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When two tribes go to war

With corporate sustainability claims under growing scrutiny, how companies choose to put their clean energy commitments into practice is becoming increasingly critical. Two camps are emerging that take different positions on the issue – and which have important implications for corporate green energy procurement.

This difference in opinion is taking place in the context of a forthcoming major overhaul of emissions accounting. While this debate might appear esoteric, its outcome is likely to influence renewables markets and corporate clean energy purchasing for the next decade to come.

Putting emissions first

On the one side is the Emissions First Partnership. It brings together companies including Amazon, Meta, Salesforce and GM – all big buyers of green energy. As its name suggests, it sees the priority as reducing emissions as quickly as possible – so companies should support new renewable energy capacity in grids where emissions are highest, even if these are not grids where the buyer is actually consuming power. They can do this by entering into virtual power purchase agreements (PPAs) or through buying green certificates, preferably from new-to-earth projects.

This approach is predicated on basic climate science: it does not matter where in the world a tonne of carbon dioxide is emitted, so investments in clean energy should take place where they will maximise electricity decarbonisation: a new wind farm in a grid that is chock-full of existing renewables and hydroelectric capacity would have less climate impact than the same wind farm in a grid where it would help displace coal-fired power.

Critics of this approach argue that this smacks of greenwashing. It allows big corporate buyers to continue to consume fossil fuel-generated power, while buying cheap renewable energy certificates from distant markets to ‘offset’ their electricity related-emissions.

Carbon-free, all of the time

On the other side of the debate is the Granular Certificate Trading Alliance (GCTA), whose members include Google and Microsoft – also huge consumers of green power. Its position is that, to be credible, companies claiming to be 100% powered by renewables must physically only consume carbon-free power – their sources of load must be on the same grids as where the clean power is generated.

In support of this ambition for “location-based carbon-free energy” (CFE), they are promoting the creation and trading of energy attribute certificates that verify the time (every half hour in the UK) and location of each unit of clean power. GCTA members argue that the creation of such a market “aims to enable energy buyers to easily source CFE generated around the clock, and to incentivize energy sellers to produce clean energy where and when it is most needed, delivering carbon-free grid reliability in all hours”.

By sourcing certificates to precisely match their consumption, corporate buyers could use such a market to credibly demonstrate that they are operating on clean power around the clock.

Its critics, meanwhile, argue that GCTA’s approach will drive investment towards eliminating the last few percentage points of large (and wealthy) companies’ emissions, at high cost, rather than pursuing higher volumes of lower-cost emissions displacement elsewhere.

Ask the accountants

The debate between the Emissions First Partnership and the GCTA mirrors the dual approach organisations can take to measure their Scope 2 greenhouse gas (GHG) emissions – those caused by purchased electricity and heat. The GHG Reporting Protocol is the bible for carbon accounting, first published by the World Resources Institute and the World Business Council for Sustainable Development in 2004.

In 2015, they published guidance on Scope 2 emissions that introduced two ways to account for these indirect emissions. The location-based method requires organisations to track Scope 2 emissions based on grid-average emissions where the electricity is actually consumed. Simply following this approach – which aligns with that advocated by the GCTA – means that companies cannot claim any emissions credit for clean power purchased (or supported with green certificate purchases) in a different locality.

However, the guidance also allows organisations to use a market-based approach, which allows them to use emission factors specific to the contractual instruments they have purchased, whether PPAs or renewable energy certificates. This approach, which is closer to that of the Emissions Free Partnership, provides an alternative way for companies to account for their efforts to source renewable electricity.

The guidance suggests that companies might want to use both approaches, to provide maximum transparency.

To further complicate the picture, the GHG Protocol secretariat is in the middle of updating its guidance on market-based approaches. It conducted a survey of market participants over 2022-23, and has published a summary of responses.

Among other things, it noted that the survey demonstrated “a clear need for guidance on how companies quantify and report on actions (e.g. interventions) and market instruments in corporate GHG reporting.” It closed a call for feedback on the report in May 2024, and it is expected to publish revised guidance in 2025.

What is a company to do?

At this point, it is unclear which direction the GHG Protocol is likely to take – and both groups are working to make their voices heard in the process. At the risk of sitting on the fence, we can see merits (and demerits) in both approaches to emissions accounting and reporting.

However, we would make two observations. The first is that, whatever a company chooses to do, doing something to promote clean energy is better than doing nothing. Too many companies are using uncertainty in the marketplace as a fig-leaf for inaction. In the face of a rapidly building climate crisis, business as usual is not an option. Investors, regulators and customers will, we believe, increasingly punish companies that are not working hard to decarbonise.

Second, transparency is key. There will be critics for whichever path a company follows to move to clean energy; this is likely to remain the case after the GHG Protocol publishes its revised guidance. The best defence is for companies to be open, honest and transparent in setting out the why and how of its clean energy and wider climate strategy. It is always better to anticipate scrutiny than to try to dodge it.