Three Fundamental Defects in Scope 2 Emission Accounting and Their Remediation Paths

Electricity buyers have become an increasingly important force in the deployment of clean energy. Thousands of companies have set voluntary renewable energy and/or emission reduction targets. Almost without exception, companies rely on the rules established in the Greenhouse Gas Protocol'sCorporate StandardandScope 2 Guidanceto calculate and report inventories of indirect emissions resulting from electricity use. For more than two decades, this accounting system has been used to set targets, track progress, and inform stakeholders. In many respects, this system has been successful.

However, current accounting rules are not aligned with the urgent action required. Despite government and private sector emission reduction commitments covering more than 90% of the global economy, emissions are still rising. Society cannot afford the consequences of taking action and investing money merely to support claims of "progress" without achieving actual emission reductions. There are three fundamental problems with current Scope 2 accounting:

• It fails to accurately measure the actual emissions from the purchased electricity supply when serving electricity use.
• It does not recognize the value of stable carbon-free electricity (CFE) and flexible balancing resources (such as energy storage) in complementing variable wind and solar power.
• It does not estimate and prioritize actual emission reductions.

The current process for updating this accounting system is the best opportunity to measure actual progress. The following are recommendations for improving the market-based accounting method for Scope 2:

1. Inventories should reflect emissions from supply that can be delivered at the location and time of customer consumption.
2. Customers should be able to count all energy attribute certificates (EACs) purchased directly or on their behalf and retired.
3. EACs should be used to substantiate CFE usage claims and be allocated to the customers who purchase them.
4. Even if customers purchase CFE/EACs for compliance reasons and do not use them for claims, this should not reduce the emissions of other customers who have not purchased EACs.

These improvements are detailed in a paper titledWhen Can Companies Claim to Use Carbon-Free Electricity?These improvements will enable companies to make accurate and credible claims about the emissions from the electricity supply they use, while creating demand to accelerate the development of all necessary CFE resources to reliably and economically decarbonize the grid.

Additionally, enhanced reporting is needed to fix a fundamental flaw in current rules—the lack of a requirement to estimate and prioritize actual emission reductions. Currently, reporting companies can reduce their reported emissions based on the EACs they hold. But not all EACs reflect the same environmental benefits. The system impact of procured generation and/or EACs can vary significantly depending on where and when production occurs and on marginal changes over time. This issue and the proposed solution are described in the paperThe Difference Between Attributional and Consequential Accounting and Why Both Are Critical for Measuring and Incentivizing Greenhouse Gas Reduction Progress.

Improved metrics will enhance the accuracy and relevance of disclosures. They can identify high-impact procurement methods and enable true climate leadership to be recognized. In ajoint letterto the World Resources Institute and the World Business Council for Sustainable Development, seventeen stakeholders recommended that the accounting system incorporate improved attributional and consequential metrics. While issues of timing, burden, and data availability for new requirements still need to be addressed, structuring the reform process around these two types of metrics will ensure that the system can harness the power of electricity buyers to drive the action needed to achieve global net-zero goals.