General Update and SBTi Comments

It’s been a while since we released anything on our blog here, a consequence of a hectic conference and event season combined with a bunch of heads-down work deploying our first set of portfolios.

Big News: First EACs are LIVE!

The big news is that we’ve completed an end-to-end production of our first EACs. If you bought into our solar portfolio, you’ll now see the first allocation of EACs in your account. These EACs are from projects developed by our partners at Solar Holler. They’re putting solar panels on roofs in West Virginia. We’re tracking production on an hourly basis, which means we’re taking the 1 MWh REC that gets registered with PJM GATS and breaking it up into individual watt-hour increments so that the production from each hour can be allocated amongst EAC buyers in the portfolio. Each watt-hour gets its own serial number so that it can be tracked and retired independently of any other watt-hour. We’ve incorporated the guidance of EnergyTag for adding metadata to the record so that you’ll also know the specific solar panels that generated the electricity, the carbon intensity of the grid at the time of day in which the electricity was generated, and other information pertinent to the emissions benefits of the system.

Up next we’ll be tackling the first set of EACs from our demand response portfolio and forecasting the expected EACs from our heat pump portfolio (the actual EACs don’t get minted until 12 months after the projects were completed so that we can measure the energy savings).

For those of you wondering what’s next for our portfolios, stay tuned, we have some exciting announcements coming up.

SBTi Call for Evidence

Earlier this fall, the Science Based Targets initiative (SBTi) issued a Call for Evidence on the effectiveness of Environmental Attribute Certificates in Climate Targets. Philosophically, we believe that carbon removal offsets should only be used to mitigate historical emissions. Any ongoing emissions that cannot be eliminated immediately should only offset by eliminating other ongoing emissions. In other words, emissions offsets should only be used to accelerate decarbonization, not as an excuse to delay it.

That being said, SBTi asked for evidence that EACs would drive successful emissions reductions. We’ve obviously been thinking deeply about how to realize this vision over the past couple of years, and our thinking has evolved quite a bit along the way. While our responses were limited to 200 words, we’d like to share them here to invite feedback and try to continue to figure out how to drive the adoption of carbon free energy technology more effectively.

Cover Letter: The value of EACs in accelerating decarbonization in market based procurement.

The global economy must reduce greenhouse gas emissions by 60% by 2035, requiring “rapid and far-reaching transitions in energy, land, urban and infrastructure (including transport and buildings), and industrial systems” according to the IPCC. The voluntary market has shown significant impact in directing large scale investments toward the energy and land sectors, generating gigawatts of renewable energy and sequestering carbon from the atmosphere through nature based solutions. But few market instruments exist to drive decarbonization within the built environment, resulting in billions of tons of carbon emissions continuing unabated every year. EACs that quantify emissions reductions solve this problem by introducing a market instrument that recognizes the value of decarbonization, which when implemented effectively will accelerate the pace of investment into carbon-free energy systems. 

This submission will detail the value of EACs in accelerating carbon reductions through market-based procurement by unlocking new, high-impact sectors for investment, and incentivizing corporations to finance this critical work. 

EACs are the only market instrument capable of valuing carbon emissions reductions. This value unlocks collective climate action and impact, by creating a consistent standard and informing investment decisions based on what will generate the largest and most immediate impact. The planet does not care where and how we reduce our carbon emissions, as long as we reduce them quickly. 

By valuing carbon emissions reductions, EACs transform the way corporations are able to take climate action. Rather than waiting years for capital cycles to align in order to decarbonize their own operations, EACs allow corporations to accelerate immediate, high impact decarbonization opportunities, ensuring that existing fossil fuel combustion is matched with the elimination of other emissions at the source. 

WattCarbon’s focus is decarbonizing the built environment. Buildings are responsible for 40% of emissions, and the technology exists to achieve sector-wide decarbonization today. We’ve used EACs to stimulate climate finance into regions and sectors with the greatest existing emissions and greatest opportunities for reductions. EACs allow the value of carbon reductions in our energy system to be recognized, scaling renewables in hard to reach communities around the world. Other hard to abate sectors, like heavy industry and airlines, will also benefit from investment that can be tied to specific emission reductions achieved. EACs that reflect emission reductions will transform climate action and focus action on the highest impact solutions.

