Additionality, deliverability, and double counting in scope 2 greenhouse gas emissions accounting

This is a draft of an opinion piece currently under review for publication in an academic journal.

The Greenhouse Gas Protocol and renewable energy certificates

Since 2015, the Greenhouse Gas (GHG) Protocol has permitted companies to report electricity emissions (“scope 2”) through purchases of renewable energy certificates (RECs)¹ (Box 1). Each REC purchase allows a company to report zero scope 2 emissions for 1MWh of its electricity consumption as if the company is physically supplied by the renewable generation facility that they bought the REC from. Since then, companies have greatly increased their RECs purchases and RECs have come to play an important role in companies´ reporting on progress against net-zero targets²,³.

Box 1: Summary of the GHG Protocol´s existing scope 2 accounting rules¹,³.

The role of RECs in the 2015 standard has been criticized for potentially leading to poor and even misleading emission accounting, including by the press⁶. In Europe, there has been a big focus on companies thousands of kilometers away buying RECs from Norwegian hydropower plants, even though they cannot be physically supplied by power from these plants, the plants were built many years before the RECs market was created, and local Norwegian companies are also reporting the climate benefit of the hydropower⁴. In the US, which has seen a massive expansion in PV capacity, an additional line of criticism is that the annual accounting steps of the 2015 standard allow companies to make the counterintuitive claim that they are fully powered by solar PV, even at night⁷. These critiques largely boil down to concerns about 1) lack of physical connection between the corporate REC buyer and renewable energy source, 2) not causing additional renewable generation, and 3) double-counting.

We observe that actors frequently confuse these three accounting issues in discussions related to the upcoming revision of the GHG Protocol’s standard for scope 2⁸. Perhaps as a result, even proponents of specific new accounting approaches, such as “24/7 Carbon-Free Energy”⁹ and “Carbon matching”¹⁰, are often unclear about exactly what accounting issue(s) they aim to address. At worst, this could lead to a new standard that does not fully address the accounting issues of the 2015 standard.

In this comment, we argue that the 2015 standard suffers from all three accounting issues, and that each issue requires its own solution. First, we present the three accounting issues in more detail. Second, we argue why they should be seen as distinct, despite some level of interdependence. Third, we outline promising approaches for solving each accounting issue.

Pretending there is a bridge when there is not: lack of deliverability

Under the 2015 standard, a company may “match” its electricity consumption with RECs from generators it is not physically connected to and, when physical connectivity is present, the company may temporally mismatch its electricity consumption (e.g., at night) with purchased RECs (e.g., from solar PV). This violates the basic accounting rule that activities included in a company´s GHG inventory must be physically connected to the company¹¹. So, while it is generally impossible to trace the actual supplier of a given MWh consumed by a company from the common grid, making emission claims based on RECs purchased from generators that cannot physically deliver power to the company clearly goes against good inventory accounting practices.

The root cause behind the lack of deliverability is that the 2015 standard allows RECs to be traded within geographical areas that are larger than the areas in which physical electricity is typically traded and that the standard suggests the use of annual time steps by default, even though power is typically consumed rapidly after it is generated.

Taking credit without deserving it: lack of additionality

Under the 2015 standard there is no requirement for a causal relationship between the reporting company and the zero-emission factor that each purchased REC allows it to use when calculating its market-based scope 2 emissions. This is problematic for two reasons.

Firstly, from an accounting perspective, even if there is time and location matching, there will not be a rationale for claiming to “be powered by” one single specific generation technology, out of the multitude that may be dispatching power at the time and location of consumption. Reporting the emission rate associated with a specific generator will only be accurate if the company can show that it caused the power from a specific generator to exist, i.e. prove additionality¹¹.

Secondly, from a pure impact perspective (which goes beyond questions of accuracy in accounting) there is no point in purchasing RECs that do not cause an increase in the deployment of renewables or reduce emissions. It is clearly misleading if large publicly facing companies can use RECs to give the impression that they are progressing well against their net-zero targets without actually reducing power emissions and instead effectively shifting these emissions to other electricity customers who are under less pressure to reduce emissions³.

When emissions do not add up: double counting

In theory, the 2015 standard ensures that the market-based scope 2 emissions of all electricity consumers in a region sum to the region´s total power emissions, so that the zero-emission attribute of a given MWh of renewable energy generation is not counted more than once across consumers. This balance should be achieved through the residual emission factor, which represents a grid´s average emission factor adjusted upward to exclude the renewable energy production covered by sold RECs (Box 1). For example, while Norway´s average emission factor in 2022 was 7 gCO₂ per kWh, its residual emission factor was 502 gCO₂ per kWh⁴.

In practice, however, companies often resort to using average emission factors as proxies when residual factors are not available¹², hence benefiting from the zero-emission attribute of renewable energy production already counted in the sold RECs. A second source of double counting is when companies only report either market-based emissions or location-based emissions, instead of following the dual reporting requirement (Box 1)⁴. In both cases, the combined reported scope 2 emissions of companies and other power consumers underestimate total emissions and, when REC purchases increase over time, overestimate the pace of power sector decarbonization.

