First released in 2001, the Greenhouse Gas Protocol’s Corporate Standard, a voluntary initiative that provides requirements and guidance for many companies reporting their carbon emissions, has been an invaluable driver of the private sector’s role in the global energy transition. Indeed, the GHG Protocol has been instrumental in motivating large institutions to invest in renewable energy, set climate-related emissions and energy targets, and reassess sustainability strategies overall. IHS Markit reports that corporate clean energy procurement has increased by 50 percent on average each year for the last five years. By 2021, the world saw a record-breaking 31.1 gigawatts of clean power purchased by corporations through power purchase agreements.
But the GHG Protocol is starting to show its age.
It’s time for Scope 2 accounting to evolve
In recent years we have increasingly seen thought leaders, trade media and even mainstream media raise their hands to ask the question, "Is corporate carbon accounting truly doing the job it’s meant to do?" More and more, the answer seems to be "no." Or at least, "maybe not anymore." But why?
The issue boils down to misaligned goals. After all, the whole point of carbon accounting should be — ideally — stopping climate change. Yet the system these days seems to have become more about simply tracking who's to blame, and the emissions footprint that each organization claims. Therein lies the partial disconnect between current Scope 2 accounting and bigger, faster emissions reduction opportunities organizations are leaving on the table. A company can tally up their work and appear to reach "net zero" on paper, but oftentimes, all they’ve really done is shift much of their emissions to someone else’s balance sheet.
Specifically, under the popular market-based approach that companies use to account for their power purchase agreements (PPAs) and other renewable energy procurement, organizations match megawatt-hours (MWhs) of electricity consumed with renewable energy purchased and produced elsewhere, to "zero out" their emissions on paper. But, because electricity from our power grid varies greatly in emissions intensity based on time and location, MWh cannot be used as a direct proxy for measuring emissions.
Impact accounting can refocus and strengthen corporate decarbonization strategies
So, what is the solution? One promising approach is what we at WattTime call "impact accounting." The concept is simple but effective: Impact accounting focuses directly on measuring the emissions impact of electricity consumption and generation instead of balancing MWh of consumption with MWh of green energy procurement.
This framework encourages organizations to comprehensively address their electricity consumption by determining the impact of their electricity use and comparing it to the impact of their renewable energy procurement, all measured in emissions. This fits all grid-related activity under a single emissions metric: Electricity consumption results in induced emissions. Clean electricity generation such as wind and solar results in avoided emissions. Both are calculated using marginal emissions rates that better reflect the real-world impacts of corporate actions.
This approach encourages organizations to shift load to the cleanest times, locate facilities such as data centers or electrolyzers in the cleanest locations, site new renewables in the locations where they displace the most fossil generation, and deploy energy storage where it can capture curtailed renewables, all to achieve greater emissions reductions. Further impact accounting details can be found in our September insight brief "Accounting for Impact: Refocusing GHG Protocol Scope 2 methodology on ‘impact accounting.'"
The potential implications of adding an impact accounting approach alongside GHG Protocol’s legacy location-based and market-based approaches to Scope 2 emissions are exciting. Rather than reaching net-zero MWh on paper and "counting" that as net-zero emissions, corporations could strive toward "impact neutral" targets, where induced and avoided emissions are equal. But even better, impact accounting can also reorient the standard to incent even greater corporate climate ambition.
For example, corporations could in theory become "impact positive" through more-strategic renewable energy procurement that achieves greater avoided emissions than the company’s induced emissions from electricity consumption.
Early momentum is already building
WattTime is not the only group championing the ideas behind impact accounting, and we are already seeing early signs that the concepts are gaining momentum in corporate sustainability circles.
Our partners at TimberRock recently announced that their E-IQ SaaS energy decarbonization platform will allow corporate users to calculate actual induced and avoided emissions and act upon those insights to make real-time adjustments that are more beneficial for the planet. Impact accounting is an idea also echoed in the recent October REsurety white paper "Making It Count: Updating Scope 2 accounting to drive the next phase of decarbonization."
With World Resources Institute and the World Business Council for Sustainable Development reopening Scope 2 for revision, there is a unique opportunity to reshape this voluntary but global standard toward greater impact.