By Brandon McNamara
The GHG Protocol Corporate Standard was first published in 2001 in response to a need for internationally recognized standards for emissions accounting. The Kyoto Protocol had been signed only a few years earlier and the business community was beginning to think about their role in global greenhouse gas (GHG) mitigation. Since then, around 90% of Fortune 500 companies have adopted the Corporate Standard for their annual GHG inventory and over 300 cities follow the community-scale protocol (WRI & WBCSD, 2023). The GHG Protocol has released several standards and guidance documents over the years, and these standards are widely viewed as best practice in GHG accounting.
The GHG protocol is in the process of updating and revising its standards. As part of that process, they recently requested stakeholder input on its major standards, with specific attention focused on the Corporate Standard, the Scope 2 and Scope 3 Guidance documents, as well as the potential expansion of market-based accounting approaches. The GHG protocol received over 1,400 survey responses and 230 proposals from across the business community, academia, non-profits, and governmental institutions, revealing a widespread interest by the GHG accounting community in helping shape the revision of GHG accounting standards.
As the GHG Protocol is reviewing and consolidating all the feedback, they are presenting key findings in a series of webinars. The first webinar focused on the Scope 2 Guidance feedback. CARML has been participating in the stakeholder input process and is keeping a close eye on feedback from the community. This post is the first of a four-part series where we will review the potential topline changes identified by the GHG Protocol for each of the survey categories.
Summary of Scope 2 Guidance Feedback
Scope 2 GHG emissions account for indirect emissions associated with purchased energy, mostly in the form of electricity. Due to the complexity of the electricity grid and the market for renewable energy, the GHG protocol published detailed guidance on how to account for scope 2 GHG emissions in 2015. The mix of generation assets used to produce electricity varies based on your location and the time of day. A location-based scope 2 GHG inventory looks at the average emissions resulting from all generation facilities supplying electricity to a given region over the course of a year. These average emission factors are reliable, but they don’t factor in the efforts a company takes to purchase renewable energy, nor how emissions vary depending on timing of electricity consumption (e.g., within a given day or season).
A market-based scope 2 GHG inventory allows a company to factor in renewable energy purchases and other low-carbon energy contracts. A common activity for companies looking to reduce their market-based emissions is to purchase renewable energy credits (RECs), which represent a unit of renewable energy generation. However, current market-based methods still use annual average emission factors, which negates the ability of a company to track how their Scope 2 emissions might change if load (demand for electricity) was shifted to times of the day or times of the year when lower carbon or renewable energy might make up a larger share of generation.
Five major themes were identified for consideration in the revision process for the scope 2 guidance. It’s important to note that no decisions have been made about changes to any standards or guidance – these are simply the most prevalent topics brought up in response to the survey and request for proposals:
1. Dual Reporting Requirement
The first theme revolves around the dual reporting requirement, which calls for companies to publish both a location-based and market-based estimate of their Scope 2 emissions. Some survey respondents indicated that this requirement leads to confusion. They suggested that consumers of GHG accounting data would be better served by a single figure. Other survey respondents are strong proponents of dual reporting, citing the value of both location-based and market-based accounting.
CARML’s view – To ensure GHG accounting data is decision worthy, the GHG protocol should strive for a single figure reporting requirement. The current dual reporting requirement creates unnecessary confusion for decision makers. When quality standards are adhered to and transparency is woven into reporting practices, the market-based figure is often the more accurate representation of Scope 2 GHG emissions. However, there is much work to do around market-based accounting approaches to improve the accuracy of GHG estimates. The GHG protocol is slated to present feedback around market-based accounting approaches in the near future.
2. Data Requirements and Quality Criteria
The second theme involves data requirements and quality criteria outlined for Scope 2 GHG accounting. Currently the Scope 2 data requirements are flexible and the quality criteria are broad. For example, when using a REC the Scope 2 Guidance allows flexibility in both the year and location of generation. This means a reporting company could use a REC generated in Texas in 2020 when reporting their 2021 GHG emissions for a facility in Maine. This flexibility is cited by some survey respondents as crucial to maintain accessibility of market-based accounting. They argue that detailed rules and specificity should be left to regulatory agencies. Other survey respondents indicate that the GHG Protocol should stipulate specific requirements regarding data and quality criteria. Their perspective is that this would help improve verification of GHG accounting data, reduce greenwashing, and minimize confusion when interpreting inventories.
