Reporters beware: Change is coming to electricity reporting

Reporters beware: Change is coming to electricity reporting

Electric Reporting
Reporting on carbon emissions for electricity is changing. How will this help the shift to renewable electricity? 

Traditionally, Scope 2 corporate accounting has been quite straightforward, requiring the multiplication of electricity consumption by an easily available supplier, utility grid or regional conversion factor to result in an emissions value.

However, since this methodology was developed, the electricity market has evolved to become more complex, and there is more concern about double counting.

An example: Renewable electricity is delivered to a regional grid, then accounted for both by an organization which has a contract that conveys the emissions attributes for that electricity to it (in the U.S., the simplest example would be renewable energy credits) as well as organizations using the regional grid average factor that includes this renewable electricity.

Over the last four years, a number of groups have been working to address this issue to reflect the changing market and emerging thinking around how electricity emissions should be accounted.

Some of these groups include the World Business Council for Sustainable Development, in tandem with the World Resources Institute, Greenhouse Gas (GHG) Protocol team: CDP and the U.K.’s Department for Environment, Food & Rural Affairs.

The recently announced changes to the GHG Protocol hinge around there being two types of electricity.

The first represents the source of electricity that comes out of the socket, called location-based. The second is representative of the source of electricity that you contract, called market-based. 

In future years, conformance to the GHG Protocol (as well as CDP reporting starting in 2016, for reporting on 2015 activities) will require reporting of two Scope 2 emissions values: One to reflect location-based electricity and the other to reflect market-based electricity.

Location-based and market-based

The location-based figure is similar to the previous methodology where a factor specific to the delivered electricity — or where this is not available a regional, subnational or gridwide emission factor — is used, such as those provided by the Environmental Protection Agency’s eGRID database.

Conversely, the market-based figure is potentially more complex and dependent on the type of contractual agreements that an organization might have.

If the company has specific electricity attribute certificates or power purchase contracts with a utility supplier, then the direct associated emission factor should be used.

Typically in the case of renewable purchasing, the factor would be zero or extremely low. The GHG Protocol outlines some quality criteria that these must meet, including needing to convey specific GHG information, be exclusive or retired after use and sourced from the same market as the company and same inventory period.

Residual mix

If a company doesn’t have any specific certificates (such as RECs) or contracts for its electricity that convey specific emissions attributes, then they may use a supplier specific emissions factor if available.

If this is unavailable, then the company must revert to the residual mix. This is the grid factor minus any electricity assigned to renewable contracts or certificates. In most cases, this will be a higher value (more carbon intensive) than the grid average factor that would be reported using the location-based approach.

Residual mix data is available for European Union countries via the RE-DISS project but not widely available yet in the U.S. Some states are providing this information, but the EPA has yet to provide a comprehensive database for companies to use in the current reporting year.

If residual mix factors are unavailable, the grid average factor is used as a last resort. 

All companies who wish to report in conformance with the GHG Protocol must report two values (unless they do not operate in any markets that provide a choice over electricity supplier or product).

Companies may use either the location- or market-based figure for the purpose of baseline calculations and goal setting and performance evaluation.

CDP alignment

CDP is also changing to reflect this way of thinking about Scope 2 reporting. In its 2013 Technical Guidance note, CDP recommended an approach similar to the GHG Protocol market-based reporting.

In its 2015 Technical Guidance Note (PDF) released in February, it states that a locational figure additionally may be reported in the "Further Information" section of the Climate Change survey; however, this is not yet required. 

For reporting in 2016 and subsequent years, CDP will require two values in line with the GHG Protocol, which means companies should start thinking about how they will collect, analyze and report these two values.

This, of course, represents quite a shift in the way carbon emissions from electricity are reported. Electricity purchase choices will be reflected in the emissions that companies report.

It remains to be seen whether this will encourage companies to take more responsibility in their choices, or remove barriers to greater investment in renewable electricity.

This article originally appeared on Anthesis Group's Insights page.