Why a causal relationship is essential for accurate market-based greenhouse gas inventories

If there are a number of different generation facilities dispatching power to the same grid and at the same time that a company is consuming power, then what justifies the company in reporting the emissions rate of one specific generation facility rather than using a grid average emission factor?

Figure 1: Electricity is generated from two different facilities and fed into a single electricity grid. Energy is consumed by three different companies, company A, company B and company C. On what basis could company A claim to have only consumed power from one of the two generation facilities?

One possibility is if the company has bought the right to claim the use of a specific emissions rate, e.g. by purchasing an 'energy attribute certificate' (EAC). However, is that sufficient for accurate greenhouse gas (GHG) inventory reporting?

Purchasing the EAC does not mean that the company physically received power from that wind farm. And if purchasing the EAC does not cause the wind farm to exist then the company’s demand for power on the grid does not cause zero emissions (as it still contributes to aggregate demand, which is met by the mix of generation facilities).

In such cases the GHG inventory will not accurately reflect the emissions caused by the company’s use of electricity, and will not be useful for standard inventory purposes such as identifying emission ‘hot spots’ in the company’s value chain, or tracking progress in reducing those emissions over time.

In contrast, if there is a causal relationship between the company and one of the generation facilities (e.g. the company caused the wind farm to exist), this provides a meaningful basis for using that facility's specific emission rate, rather than a grid average.

If there is a causal relationship then reporting scope 2 emissions as zero reflects the emissions caused by the company's demand for electricity, as it caused the generation of wind power to meet its consumption, and caused zero emissions.

It is worth noting that for accurate GHG inventory reporting there needs to be a causal relationship between the reporting company and the specific generation facility whose emissions rate is reported (rather than a causal relationship to aggregate levels of generation from facilities of that type).¹ If a company claims to have used a specific generation facility to meet its consumption this requires that the facility could physically supply the company, and the company caused that specific facility to exist.

There are already a number of tests for proving that there is a direct causal relationship between companies and specific generation facilities, such as ‘financial analysis’ tests, ‘positive lists’, and ‘timing’ tests. See the examples below:

• Ever.Green,High-Impact RECs: Applying Additionality for Renewable Energy Advancement
• UK Green Building Council, Renewable Energy Procurement & Carbon Offsetting

Introducing these tests ensures the accuracy of market-based GHG inventory claims. Without this the usefulness of GHG inventories will be undermined, reporting companies will be exposed to reputational risk for making false claims, and without integrity demand for market-based contractual instruments is unlikely to scale.

¹Influencing aggregate levels of generation from renewable energy sources or other forms of carbon-free electricity is a positive goal and should be disclosed as part of 'performance' or 'consequential' reporting, but it is not sufficient for accurate value chain GHG inventory claims.

Authors

Matthew Brander, Anders Bjørn, Caroline H. Gebara, and Lissy Langer

Full paper reference

Brander, M., Bjørn, A. Principles for accurate GHG inventories and options for market-based accounting. Int J Life Cycle Assess 28, 1248–1260 (2023).

Matthew Brander is our Personal Chair of Carbon Accounting.