CARML’s view – The GHG Protocol should work to strengthen data requirements and quality criteria. The current system of flexibility limits the potential of market-based instruments to drive investment in renewable energy. Specifically, the GHG protocol should consider strong quality criteria around bundling energy attributes with energy delivery. An unbundled energy attribute certificate, where a GHG mitigation credit is separated from the physical delivery of energy, has little impact on the expansion of renewable energy generation (Miller, 2020). Requiring that companies who pursue 100% renewable energy goals purchase real renewable energy, and not just credits, will enhance reliability and trust in GHG accounting data.
3. Emissions Impact Reporting Requirement
The third theme focuses on a potential new reporting requirement. When implementing a GHG mitigation intervention, it is possible to compare your actions against a baseline scenario and calculate the ‘avoided emissions’ of your action. When considering Scope 2 accounting, some survey respondents indicate the value of reporting avoided emissions alongside the standard GHG inventory figures. They argue that explicit guidance around reporting avoided emissions would improve insights about the GHG mitigation impacts of a company’s energy procurement efforts. However, there are conflicting opinions about the role avoided emissions figures should play in a GHG inventory. Some survey respondents stress the incompatibility of avoided emissions figures with current target-setting programs, such as SBTi.
CARML’s view – Calculating the GHG mitigation impact of a project, procurement practice, or other intervention should be a cornerstone of GHG accounting and reporting. However, this should not be limited to scope 2 emissions calculations. Any future GHG emissions across scopes 1, 2, or 3 can be reduced based on decisions made today. The GHG Protocol should revisit the current Project Accounting Protocol and provide guidance on how to appropriately integrate project accounting into the annual GHG inventory. This must involve rigorous consideration of how to define the baseline scenario against which a project or intervention is compared. Developing this type of guidance is essential to standardize how companies and other reporting entities communicate the impact of GHG mitigation efforts.
4. Additional Guidance for New Technologies
The fourth theme considers the impact of new technologies on GHG accounting requirements. Energy storage was identified as the most significant technological development that would benefit from updated GHG accounting guidance. Other technologies identified by survey respondents include EV charging and grid integration, demand-side load management, smart metering infrastructure, and hydrogen as an “energy carrier”. Each of these technologies have implications for accounting and reporting of Scope 2 GHG emissions. Survey respondents seem to agree that explicit guidance around some or all of these technologies would be beneficial.
CARML’s View – Clearing up GHG accounting questions around new technologies would be a welcomed addition to the standards and guidance. In particular, demand-side load management requires that more real time emissions data be factored into the accounting standards. Additionally, access to real time emissions intensity of grid electricity must be prioritized. Demand-side load management can be a significant GHG intervention, but better access to data and corresponding accounting standards are required to expand this practice within GHG reduction efforts.
5. Harmonization of Standards
The final theme touches on the need for harmonization of accounting standards and frameworks given disparate policy, regulatory, and voluntary GHG accounting programs. Survey respondents identified a few key areas where harmonization could help reduce confusion and simplify reporting. The first is climate-related financial reporting. A variety of frameworks and regulatory standards exist across the world today, including the EU’s Corporate Sustainability Reporting Directive , the Task Force on Climate-Related Financial Disclosures, and the International Sustainability Standards Board. Harmonization of these standards would help streamline reporting and improve comparability of inventory results. Other areas identified for harmonization include low-carbon hydrogen, electricity procurement programs, and GHG target setting programs.
CARML’s view – The wide range of standard setting bodies should come together and work towards clear and harmonized GHG accounting rules. In order to move towards more transparency, accountability, and reliability in GHG emissions reporting, we should work to ensure that the environmental performance of a company can be easily and reliably comparable to their peers. When companies are playing by different accounting, reporting, and target setting rules, comparability becomes compromised.
The GHG protocol survey process highlights a range of ongoing debates in the GHG accounting community. The dual reporting requirement, quality criteria standards, and avoided emissions reporting are just a handful of topics under consideration by the GHG Protocol. Decisions made by the GHG Protocol regarding these debates could have significant implications for reporting companies and consumers of GHG accounting information. Please check back as we continue to review the proposed changes to the Corporate Standard, the Scope 3 Guidance, and Market-based Accounting Approaches.
References:
Miller, G. (2020). Beyond 100 % renewable: Policy and practical pathways to 24/7 renewable energy procurement. The Electricity Journal, 33(2), 106695. https://doi.org/10.1016/j.tej.2019.106695
WRI & WBCSD. (2023, May 2). GHG Protocol Standards Update Process: Topline Findings from Scope 2 Feedback. https://ghgprotocol.org/survey-need-ghg-protocol-corporate-standards-and-guidance-updates