Open Letter Rejecting the Use of Contractual Emission Factors in Reporting GHG Protocol Scope 2 Emissions

Summary: This letter is authored by GHG accounting practitioners and academics concerned that the GHG Protocol’s Scope 2 Guidance allows reporting entities to use contractual/REC-based emission factors in reporting Scope 2 emissions. Contractual emission factors misrepresent reporting entities’ emissions. We strongly recommend that Scope 2 emissions be reported based on the other method provided in the Guidance, locational grid average emissions factors. This preserves the integrity of the reports, and reduces risk for reporting entities. It is also fully consistent with the GHG Protocol Corporate Standard and the spirit of the Scope 2 Guidance.

To: Decision Makers Involved in Corporate Sustainability Strategies, Purchasing RECs, and GHG Reporting, and Reporting Practitioners

WRI’s GHG Protocol Scope 2 Guidance (“Guidance”) allows companies that purchase Renewable Energy Certificates (RECs), or enter into other “green power” contracts, to report their GHG emissions from electricity consumption as zero.1 This implies that by paying an extra fee to make a claim on renewable power, a company can report having a GHG “footprint” of zero, equivalent to not having consumed any electricity.

It should be a bedrock principle of GHG accounting that no company be allowed to report a reduction in its GHG footprint for an action that results in no change in overall GHG emissions. Yet this is precisely what can happen under the Guidance given the contractual/REC-based reporting method. This method:

1)   Encourages companies to make emission reduction claims and set targets based on green power purchasing claims. Voluntary RECs, however, have been empirically shown to have no detectible influence on grid emissions,2 meaning that emission reductions claims are baseless.

2)   Encourages companies to believe and communicate to their stakeholders that they are purchasing electricity from renewable generation, when in fact they are only purchasing a claim to a “renewable attribute.” The physical electricity they consume remains unchanged, as do the emissions associated with it. Therefore, claims of emissions avoided are also baseless.

Advocates for the contractual/REC-based approach for Scope 2 reporting argue that future growth in the demand for RECs could lead to greater voluntary investment in renewables. Empirical evidence shows this outcome to be economically unachievable, and even if it were not the contractual approach to Scope 2 accounting would still be wrong. Only a very small fraction of the RECs claimed by companies in this “hope-based” future would have resulted from increased investment due to the voluntary green power market, but all RECs in the market would each be claiming a full megawatt-hour worth of Scope 2 reductions.

It is because of these problems that we are calling on reporting entities and GHG accounting practitioners to not utilize the contractual/REC-based reporting method in the Guidance. We understand the difficulties in reconciling disparate stakeholder interests in producing GHG reporting guidance. Our normal inclination would be to defer to the process. Unfortunately, the contractual approach to Scope 2 accounting is so great an anomaly when viewed against the high standards maintained by WRI over many years of GHG Protocol development that we have to object.

The contractual Scope 2 reporting method establishes a threatening precedent for environmental accounting by endorsing approaches that lack environmental integrity, and thereby puts reporting entities at reputational risk for misleading their stakeholders. Most seriously in light of the goals of the GHG Protocol itself, the contractual reporting approach may steer reporting entities away from actions that actually reduce electricity emissions (e.g., improved energy efficiency and onsite renewables generation).

The concerns we summarize here were raised many times by multiple parties during the development of the Scope 2 Guidance. Examples include (but are not limited to):

If companies wish to account for GHG emissions reductions achieved by green power projects, they should use alternative accounting frameworks – such as those provided in the GHG Protocol’s “Guidelines for Quantifying GHG Reductions from Grid-Connected Electricity Projects” – that quantify actual outcomes rather than mere contractual arrangements.

To be clear, the signatories to this letter are strong supporters of both voluntary initiatives and policies that accelerate growth in renewable energy. However, it is critical to the legitimacy of corporate GHG reporting that Scope 2 emissions be calculated and reported on the basis of credible assumptions and methods that reflect actual environmental performance.

1. The Guidance requires companies to also calculate a locational grid average-based Scope 2 emission estimate, but it treats both calculation methods as equally valid in reporting and communicating final Scope 2 emissions.
2. A considerable body of research literature and analysis on RECs and Scope 2 GHG accounting support the conclusions presented in this letter. Much of it is available through the Open Letter on Scope 2 GHG Reporting and Response to Greenhouse Gas Protocol’s Consultation, and through technical discussions such as the GHG Management Institute’s Is your “green power” really just “green washing?” debate.

