use on an hourly basis and in the location where they use the power is simply a reflection of the reality of the power market.
“You can’t ring a power supplier and buy solar power from six months ago or hydro from Norway to meet your power needs this evening. The proposal says that if you want to claim you are using clean energy, you should be able to buy that energy in reality.”
Many investors are in favour of the change because it gives them a better insight into companies’ energy risks.
“The current standards obscure companies’ exposure to fossil fuels and make it difficult to assess their resilience to the energy transition,” says Jackie Garton, interim head of Corporate Climate at ShareAction. In addition, “they hamper investment into the additional renewables and new technologies that we need, such as battery storage and transmission networks.”
One of the investors is Sarasin & Partners. “Accounting for carbon emissions is too often a game of smoke-and-mirrors,” says Natasha Landell-Mills, head of stewardship at Sarasin.
“We do need to stop treating renewable certificates as negative emissions that can offset real emissions elsewhere.”
And yet the proposal has met significant opposition. “Hourly and in-grid matching is a massive threat to voluntary markets and the growth trajectory of clean energy infrastructure development,” says Lee Taylor, founder and CEO of REsurety, which provides software for clean energy markets and runs a clean power marketplace.
“The way most clean energy buyers participate in the market is categorically at odds with what the protocol wants to do,” he adds. “There is a very real cost of hourly and location matching, but the benefits are not clear.”
The U.S. National Association of Manufacturers says the change from annual to hourly matching would add significant complexity for all manufacturing companies, and that most renewable sources are not yet able to provide hourly emissions data.
“Climate change is a global phenomenon, not a regional one; therefore, imposing strict regional and temporal matching does not meaningfully alter global emissions trajectories.”
Jake Rascoff, director of climate financial regulation at sustainable investment group Ceres, says hourly matching would increase expense for companies and potentially have less climate impact per dollar spent.
“We don’t want to slow down renewable energy procurement. To require hourly matching now would probably outpace the market.”
He highlights the challenges for retailers, which may have a very large aggregate power demand, but spread over multiple sites, making it difficult to precisely match power use with clean energy.
“If the protocol does move to hourly matching it should be completely optional at this time,” Rascoff says. “Companies should only be subject to this if their demand in a particular region is very large.”
This is the position of a group of 64 companies, NGOs and clean energy developers, who have called on the protocol to keep hourly matching voluntary.
Others to oppose mandatory hourly matching include SolarPower Europe; WindEurope and EFRAG, the European Financial Reporting Advisory Group. The latter group recommends that the protocol “focuses on defining principles, leaving technical definitions (e.g. grid boundaries, SMEs and emission factors) to local jurisdictions to ensure practical implementation”.
Proponents of the Emissions First Partnership are favouring instead an alternative proposal by the Greenhouse Gas Protocol, a “consequential method” (also known as impact accounting) that requires and incentivises new clean power in dirtier regions where it can have most impact, such as Africa, Southeast Asia and Latin America.
But Sam Kimmins, director of energy at the Climate Group, which launched the 24/7 Carbon-Free Coalition, points out the importance of renewables being built where they are used, which is not required by Emissions First. “Even where companies have the best intentions, the reality is many want to invest where it’s cheapest,” Kimmins says. “As 24/7 carbon-free electricity is matched to demand when and where it is consumed, it will drive more investment in renewables in places where it is needed, not just where it is most affordable.”
Daly says that the guideline should be mandatory because “the whole point of an accounting standard is that there is a minimum bar”. But he adds that there is a lot of misunderstanding about what is being proposed.
“What the protocol is proposing is hourly and locational accounting, which is very different from making 24/7 compulsory. People intentionally conflate them and it’s very misleading because being renewable 24/7 comes with significant additional costs.”
Many respondents to the consultation suggested a high energy consumption threshold for the measures. Daly says that as 7% of companies consume about 75% of the energy reported through the CDP disclosure platform, there is a strong argument for that.
None of the pushback against the hourly matching proposal alters the evidence that it is time for a change, says New Climate Institute’s Day. “The cost of 24/7 clean energy is currently unrealistic, but getting to 80-90% is not that much more expensive than annual matching. That’s a much more honest ambition.”
ShareAction’s Garton points out that it may seem a highly technical topic, “but it’s closely linked to our ability to tackle the climate crisis. We need to understand where emissions come from so we can solve the problem.”
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Ethical Corporation Magazine, a part of Reuters Professional, is owned by Thomson Reuters and operates independently of Reuters News.
