Carbon Accounting for the Energy Transition

A look at both sides of the meter

WattCarbon’s emphasis on energy decarbonization is driven by the fact that embodied and operational emissions from buildings constitute 40% of annual GHG emissions, a number we need to reduce by 40% by 2030 to prevent even more catastrophic climate change. Not reduce in a net sense, where emissions only go down 10% and we make up the rest by agreeing not to do more bad things, but actually reduce the total tons of CO2 emitted into the atmosphere that result from burning fossil fuels. 

Whatever else your climate action plan includes, it must start by actually achieving gross reductions in emissions.

But if we end up only focusing on supply-side solutions, like renewable energy, we will miss the opportunity to unlock complementary solutions like electrification and demand response that will help us turn the corner on decarbonization. Only by approaching the problem holistically will we be able to achieve the deep cuts required to meet even our bare-minimum goals.

One of the vexing questions posed to the energy decarbonization sector is how to account for Energy Attribute Certificates (EACs), which represent the environmental benefits associated with decarbonization. After all, the last thing the world needs is more carbon accounting fraud like we’ve seen with nature offsets (some estimates suggest that as many as 90% are fraudulent). For the built environment, EACs are an important part of the market transformation that allows clean energy companies to scale their work. We must make sure that EACs remain a force for good, and not an opportunity for obfuscation.

The challenge of double counting

When it comes to demand-side reductions, there is a concern about double-counting emissions reductions. If the owner of the building and the purchaser of the EAC share a legitimate right to the same emissions reduction, how do we make sure it’s not being counted twice?

The World Resource Institute’s GHG Protocol Corporate Standard gives us a framework to avoid double counting emissions reductions in cases like this. Instead of a single universal emissions ledger, the GHG Protocol imagines two ledgers. The first is meant to calculate gross emissions. This is what you might think of as your carbon footprint. Your building will burn gas to heat itself, use fossil fuel-sourced electricity to light itself, and be occupied by people who drive a gas car to get to and from there. These are the emissions that need to be reduced by 40% by 2030. 

The GHG Protocol also imagines an alternate pathway to “net zero” through purchases of EACs. Importantly, these purchases are accounted for in a separate ledger. They are not part of your own emissions footprint. Instead, they represent unique claims to the environmental benefits associated with lowering emissions elsewhere. 

The most common form of an EAC is a Renewable Energy Certificate (REC), which represents the environmental benefits of a megawatt-hour of clean energy production. Even though the clean energy produced by renewables is enjoyed by everyone (and results in lower gross emissions), the claim on the clean energy attribute is solely held by the owner of the REC. The way the GHG Protocol accounts for this clean energy is to reflect it as a shared reduction in total emissions (assuming that it has displaced some fossil fuel production) and a unique claim towards “net zero” on the part of the REC holder.

Why Net Zero?

The broader goal of a decarbonized energy sector is 100% clean energy on every grid on a 24/7 basis and a fully electrified building and transportation fleet capable of interacting with the grid to provide support for intermittent renewables. The concept of net zero is a somewhat idiosyncratic way of assigning responsibility for voluntary emissions abatement based on individual contributions to total emissions (other, nonvoluntary ways of doing this could include a carbon tax, or a wealth tax). The goal of voluntary emissions abatement is to drive systemic change in the way our economy operates in order to accelerate the energy transition.

In this sense, net zero is less a system of emissions accounting and more of a way to overcome a massive collective action problem. Just like a Scope 2 emission is someone else’s Scope 1 emission, and a Scope 3 emission is someone else’s Scope 1 or Scope 2 emission, a net zero energy claim is someone else’s absolute emission reduction. But by allowing individual organizations to take credit for emissions reductions elsewhere by funding or financing clean energy projects, we inject capital where it’s most needed and achieve public good benefits within an efficient capital allocation system.

How to do the Math

To put some numbers behind the concept of net zero energy, imagine a grid that emits 500 pounds of CO2 per megawatt hour of electricity produced. If this grid produced a gigawatt-hour (1,000 megawatt hours) of electricity, it would emit 500,000 pounds of CO2. If a building on this grid consumed 100 megawatt hours of electricity, that building would be responsible for 50,000 pounds of CO2 emissions.