 

Sincerely,

Matthew Brander, Senior Research Fellow, University of Edinburgh Business School
Derik Broekhoff, Vice President, Climate Action Reserve (and former GHG Protocol team member)
Dr. Michael Gillenwater, Executive Director and Dean, GHG Management Institute (and core advisor to the revised edition of the GHG Protocol corporate standard)
Dr. Mark C. Trexler, Director, The Climatographers (and former President of Trexler Climate + Energy Services, which authored many early corporate GHG inventories)

Additional Signatories:

Don M. Bain, P.E., Senior Fellow, GHG Management Institute and Principal, SumSmart
Professor Sue Roaf, Initiative for Carbon Accounting (ICARB), and Heriot-Watt University
Dr. Keith Baker, Initiative for Carbon Accounting (ICARB), and Glasgow Caledonian University
Christian Solli, Senior Advisor, MiSA – Environmental Systems Analysis
Edgar Hertwich, Professor, Norwegian University of Science and Technology
Dr. Michael Lazarus, Senior Scientist, Stockholm Environment Institute
Ryan Meinke, Associate Principal, Closed Loop Advisors
J.D. Capuano, Co-Founder and Co-CEO, Closed Loop Advisors
Neil Kolwey, Independent Consultant
Stephen Boles, President, Kuzuka Ltd.
Klaus Radunsky, Senior Expert for Climate Change, German Environmental Protection Agency
Dr. Tim Moore, Director, NetPositive
Dennis M. O’Regan, Liberty Environmental Inc.
Mark D. Wilhelm, Corporate Director, Sustainability and Climate Neutrality Initiatives, AMERESCO, Inc.
Gail Hamel-Smith, Secondary Science Teacher
Cassie Ridenour, President, Cridenour.com
Alexander Stathakis, CitySwitch Program Manager, Net Balance Foundation
Mohamed M. Elabbar, Ministry of Electricity, Libya
Eric Sutherland, Ft. Collins, CO
Richard Iliffe, Carbon Asset/Project Developer, CO2 Balance
Ethan O Brien, CO2 Balance
Garrick Gregory A. Mina, Carbon Management Specialist, Energy Development Corporation
Anna Maria Makalew, Dr.,Ir., M.Sc, Lambung Mangkurat University
Sergi Cuadrat, Owner and CDM Consultant, ClimaLoop
Michael Wara, Associate Professor, Stanford Law School
Auden Schendler, Vice President Sustainability, Aspen Skiing Company
Evan Jones, Information Manager, Brookfield Johnson Controls
Joel N. Swisher, PE, Director, Institute for Energy Studies, Western Washington University
Olivia J Fussell, President, CINCS LLC
Mike Bess, Independent Consultant
Juan Pablo Castro, Senior Consultant, ClimateFocus
Dr. Bakayoko Oumar, Chief Project Manager on Environmental Issues, Côte d’Ivoire, West Africa
Stephen Roe, Technical Program Manager, Center for Climate Strategies
Duncan Noble, Principal, Noble Consulting
Joshua Skov, Lundquist College of Business, University of Oregon
Pete Erickson, Senior Scientist, Stockholm Environment Institute
Jen McGraw, Climate Change Program Director, Center for Neighborhood Technology
Francesco N. Tubiello, Project Coordinator, U.N. Food and Agriculture Organization
Dr. Gordon Smith, Principal, Ecofor LLC
McLouis Robinet, Physicist
Anja Kollmuss, Associate Scientist, Stockholm Environment Institute
Roel Hammerschlag, Hammerschlag & Co. LLC
Lola Kassim, Sustainability Consultant, EarthShield International Foundation
Teresa Legg, Carbon Consultant, The Carbon Report
John Miller, Independent, formerly Sustainable Management Focal Point, UNESCO
Olubukola Betty Olatoye, Global Safety, Environmental & Waste Consultants, Nigeria
Darius Tolkien-Spurr, Carbon Accounting Analyst
Ali Rivers, Technical Lead – Climate Change, ecometrica

We welcome serious discussion of this issue. To participate and share your insights, please leave your comments as a “reply” to this letter below.

If you would like to add your name, and thereby endorse, this letter, please email your full name, title, affiliation, and email address to Scope2openletter@gmail.com.

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5 thoughts on “Open Letter Rejecting the Use of Contractual Emission Factors in Reporting GHG Protocol Scope 2 Emissions

  1. As Managing Director of Carbon Credit Capital LLC (CCC) a company that’s credibility relies on its carbon accounting of emissions, we endorse the fact that “it is critical to the legitimacy of corporate GHG reporting that Scope 2 emissions be calculated and reported on the basis of credible assumptions and methods that reflect actual environmental performance.” CCC as a practitioner consider the ground rules and strict adherence to credible assumptions and methods acknowledged and agreed to are of utmost importance in the business of actuating carbon accounting transactions in the market-place.

