20 March 2025
Professor Matthew Brander answers FAQs on introducing a causality requirement for market-based scope 2 accounting.
Read Matthew’s previous post for an ‘explainer’ of why a causality requirement is necessary for accurate market-based greenhouse gas (GHG) inventories.
Why a causal relationship is essential for accurate market-based greenhouse gas inventories
- Will introducing a causality requirement be too difficult or burdensome?
- Many tests for causality are simple. For instance, ‘positive lists’ provide a list of activities that are deemed likely to entail causality, e.g. ‘PPA of 10 years or more’ can be considered sufficient evidence of a causal relationship.
- The cost of implementing tests is likely to be a fraction of a percent of overall renewable energy project costs or purchasing costs, and can be viewed a legitimate cost for ensuring the integrity of renewable energy procurement.
- Many causality tests are already used in the context of electricity purchasing, e.g. positive lists, financial tests, regulatory tests, and timing tests (see Schäfer et al. (2025)).
Identifying options for additionality tests in the context of scope 2 market-based accounting
- Will introducing a causality requirement make it impossible for companies to meet their 100% 24/7 carbon free energy targets (i.e. there will be times when long-term contracted projects are not generating power and companies won’t be able to buy energy attribute certificates on the spot market)?
- It is entirely possible to have unbundled or spot market energy attribute certificates (EACs) that meet a causality requirement, e.g. an EAC supplier may take the long-term off-taker risk on a PPA with the intention of selling the EACs on the spot market. There will be a causal relationship between the end purchaser of the EAC and the renewable energy project as it is the revenue from the EACs that underpins the intermediary’s business model and ultimately makes the project happen.
- It is worth noting that achieving 100% 24/7 carbon-free energy (CFE) is not necessarily easy but the alternative option of formulating the accounting rules so that it is easier to appear to have achieved 100% 24/7 CFE is unlikely to be viewed as credible.
- Will project developers agree to a financial causality test as they won’t want to disclose commercially sensitive information?
- It isn’t necessary for a project developer to publicly disclosure any commercially sensitive information. They could implement the financial analysis themselves and attest to its veracity, or use an accredited third party auditor to validate the analysis (without publicly disclosing any information).
- Thousands of renewable energy projects have undertaken financial analysis tests in the context of carbon offset programs without problems regarding commercially sensitive information.
- Is a causality requirement necessary if the reporting company buys EACs from deliverable power?
- Deliverability is necessary for accurate GHG inventory reporting but it is not sufficient on its own. There must be some real-world basis for a company to claim that its demand is met by a specific generation facility within the deliverable power pool, and a causal relationship provides that basis (see Brander and Bjørn (2023)).
Principles for accurate GHG inventories and options for market-based accounting
- Deliverability is necessary for accurate GHG inventory reporting but it is not sufficient on its own. There must be some real-world basis for a company to claim that its demand is met by a specific generation facility within the deliverable power pool, and a causal relationship provides that basis (see Brander and Bjørn (2023)).
- Does a causality requirement affect the types of claims a company can make or how the numbers in a GHG account should be interpreted?
- Yes. If a company claims ‘Our demand for electricity was met by power generation from Wind Farm X’, that claim is true if the power is deliverable and the company caused Wind Farm X to happen. Conversely, the claim is misleading if there are many facilities generating deliverable power and the reporting company has no specific relationship to Wind Farm X.
- If the company reports its scope 2 emissions as ‘zero’ that number can be interpreted to mean ‘The company’s demand for power is met by 100% carbon-free energy generation’, if there is a causal relationship with deliverable CFE generation equal to the amount the company consumes. If there isn’t a causal relationship with that amount of CFE generation then the interpretation is unlikely to be considered credible.
- Companies may be exposed to reputational risk and litigation risk if they make claims or interpretations that are misleading or unsubstantiated (e.g. see the forthcoming EU Green Claims Directive, and instances of litigation due to unsubstantiated claims).
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- Does a causality requirement muddle up attributional and consequential accounting, as consequential accounting is about the changes caused by company actions?
- A causality requirement is consistent with attributional inventory accounting as it is only about establishing a basis for using a specific emissions rate, and it isn’t about including avoided emissions within an attributional inventory.
- The concept of ‘causality’ already underpins the way emissions are attributed to companies within attributional accounting. E.g. if a company buys a seat on a flight then it is allocated a share of the emissions as it has contributed to aggregate demand for the flight (which is ultimately what causes the flight to happen).
- Is a causality requirement necessary if we aren’t doing ‘inventory’ accounting and are aiming for ‘performance’ accounting instead (i.e. the accounting is primarily designed to promote behaviours that in aggregate achieve beneficial outcomes)?
- A causality requirement isn’t necessary for ‘performance’ accounting as this type of accounting is focused on driving certain behaviours and outcomes, rather than being an inventory of emissions from the specific processes used in a company’s value chain.
- However, one of the main reasons that companies are interested in purchasing EACs is to reflect this in their value chain GHG inventories, and there may not be demand for EACs if they only substantiate broader claims related to potential aggregate-level impact.
- What is the difference between causality and additionality?
- ‘Additionality’ means that an action causes an outcome to occur, and in the absence of that action nothing else would have caused the outcome to occur. Whereas ‘causality’ means that an action causes an outcome to occur, but doesn’t also require that nothing else would have happened to cause the outcome to occur.
- Causality is a real-world relationship between a company and the emission rate it is reporting and is sufficient for attributional inventory accounting. Additionality is necessary in other contexts, e.g. carbon offsetting, where the aim is to achieve a compensatory outcome that would not have occurred anyway.
- Is electricity being treated differently to other instances of market-based accounting, e.g. green steel certificates, sustainable aviation fuel certificates etc.?
- The same requirements for accurate GHG inventory accounting apply in all cases where there is no physical traceability to the specific processes used in the value chain (see Brander and Bjørn (2023)).
Principles for accurate GHG inventories and options for market-based accounting - Using the emission rate from a specific facility within the deliverable supply pool is justified if there is causal relationship between the reporting company and that specific facility.
- The same requirements for accurate GHG inventory accounting apply in all cases where there is no physical traceability to the specific processes used in the value chain (see Brander and Bjørn (2023)).
Read the other thought leadership articles in Matthew’s series on scope 2 emissions and electricity reporting
- Initial review of “Impacts of Voluntary Renewable Energy Demand on Deployment: A Market-Based Approach”
- Why a causal relationship is essential for accurate market-based greenhouse gas inventories
- Additionality, deliverability, and double counting in scope 2 greenhouse gas emissions accounting
Matthew Brander
Personal Chair of Carbon Accounting, University of Edinburgh Business School