Technical Annex

The key technical considerations and other evidence in support of the conclusions presented in the accompanying letter (i.e., that the use of contractual emission factors undermines the legitimacy of corporate greenhouse gas accounting) are presented below.

1. A company’s greenhouse gas inventory should be a “true and fair account of their emissions” (WBCSD/WRI 2004, p.3). In addition, greenhouse gas accounting should be guided by the five core principles of relevance, completeness, consistency, transparency, and accuracy (WBCSD/WRI 2004, p.7). These requirements serve as criteria for assessing the appropriateness of using contractual emission factors.

2. Allocation of emissions so as to avoid double counting is necessary but not sufficient to achieve a “true and fair account” of corporate emissions. Any number of arbitrary rules or algorithms could be used to allocate a sector’s aggregate emissions to individual companies and other entities within that sector without double counting. A “true and fair” rule, however, should allocate emissions on the basis of a company’s meaningful contribution to those emissions.

3. The GHG Protocol, like other recognized systems of attributional environmental accounting, uses a physical/causal relationship between company activities and emissions reported as a basis for “true and fair” allocation. At the heart of the GHG Protocol Corporate Accounting and Reporting Standard is a simple equation that relates GHG emissions to a company’s activities (GHG Protocol, Chapter 6):

GHG emissions = Activity Data x Emission Factor

Underlying this equation, which applies across all three emissions Scopes, is the principle of relevance. Specifically, relevant emissions are those that: (1) arise from company activities, and (2) are generated by sources physically related to those activities. A corollary to the previous point is that emission factors must be relevant to the identified activity. That is, the selection of an emission factor cannot be arbitrary, but instead should be derived according to an assessment of the sources physically related to company activities. For example, if a company physically uses a seat on an airplane then the company is allocated a share of the emissions from the flight, with an emission factor that approximates, as accurately as possible, the emissions from that flight.

4. In applying the “true and fair” criterion to the electricity sector, there is no physical justification for choosing emission factors other than those that represent the generation mix in place. Purchasing Renewable Energy Certificates (RECs) or engaging in other contractual arrangements does not change the emissions a company is physically responsible for producing through its consumption of electricity. On an electricity grid, it is not operationally feasible to separately track which generating facility supplied the electricity used to serve the load of each reporting facility or company. Because companies cannot pick and choose which power plants on a transmission and distribution grid are dispatched to meet their load, there is no physical basis for using emission factors associated with specific generating facilities to calculate their Scope 2 emissions. Even where a company has a unit-specific power purchase contract, the correspondence between the amount and timing of electricity generated and the company’s actual load will only be limited or incidental (especially where power generation is intermittent, as it is for many renewables). At best, such contracts are but one factor among many that grid operators consider in determining how to dispatch generators. Even where REC-selling generators and purchasing companies are connected to the same grid, there is no mechanism for grid operators to tie the dispatch of REC-selling facilities to the load of a particular company purchasing those RECs. Furthermore, recent research (Gillenwater 2013; Gillenwater et al. 2014) shows that there is no causal relationship between the purchase of RECs and the amount of renewable energy generated; consequently, there appears to be no physical or other causal relationship to justify assigning emission factors based on the purchase of RECs or other contracting instruments.

5. For other kinds of corporate activities under the GHG Protocol, use of source- or facility-specific emission factors is only allowed where a company can physically differentiate its activity by source or facility. The use of other activity-specific emission factors (e.g., for large or small vehicles or class of travel on flights) is only justified when the reporting company can show that they actually undertook the specific activity in question (e.g., travel in economy-class) or used the specific source or facility (e.g., small vehicles). Claiming lower vehicle fleet emissions by purchasing “zero emission miles” from local bicyclists is not justified, as they do not reflect actual emissions caused by the reporting company’s activities.

6. Because companies cannot physically distinguish between the power plants used to supply them with electricity over the grid, they should use a grid-average emission factor to report a “true and fair account” of their grid-based Scope 2 emissions. Electricity grids essentially function as an integrated system over which individual electricity consumers have little influence. Contractual arrangements and REC purchases do not change this fundamental physical reality. Thus, any “true and fair” allocation of grid emissions should be done on the basis of activity levels (i.e., electricity consumption) rather than differentiation of emission factors.

7. The “true and fair” criterion is further violated by RECs and other contractual instruments because when one entity claims a zero emissions factor based on one of these instruments, everyone else’s emissions factor has to increase, even though these electricity consumers have done nothing different (nor have the generators supplying the grid made any operational changes). The amount of emissions caused by each reporting company has not changed and yet the allocation of emissions has changed – this shows that the allocation of emissions via contractual factors is not based on consideration of the actual emissions caused by company activities. Effectively, these contractual instruments simply “shuffle” or shift emissions between participating entities to non-participating entities. It is relevant to also note that the entities these emissions are being shifted to are primarily not participants in voluntary GHG accounting processes and are not a party to these contractual arrangements for environmental “attributes”.

8. There may be room for improvement in the representativeness and precision of grid-average factors, but contractual emission factors are not a basis for doing so. Emission factor data can be improved to account for time of day effects, be developed and published more rapidly, and be integrated with statistics published by system operators. For the reasons mentioned above, however, contractual arrangements are irrelevant to these kinds of potential improvements.

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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One thought on “Technical Annex

  1. Thank you for the completeness of your thoughts on the subject. I generally agree with everything you wrote with two significant clarifications or expansions to your thoughts.

    You wrote:

    “Electricity grids essentially function as an integrated system over which individual electricity consumers have little influence.”

    This is a basic premise that deserves expansion.

    The demand response programs in areas such as PJM in the USA have demonstrated that consumers have a huge influence on the electricity grid operations and on generation investments when provided timely and actionable information.

    A parallel can be drawn with emission information. If provided to consumers on a timely and actionable manner, they can collectively influence the electricity grid operations and generation investments. This possibility is undermined by the exclusive use of contractual emission factors in Scope 2 reporting.

    You wrote:

    “On an electricity grid, it is not operationally feasible to separately track which generating facility supplied the electricity used to serve the load of each reporting facility or company.”

    I believe the key word here is “operationally”, and if this is to be interpreted as how the grid operators currently operate the grid, I agree. Technically, it is possible to trace electricity from generation source to load with the proper real-time measurement devices on the grid. This is currently not performed by any grid owners and operators. Privately held real-time measurements does allow for this tracing in specific grids in the USA and the availability of this detailed level of physical electricity accounting will be expanding in 2014 and 2015. Your significant point that specific generation is not dispatched to meet specific load by grid operators is not changed by this new privately-held information. Thus, contractual emission factors still do not represent any physical reality.

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