  2. I endorse this letter. An accurate estimate of the carbon footprint of organizations is essential to inform private and public decision makers. This requires transparent, credible and consistent methodologies, aligned with well-established GHG accounting principles. The use of contractual emission factors fails these criteria because it allows companies to report reductions that have not occurred, and it undermines the consistency required to compare the carbon footprints of different entities.

    Duncan Noble, P.Eng., Principle, Noble Consulting (and former Director, NA Carbon Solutions, PE INTERNATIONAL)

  3. Keep pushing Michael! For obvious reasons, it is critical that as many people as possible stop wasting resources on pretending to mitigate emissions through RECs and take real action.

    A couple of ideas for further action:

    -Producing a one page fact sheet warning consumers about the ineffectiveness of RECs and pointing them to actions that actually matter. As challenging as it is, I think the language of the open letter needs to be unpacked further for consumers.

    -Likewise a fact sheet for firms, warning of the risks of contractual reporting.

    -Naming and shaming organizations that use contractual reporting and commending those who take the honest grid based approach. Perhaps an opportunity for a climate NGO to establish these kind of lists and use as a hook to educate firms’ reporting staff who genuinely want to do the right thing.

    -Legal action. In many jurisdictions misleading environmental claims are prohibited by law. RECs must be one of the largest ever consumer scams.Consumer watchdogs should be encouraged to prosecute any firm claiming that buying a REC reduces their emissions. In addition to NGOs there are also many firms whose interests are adversely impacted by RECs.They should be encouraged to take their own legal action.

    -In addition to educating reporting firms and practitioners. Firms providing certification services should be encouraged not to certify inventories using the contractual method on the grounds of fundamental conflict between this approach and the principles of fair and accurate accounting.

    Keep up the good work. I and many others applaud the work you are doing to encourage honest disclosure of environmental impacts and meaningful action on GHG emissions.

  4. Some very good and well-made points but I don’t wholeheartedly agree with the statement and disagree with the conclusion. But I do really appreciate your work in bringing this to the fore as it needs to be debated constructively.

    You said: “a company can report having a GHG “footprint” of zero, equivalent to not having consumed any electricity.”

    Yes this is true, in terms of the rolled up total emissions figures, but the rolled up total figure alone is largely meaningless without an understanding of what is included in it. In reality stakeholders have to look at the accompanying information to make sense of the meta numbers. The new standard has a significant increased requirement around reporting the electrical emissions elements and so in practice I think it’s a little oversimplified and overstated to say that companies will be able to report “equivalent to not having consumed any electricity”. For me, verification is the only way to confirm that companies are reporting in compliance with the new standard and as a verifier this type of slight of hand wouldn’t be verifiable under the new reporting requirements.

    What is disappointing for me is that the standard doesn’t require companies to report their electricity consumption figures. It is only a recommendation and should be a requirement in my view. Those who don’t want to report it, on commercial sensitivity grounds, don’t report in compliance with the standard. Simple.

    Another premise of this letter is that the new standard “may steer reporting entities away from actions that actually reduce electricity emissions”. Within a carbon accounting/verification context I’m not particularly interested in this as I just want the most accurate inventories. Within a context of consultancy, we have to be conscious and weary, that some operations will be steered away from energy reduction. However, I’m already having major corporate clients (market leader types) asking how to respond to the new standard and being prompted to increase their focus, reporting, target setting, knowledge etc of their electricity consumption and the carbon content of their electricity consumption. To a certain extent the old standard’s almost total focus on GHG’s eclipsed any focus on the underlying energy and all the new requirements are bringing energy back into focus. This has to be positive. Will the standard reduce electricity savings actions? I don’t know that we can tell at this point but we can be absolutely sure that it will influence an increased literacy around electricity and the carbon content of that electricity and that is very positive in my view.

    However, the core focus of the protocol is around GHG accounting and so the core question for me is do I think that this new approach will amount to a truer and fairer way of calculating and reporting electricity emissions? and for all its problems (that I haven’t listed) I think it will do but perhaps not in the first few years. So I think it’s the least worst option that will possibly mature into being a very good option…

    Shane Hughes – GHG verifier and accountant

  5. My nonprofit organization is a voluntary green power supplier in Massachusetts and Rhode Island. We are the exception to your rule. That’s because our states have aggressive RPS’ and the RECs we buy and sell are eligible for those standards. I understand that we must be operating under your radar. But like you, we are tired of the greenwashing in this market. I’d like a chance to discuss our model with you. Please contact me at your convenience.

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