New GHG Scope 2 Protocol Lets Corporations Measure Renewable Success

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Today’s publication of the GHG Protocol Scope 2 Guidance by the World Resources Institute will go a long way toward helping the business sector apply and advance its use of renewable energy. Investments in that sector, largely driven by offshore wind in Europe, and solar in China and the US, quintupled over the past decade, expanding to $310 billion in 2014. However, corporate uncertainty about the place of renewable energy used for power, steam, heating, and cooling (which result in “scope 2” emissions) has historically held companies back from using low-carbon energy sources.

The first Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, published in 2003, was the most widely used accounting tool for GHG emissions. A multistakeholder partnership of businesses, nongovernmental organizations, governments, and others convened by the WRI and the World Business Council for Sustainable Development had begun to develop internationally accepted GHG accounting in 1998. By 2014, 86% of Fortune 500 companies responding to the Carbon Disclosure Project used the GHG Protocol. “The most powerful green NGO you’ve never heard of,” as the Harvard Business Review once called it, CDP represents 767 institutional investors ($92 trillion). It concentrates on issues around climate change, water, and forests.

Adair Lord Turner, former chair of the UK’s Financial Services Authority and author of Just Capital–The Liberal Economy and Economics after the Crisis, points out the environmental sense of the carbon reporting arrangement:

“The first step towards managing carbon emissions is to measure them because in business what gets measured gets managed. CDP has played a crucial role in encouraging companies to take the first steps in that measurement and management path.”

WRI’s new measurement tool offers industry solid help with both short and long-term investment decisionmaking. The new GHG Scope 2 Protocol updates the first by taking into account the rapid growth of renewable energy and other electricity market changes over the past 12 years. These include many new options for low-carbon electricity: power purchase agreements, electricity contracts, on-site versus off-site projects, and renewable energy certificates, all of which vary by country and/or region of implementation.

As well, changes include the fact that for most companies, scope 2 is no longer one number, but two: a location-based method and a market-based method. Within this parameter:

• Methods for GHG scope 2 accounting are “allocation” methods—allocating generator emissions to end-users.

• Contractual instruments recognized in the market-based method include more than green power purchases.
• Contractual instruments in the scope 2 market-based method are not carbon offsets.

Also:

• Instruments used as emission factors in the market-based method must meet eight GHG Scope 2 Quality Criteria, designed from existing best practices around the world.

• Companies should disclose key features and policy context of their contractual instruments, including the following:

1. Instrument labels: Certification or label name, Incremental funding programs.
2. Energy generation facility features: Energy resource type, Facility location, Facility age.
3. Policy context: Supplier quotas, Effects of any cap and trade policy, Funding/Subsidy Receipt, Offsets, Other policy instruments.

Now for the first time, companies can credibly quantify their electricity purchases in terms of atmospheric carbon emissions. Since business consumes about half of all electricity produced globally, and energy generation results in almost 40% of GHG emissions, the implications to sustainability and world climate are enormous. The new method of measuring diverse electricity sources through a common protocol (GHG emissions) finally allows business to make reliable bottom-line choices. It will spark corporate interest in sustainability and increase demand for renewables in the important, perhaps the most critical, business sector.

Led by Mary Sotos, the WRI GHG Scope 2 team spent four years consulting with over 200 people representing companies, electric utilities, government agencies, academia, industry associations, and civil society in 23 countries. The U.S. Environmental Protection Agency took part in the process and welcomes the new guidance. Sotos speaks for its significance:

“This guidance will let companies know exactly how their energy choices count toward their emissions goals. By providing rigorous reporting methods, the guidance gives a clear incentive for companies to demand low-carbon electricity.”

Sotos earned a 2014 CRS Market Development Award last month for her work.

CDP, The Climate Registry, and other reporting programs will now require thousands of companies to quantify their GHG scope 2 emissions using the new protocol. The Scope 2 Guidance will also aid local and national governments and worldwide climate initiatives in their planning. For the business world, it has many practical applications beyond the primary purpose of strengthening emissions reporting. WRI points out some of these:

• Corporations can compare electricity procurement choices based on their emissions profile and set science-based GHG reduction targets.
• Utilities can calculate and disclose accurate carbon footprint performance to customers.
• Industry associations can use the guidance to set sector targets and compare performance of different actors within a whole sector.

As well as presenting the new method in detail, the WRI report includes case studies from 12 organizations that have already implemented the protocol, including Google, Tennessee Valley Authority, EDF Energy, REI, the international Association of Issuing Bodies (guarantor of the European Energy Certificate System), and airport and railroad groups. Here’s one example: last year it helped Mars Incorporated, a food and beverage company with net sales over $33 billion, decide to create a 200 MW wind farm in the US.

By empowering every company to report its carbon footprint from acquired energy transparently and determine the steps necessary to minimize it, mitigate risk, capitalize on opportunities, and make durable investment decisions, the new WRI guidance moves corporate sustainability reporting and the bottom line ahead by a truly giant step.

In the coming weeks, GHG Scope 2 Guidance information sessions will be featured at events in London, Brussels, and Washington, D.C. More information here.