WattCarbon is uniquely positioned to demonstrate the value of EACs for unlocking new decarbonization markets. In August of 2023, we launched the world’s first EAC market focused on decarbonizing buildings. We procured 1,000 tons of CO2e emissions reductions from electrification projects, and 1,000 MWh each of rooftop solar and demand response tied to the dirtiest times of day on the dirtiest grids in the United States. We will show in our empirical evidence how valuing emissions reductions rather than MWh generated will unlock new procurement opportunities in critical high carbon regions and sectors. EACs enable organizations to procure these high-impact solutions, helping to scale up the technology and decarbonize our energy system.

Eight Questions - Answered

1. What evidence exists about the effectiveness of EACs in delivering measurable emission reductions?

An EAC based on measured emissions reductions will naturally drive outcomes that optimize for actual emission reductions. Consider California’s Market Access Program designed to drive energy savings incremental to the state’s main energy efficiency portfolio for the 7-9pm hours in the summer when peaker plants are fully deployed. In the first 18 months, the system benefits being delivered are 1.4 times greater than the incentive paid to market participants, a massive improvement over programs that did not emphasize measured energy reductions. This successful model was incorporated into the IRA’s HOMES program, which provides extra incentives for measured reductions in home energy use. The key factor in determining the effectiveness of an EAC-based incentive is the measurement and verification of the emission reduction. If the M&V is done according to the same types of rules that underpin measured savings programs, the EAC can be a powerful tool for achieving emissions reductions.

2. What evidence supports a causal link between specific operating conditions (geographies, regulatory schemes, presence or absence of tracking mechanisms or registries, etc.) and the effectiveness of EACs to deliver corporate emission reductions? Which conditions?

EACs drive emission reductions under two main conditions. First, the metric must be emission reductions, not a proxy. Second, M&V must be robust, independent, and auditable. Evidence from clean energy markets and emerging standards supports this assertion. The REC is the MWh of clean energy produced, irrespective of time or location. This proxy value fails to align with the carbon intensity of the grid. As a result, in 2021, more than half of all voluntary “Green-e” RECs in the US originated from just two states, TX and OK, despite minimal emissions impacts relative to dirtier grids elsewhere. Similarly, energy savings in a grid like California’s, where the emissions rates are 2x as high at night as during the day, can vastly overestimate the impact of an installed measure. California instead adopted an avoided cost calculator based on a unique value for each hour of the year. As a result, CA utility programs prioritize delivering savings during specifically valuable times of the day.

3. What regulatory safeguards and market infrastructure, if any, would need to be put in place for environmental attribute certificates to be effective and sustainable?

EAC markets must follow the lessons learned from regulated energy programs in recent decades. Most importantly, measurement and verification must follow strict protocols like what California and New York have adopted around pay-for-performance programs. Open source methods and tools like the OpenEEmeter allow markets to flourish by ensuring that claims are verifiable and replicable by auditors and other third parties.

Any data that is used must be available to third parties, except for data that is private to the individual organization, such as energy consumption data. But carbon emissions data in particular must be non-proprietary so that emission reductions claims can be validated. Where possible, governments and utilities should support markets by providing access to relevant emissions data.

It is inevitable that many organizations will participate in voluntary EAC markets. Organizations that adhere to voluntary, consensus standards will be considered more trustworthy, but peer validation is required for true decentralized trust. Therefore, systems must be interoperable. Not only must the measurement and verification be auditable, but registries must support interoperability so that competing EAC claims and double counting can be avoided.

4. What evidence supports the ability of EACs to accurately reflect and quantify emission reductions in the context of corporate climate abatement targets?