Now, let’s say that someone added 100 megawatt hours of solar production to the grid. If the solar panels were installed across town and tied directly into the grid to become part of the generation mix, the grid operator would presumably be able to eliminate 100 megawatt hours of existing fossil fuel supply. Total consumption would remain at 1,000 megawatt hours, but the emissions rate would decrease to 450 pounds of CO2 per megawatt hour (making some assumptions about long run marginal supply), reducing total emissions for the grid from 500,000 to 450,000 pounds. Every building on the grid would see their emissions go down by 50 pounds of CO2 per megawatt hour that they consumed because their grid got cleaner.

In order to make any further scope 2 emissions reductions, the building owners on the grid would have to make “net zero” energy claims by purchasing EACs (potentially from the new solar installation). Under the GHG Protocol, these claims would go into the second ledger. In this ledger the purchase of clean energy is tallied against total electricity consumption. As long as the building owner is the only one making a claim to the EACs, they can claim to have achieved “net zero” Scope 2 emissions.

Imagine now a different, yet similar scenario. Let’s say that instead of being interconnected with the grid, the solar panels were installed on one of the building's roofs (technically speaking, behind the meter). The grid would read this as a change in demand, not a change in supply. Under this scenario, total consumption on the grid would fall to 900 megawatt hours and total emissions from the grid would be reduced to 450,000 pounds. But the grid’s emissions rate would be unchanged (still 500 pounds per megawatt hour).

For the building with the new solar panels, their emissions accounting would be completely different. If they installed the panels on their rooftop, their Scope 2 emissions would now be more or less eliminated in an absolute sense because they no longer have to buy electricity from the grid. Prior to their solar panels they were reporting 50,000 pounds of CO2 emissions. Now they are reporting zero. The entirety of the absolute decline in emissions on the grid would be captured by this single building.

The accounting rule to follow is this: if energy resources are behind the meter (interconnected with the building), the building can take credit for the absolute reduction in emissions; if energy resources are in front of the meter (interconnected with the grid and included in the generation mix), absolute emissions reductions are shared across all end users proportionally; if energy resources are in front of the meter, but interconnected at the distribution level instead of as part of the regulated generation mix, the new resources show up as a decrease in aggregate demand, but the carbon emissions intensity for the grid remains the same.

Accounting for EACs

In the scenario described above, our grid is generating 1,000 MWh. Imagine that there are ten buildings on the grid, each of which use 100 MWh. At 500 pounds of CO2/MWh, each building is responsible for 50,000 pounds, for a total of 500,000 pounds of CO2 produced by the grid. Thus far, the math works the same regardless of whether solar panels were interconnected with the grid directly or sited on the building. In both cases, absolute emissions are accounted for the same; in one case the reductions are attributed to a single building (behind the meter), and in the other case the reductions are spread out across all buildings (in front of the meter).

Let’s say that the building owners also wanted to account for their emissions using a “net zero” ledger. The building owner who installed the solar panels would now have no consumption to report, and thus no need to purchase clean energy. They’re already at zero emissions. But imagine that a different building owner on the grid wants to purchase the EACs from the new solar panels. Now, the second building owner can match the 100 MWh of their own consumption to the EACs purchased from the first building owner (thereby reducing the costs of installing solar for the first building). From an accounting perspective, the gross emissions are still the same, but the building owner who purchased the EACs can now make a unique claim to have mitigated an equivalent amount of emissions as they are responsible for in the first place. The total gross emissions on the grid are 450,000 pounds; the credit for the 50,000 pound reduction from the solar panels is being claimed by the buyer of the EACs. 

The major difference between behind and in front of the meter is the end game. Eventually, if we replace all grid fossil fuel power with clean energy, emissions related to electricity consumption will be zero for everyone. But just focusing on the grid doesn’t electrify buildings and doesn’t encourage them to become interactive so that their flexible loads can compensate for renewable energy intermittency. We’ll need both to happen if we are going to reduce emissions 40% by 2030 and 100% by 2050.