[Editor's note: This article has been updated to clarify the distinction between companies' electricity consumption and their greenhouse gas emissions.]
Without a standardized way to measure the impact of their renewable energy purchases against greenhouse gas (GHG) emissions reduction goals, many companies find themselves in a pickle.
Energy purchasing instruments such as renewable energy certificates (RECs) and power purchase contracts vary by country, with ambiguous or conflicting interpretations as to whether they can be used as a basis for GHG emissions. As a result, companies are left without a clear link between their energy purchasing strategies and goals to reduce GHG emissions.
By documenting and publicly reporting on their GHG emissions based on instruments with unclear accounting procedures, companies expose themselves to reputational risk.
Now, those who seek to reduce their emissions may be able to reconcile the disparity between the two.
Building off its Corporate Standard, the GHG Protocol will be issuing international guidelines on whether power purchase instruments such as renewable energy certificates, contracts and electricity supplier programs should be used to quantify electricity consumption (also known as scope 2 emissions) in a GHG inventory.
The clarity gained with the guidelines will be a necessary move to ensure consistent emissions reporting and effective management of those emissions.
Calculating scope 2 emissions: Two approaches
With this development, questions abound about the right way to measure and report emissions in a GHG inventory. Should any of these renewable energy purchases be used to quantify scope 2 emissions? Do these purchases actually convey the right to claim the use of zero emissions electricity? And should they meet certain criteria in order to convey that claim?
Calculating scope 2 emissions on a consumption basis is fairly straightforward. This procedure uses an emissions factor that averages GHG emissions from power plants in a given grid region which approximates the emissions associated with the electricity physically consumed by company facilities.
By contrast, calculating scope 2 based on the company’s possession of various contractual instruments—like RECs or a supplier’s tariff—yields a different picture: It shows the electricity emissions associated with what a company has purchased, not necessarily what it’s physically consumed.
There are good arguments in support of both approaches, but the contractual approach raises a host of questions: Which types of instruments can be used for this calculation purpose? Does it matter whether the MWhs associated with the certificates have been used for a supplier’s mandatory requirements? Does the age of the renewable energy power plant matter? Should only newer plants be eligible? And is a contractual scope 2 profile fundamentally a “better” picture of a company’s performance—one that’s more accurate, relevant, complete, consistent and transparent—as compared with a consumption profile?
Next page: What should be included in the scope 2 guidelines