Last week, WRI released its anticipatedguidance on Scope 2 emissions. The new guidance provides greater clarity on emissions produced via purchased energy (in the form of electricity, steam, heating, and cooling), and specifically takes into account the various low-carbon means by which companies obtain their electricity, including power purchase agreements.
The overall aim of the new guidance is to provide greater consistency to companies measuring and managing their carbon emissions via a greenhouse gas (GHG) inventory process and to remove impediments to those seeking to understand scope 2 emissions and how they compare across companies. The emissions of grid-sourced electricity and purchased steam, heat, and cooling are a considerable source of environmental impact for most companies.
There are several important changes in the new guidance that have the potential to affect any company tracking and reporting GHG emissions. The first is that scope 2 emissions will now be reported as two different metrics. The first is location-based and will require that companies utilize grid-average emissions data to report the emissions intensity from the grid where they derive their energy. The second is a market-based metric that will track the emissions from the various sources companies choose when developing their energy portfolio. So, for instance, the emissions reported could include market-based factors for utility-sourced electricity, renewable energy credits, or direct means such as power purchase agreements.
The second important distinction in the new guidance surrounds carbon offsets. The guidance makes clear that the contractual instruments used to determine the market-based emissions in an inventory do not include carbon offsets. Offsets are used to counterbalance emissions generated from one source with emissions reduction or avoidance from other sources, and are appropriate to address both scope 1 and scope 3 emissions. Scope 2 emissions, on the other hand, are to be derived from an emissions rate associated with a generating facility’s energy output (i.e. emissions per megawatt hour or MWh).
A third clarification is that the contractual instruments used as emissions factors in the market-based accounting must meet consistent quality standards. This quality check was derived from existing global best practices and is primarily intended to avoid the double counting of environmental attributes for low-carbon energy sources. Additionally, companies will need to provide greater context for their low-carbon choices, in order to verify the legitimacy of their contractual instruments.
The bottom line? The new guidance makes a consideration for the various nuances of energy procurement in today’s diversified market, but also holds companies reporting on that energy to a higher standard, particularly as it concerns the acquisition, accounting, and retirement of low-carbon instruments with environmental attributes. Companies can expect greater rigor in their GHG inventories as a result, and the need for increased sophistication in the purchase of and accounting for their energy sources.