Interdependent but distinct issues

A reason for the frequent confusion between the three accounting issues presented above may be that there is a level of correlation between them, whereby one issue is more likely to occur if another issue is present. For example, lack of deliverability has been blamed for causing lack of additionality, as the former allows companies in regions with REC scarcity (e.g., the Germany) to buy low-cost RECs from regions with surplus RECs (e.g., Norway)⁴, and it allows companies that consume electricity in hours with low renewable energy generation to buy low-cost RECs tied to power produced in hours with surplus production⁹. Lack of geographical deliverability has also been seen as enabling double counting in situations where companies do not follow the dual reporting requirement (Box 1), with German companies using Norwegian hydropower RECs to report low market-based emissions, while Norwegian companies also benefit from the zero-emission attributes of hydropower in their location-based emissions⁴. Double-counting may also increase the likelihood of non-additionality since companies that use low average emissions factors to report scope 2 emissions have less incentive to buy RECs, and therefore do not contribute to the level of REC scarcity required for meaningful price signals to renewable project developers, than if they had used the higher residual emission factors⁴.

However, correlation is different from causation. For example, we should not assume that an accounting solution that ensures deliverability also ensures additionality¹³ and avoids double-counting. In fact, all seven combinations of the three accounting issues are plausible (Figure 1).

Figure 1: Venn diagram showing the seven combinations of the three accounting issues: no deliverability, no additionality, and double counting. The table below provides illustrative examples of the seven combinations, each involving two companies co-located on the same electricity grid. Accounting solutions may incorporate one, two or all three of the accounting issues.

Potential solutions to each accounting issue

Deliverability may be ensured by recent proposals for companies to buy RECs from the same grid and at an hourly resolution, while similarly using local and hourly residual emission factors for the unmatched part of the power consumption⁸,⁹. Such restrictions would recognize the local and (in the absence of storage) short-lived nature of electricity.

Tests for additionality emerged with voluntary carbon credit markets two decades ago¹⁴ and some of these tests are also suitable in the context of RECs. For example, an investment test involves a financial simulation of the renewable energy project issuing the RECs with the goal of understanding whether the project would not have been financially viable in the absence of the RECs market (or an individual power purchase agreement).

Avoiding double-counting is largely a matter of ensuring that all companies comply with the current requirement¹ of reporting both location-based and market-based scope 2 emissions and that the latter are calculated using residual emission factors (Box 1). For this, accurate residual emission factors must be calculated for each grid and, potentially, hour⁵. These residual emission factors should also be integrated in scope 3 accounting methods to allow market-based accounting of electricity emissions from the rest of companies´ value chains¹⁵. Further, to prevent companies from cherry-picking an emission accounting approach in connection with their emission reduction target, the Science Based Targets initiative could require companies to set reduction targets for both market-based and location-based scope 2 emissions.

Outlook

When discussing changes to emission accounting rules⁸, it is crucial to first clearly articulate what the issues with the current accounting rules are. We argue that there are three interrelated but distinct issues with the 2015 scope 2 standard and, further, that these issues must be solved separately. These discussions are also relevant for emerging emission accounting standards related to “green fuels”².

References

¹GHG Protocol Scope 2 Guidance. An amendment to the GHG Protocol Corporate Standard (WRI, 2015).
²Langer, L. et al. J Clean Prod 478, 143791 (2024).
³Bjørn, A., Lloyd, S.M., Brander, M. & Matthews, H.D. Nat Clim Chang 12, 539–546 (2022).
⁴Paris, A., Hechelmann, R. & Buchenau, N. J Ind Ecol, Exploring the effect of Guarantees of Origin on the decarbonization of corporate electricity procurement: A case study of Germany and Norway (2024).
⁵Klimscheffskij, M. et al. Energies (Basel) 8, 4667–4696 (2015).
⁶The Guardian, Data center emissions probably 662% higher than big tech claims. Can it keep up the ruse?(2024).
⁷Chalendar, J.A. De & Benson, S.M. Joule 3, 1389–1393 (2019).
⁸Greenhouse Gas Protocol. Scope 2 Proposal Summary (WRI & WBCSD, 2023a).
⁹24/7 Carbon-Free Energy: Methodologies and Metrics (Google, 2021).
¹⁰He, H. et al. The Electricity Journal 34, 107028 (2021).
¹¹Brander, M. & Bjørn, A. Int J Life Cycle Assess 28, 1248–1260 (2023).
¹²Greenhouse Gas Protocol. Detailed Summary of Responses from Scope 2 Guidance Stakeholder Survey (WRI & WBCSD, 2023b).
¹³Galzi, P.-Y. Energy Policy 179, 113627 (2023).
¹⁴Ahonen, H.-M. et al. ZORA, Safeguarding integrity of market-based cooperation under Article 6: additionality determination and baseline setting (2021).
¹⁵Holzapfel, P., Bach, V. & Finkbeiner, M. Int J Life Cycle Assess 28, 771–787 (2023).

Authors

Anders Bjørn¹,^2*, Caroline Herlev Gebara²,¹ and Matthew Brander³3

¹Centre for Absolute Sustainability, Technical University of Denmark, Kongens Lyngby, Denmark.
²Section for Quantitative Sustainability Assessment, Department of Environmental and Resource Engineering, Technical University of Denmark, Kongens Lyngby, Denmark.
³Center for Business, Climate Change, and Sustainability, University of Edinburgh Business School, Edinburgh, UK.

^*Corresponding author: anbjo@dtu.dk

Acknowledgements

This research was funded by Innovation Fund Denmark, grant 2122-00084B (A.B. and C.H.G.).

Competing interests

A.B. is a remunerated member of the Technical Council of the Science Based Targets initiative. The other authors declare no competing interests.

Matthew Brander is our Personal Chair of Carbon Accounting.