The world is changing, and it’s changing fast. More companies are committing to emissions reductions but still struggle to measure and verify the impact from corporate headquarters to global operations to supply chains.
Now, new breakthrough climate accounting technologies are emerging as solutions to track and verify energy and carbon emissions, and report energy purchases and consumption. As more of these services hit the market, corporations making ambitious climate pledges will need to adopt energy and carbon tracking and reporting technologies.
In an interview with Bloomberg earlier this year, Cornerstone Capital Group CEO Erika Karp said the biggest challenges of ESG investment are data and measurement. As more companies make "carbon net-zero" commitments, how will stakeholders — investors, employees, customers and regulators — hold these companies accountable?
Everything hinges on measurement
KPMG’s 2020 Study on Climate Accounting estimates that $90 trillion of investment is needed to finance sustainable infrastructure and cities in the U.S., and that after 2024, fines totaling as much as $1 trillion to $1.5 trillion will be paid to meet enforcement of climate standards for emissions reduction. In order to get to enforcement, we need a standardized methodology for measurement of carbon reductions and zero-emission energy that uses internet of things (IoT) sensing, blockchain and artificial intelligence to verifiably track and account for all emissions.
It can be extremely complex to match up carbon emissions reductions purchased through carbon offsets, renewable energy certificates or direct purchases of zero-carbon energy under contract or on the spot market with your use of such energy.
Let’s consider a relatively simple market, such as commercial real estate. To assess their carbon footprint, companies need to accurately monitor each building’s energy use, including both energy efficiency measures and onsite energy systems (cogeneration, solar and/or back-up power systems and fuels used), be able to measure and report where the energy is coming from to supply those buildings, and determine the carbon footprint of every kilowatt-hour or Btu of that energy. Evaluating energy use and the associated carbon impact needs to take place in real time, given that the mix of power generation on the grid changes frequently, and transmission and other constraints may limit the availability of renewable energy that a building is deemed to have purchased.
Gathering data from different vendors — from energy use and embodied carbon — and using it to determine emissions that fall under Scope 1 (under a company’s control), Scope 2 (indirect from energy purchases still under a company’s control) and Scope 3 (from activities not under the company’s control) has been challenging due to the lack of comprehensive standards for carbon accounting or a single set of guidelines on how to audit, verify and report.
What is available now?
Most technologies on offer focus on energy and carbon and consider Scope 1 and Scope 2 emissions. A range of solutions that address the challenge are being offered by startups including ClearTrace, Flexidao, The Energy Origin and Allinfra. (My firm, Clean Energy Ventures, is an investor in ClearTrace.)
Flexidao offers a blockchain platform to track renewable energy generation. The Energy Origin tracks renewable energy generation and end-use consumption using real-time sensors and a blockchain-based platform. Allinfra uses digital renewable energy certificates to record and track renewable energy production.
ClearTrace has built an immutable ledger to measure energy supplies at their source, overlay it with "metadata" such as the grid emissions profile of the energy and carbon impact calculations, and use this information to generate a verifiable and auditable report for clients in real time. This provides a transparent and indisputable record — a digital climate asset — of customers such as JP Morgan Chase and Brookfield Renewable Partners’ energy use and carbon footprint.
This sector is growing rapidly with strong interest from energy generators and wholesalers including Brookfield, NRG Energy and NextEra Energy. Likewise, real-estate firms such as CBRE, Rudin and Hines, alongside industry organizations such as the Real Estate Board of New York, are pursuing carbon tracking measures driven primarily by legislation requiring massive reductions in energy use and related carbon emissions.
To ensure the carbon offsets you are purchasing are not already being purchased by someone else, a frequent occurrence, a trustworthy end-to-end solution to provide all the data is needed.
To ensure the carbon offsets you are purchasing are not already being purchased by someone else, a frequent occurrence, a trustworthy end-to-end solution to provide all the data is needed. It’s important to keep in mind that not all carbon offsets are created equal. Additionality, permanence or durability, buffers or insurance, and leakage define the ultimate quality (and price) of an offset.
Stripe, the payment processing software company, recently announced its purchase of carbon offsets — which ranged in quality and in price from $75 to $775 per ton of carbon dioxide equivalent, with some offsets being highly speculative technology development projects. For Stripe, JP Morgan Chase or Shell, carbon offsets will be essential to the market but should be considered a secondary action after energy efficiency solutions that are key elements in any carbon tracking platform.
Roughly 23 percent of the companies in the Fortune Global 500 have made some form of commitment to reach carbon neutrality between now and 2050. While companies may need tracking and reporting software to measure their climate footprint and avoid heavy fines, stakeholders also need data to trust how Fortune 500 companies are reporting their carbon footprint.
While Amazon, Microsoft and others are leading the way, I foresee more companies beginning to adopt these technologies and addressing carbon emissions in their business models. We will see strong growth in climate accounting-as-a-service technologies surge in what promises to be a billion-dollar data management opportunity in the next decade.