Why the new GHG Protocol Scope 2 Guidance is much more than an update to accounting methodologies.
After four years of development and consultation, the Greenhouse Gas Protocol (GHG Protocol) launched its new Scope 2 Guidance at a packed industry event in London last week.
The guidance provides a methodology for how emissions from electricity, heat, cooling and steam should be accounted for in corporate greenhouse gas inventories. It represents substantial update to the original GHG Protocol Corporate Standard, the most widely used corporate greenhouse gas reporting standard that was first published in 2001.
In the decade since the last update in 2004 there have been significant changes to electricity markets globally. We have seen deregulation in many markets, more choice provided for companies regarding the type of electricity they purchase, and requirements for renewables introduced by many governments.
This guidance aims to address these developments to help stakeholders gain an accurate picture of companies’ Scope 2 emissions, understand the associated risks and identify opportunities to reduce impact.
What are the changes to Scope 2 reporting?
The biggest change that these guidelines bring about is that for many companies, total Scope 2 emissions becomes two numbers instead of one. Where possible, companies are required to report Scope 2 emissions according to both a ‘location-based’ method and a ‘market-based’ method.
The location-based method involves using an average emission factor that relates to the grid on which energy consumption occurs. In Europe, this usually relates to a country-level electricity emissions factor, and is effectively the same as the method required in the original GHG Protocol Corporate Standard.
The market-based method must be applied if the company has operations in any markets where energy certificates or supplier-specific information are available. The method involves using an emission factor that is specific to the electricity purchased.
This means that electricity from renewables or a green tariff are accounted for differently, and even electricity generated from fossil fuels must reflect the mix of fuels used to generate the electricity. For the market based approach there is also a set of quality criteria which must be used to assess the quality of the certificates or supplier-specific information, and this must be disclosed as part of the company’s greenhouse gas emissions report.
What are the implications of the guidance?
At first glance it might look like this new guidance is mainly about tidying up reporting standards to reflect changes that have occurred over the last 10 years. But it is much more than that. In fact, I believe we may look back at this in years to come as a key moment in our collective journey towards the move to a low carbon world.
There are three ways in which this guidance enables a real step change in corporate sustainability:
- It addresses the lack of transparency that was inherent with the previous standard, and makes it very clear what energy the company is buying, and how to deal with renewables and green tariffs.
- It enables companies to take a more holistic, strategic perspective to their carbon reduction strategy. Previously, the only lever companies had to reduce greenhouse gas emissions according to the GHG Protocol Corporate Standard was energy efficiency, whereas now they can also achieve emissions reductions from their energy procurement decisions. This enables companies to get proper recognition for the energy choices they make.
- Most importantly, incorporating the carbon attributes of electricity purchased into greenhouse gas accounting methods creates increased demand for low-carbon energy generation, and this will ultimately change the behaviour of electricity suppliers and utilities, driving the implementation of renewables and boosting the market for low carbon electricity.
It is important to note a caveat here. For these changes to take full effect then there needs to be a strong framework in place to ensure good governance and accounting, so that suppliers of electricity are not contributing to double counting or under reporting of corporate emissions, and are properly retiring certificates for low carbon electricity generation.
What are the next steps for businesses?
For companies to start using the guidelines for their corporate greenhouse gas reporting, there will be the following immediate next steps:
- Finding out what data is available (certificates and supplier-specific information) for the different types of electricity, heat, cooling and steam they are purchasing for the different markets in which they operate.
- Identifying relevant emissions factors for both the location and market-based methods of accounting.
- Completing the reporting requirements against the new guidelines, including consideration of the areas for recommended disclosure indicated in the guidelines.
- Communicating their corporate footprint, including in its CDP submission for 2016, and considering use of the new electricity label developed by the Aldersgate Group.
This will not be straightforward for businesses operating in some international markets, as the availability and quality of data will be variable. However, once the reporting requirements are met, the next stage will be to consider what the new guidelines will mean from a strategy, energy procurement and target setting perspective. This is when the implications of these new guidelines will start to play out. And this is when I believe it will become apparent that the new reporting guidelines are the dawn of a new era of accelerating the move to a lower carbon electricity grid.