Corporate climate abatement targets fall into 3 categories: 1) Carbon emissions resulting from electricity consumed, which can be matched with clean energy procurement; 2) Carbon emissions resulting from historical impacts, which can be mitigated through the use of carbon offsets; 3) ongoing carbon emissions that cannot be reduced, which can be mitigated through EACs. Trying to mitigate ongoing emissions with carbon offsets creates a moral hazard, and should be avoided at all costs. 

Ongoing emissions should be mitigated by eliminating combustion of existing emissions at the same rate. EACs are an instrument to align these emissions, and ensure that we’re making swift and meaningful progress toward the phase out of fossil fuels. Particularly when applied to corporate scope 3 emissions targets, EACs would unlock billions in tons of carbon emission reductions that could be directed toward solutions ready for implementation today.

For example, WattCarbon allows companies to calculate their ongoing emissions by connecting their utility accounts. They are then able to match these emissions with reductions that occur from clean energy projects outside of their corporate boundaries. The EAC serves as a receipt for the emission reduction that can then be applied to their abatement target. 

5. What evidence exists that uptake of attribute certificates leads to the transformation needed to reach climate stabilization?

Despite the fact that nearly half of annual GHG emissions are traceable back to the built environment, today’s environmental commodity markets mostly ignore the value of emissions reduction from this sector. There is no guarantee that the uptake of EACs will solve the substantial barriers to achieving GHG reduction goals, but if we fail to recognize the environmental benefits of decarbonization, we will most certainly fail to achieve our climate stabilization goals. 

EACs can be particularly powerful for accelerating decarbonization across significant sectors where transformation is currently lagging. Because organizations have not been able to claim credit for these decarbonization efforts, investment has been minimal. EACs create a pathway for authentic claims of emission mitigation, transforming our ability to eliminate the sources of emissions. Buildings, which represent nearly 40% of annual emissions, are currently on a 300 year timeline for decarbonization, and will require upwards of $10T of fresh capital investment. Because there has been no way of claiming the benefits of decarbonizing buildings, only small scale government programs currently support this work. By unlocking the environmental benefits of building decarbonization via EACs, we can direct billions of dollars into scaling clean energy solutions.

6. What specific evidence-based claims can and cannot be made when employing EACs to corporate decarbonization?

Consequential emissions accounting is a powerful framework for capturing the impact of decarbonization projects, but can also be easily manipulated to exaggerate causal impacts. It is important to differentiate, for example, between direct and indirect emissions impacts. The removal of a natural gas furnace directly causes emissions to be reduced. The addition of an electric vehicle charger indirectly impacts emissions from the grid. Financing of energy efficiency upgrades even more indirectly causes emissions to change. Thus, claims should align with existing frameworks - Scope 1, Scope 2, and Scope 3. Direct emissions mitigation projects should apply to Scope 1, indirect emissions mitigation projects should apply to Scope 2, and financed emission reductions should apply to Scope 3.

With regard to indirect emissions, such as adding or removing electricity loads, great care must be taken to avoid making explicit causal claims about the energy system. Rather, the existing “attributional” framework established by the corporate standard should apply to EAC claims as well. Any counterfactual should be limited to evaluating the impact of the EAC rather than to the system in which it is deployed.

7. Is there evidence that supports that the market value of this type of instrument is commensurate with the abatement costs of the underlying activity?

Most decarbonization projects have multiple value streams that make it difficult to create a 1-1 relationship between the cost of the activity and the value of the environmental benefits. Regulated energy programs typically use a Total Resource Cost (or similar) test, to determine the cost effectiveness of a program based on the variety of benefits achieved. For example, installing solar panels on a rooftop might provide lower bills, allow a building to operate during a power outage, and reduce reliance on fossil fuel powered electricity from the grid. In some cases, the value of lower bills might be worth the investment in solar panels alone. But the value to the environment is no less significant. 

The most important price stabilizing function that an EAC can provide is a consistent metric - emission reductions. This price signal then allows the market to target the most valuable and impactful projects that yield the highest return on carbon emission reductions at the lowest cost. In some cases these costs will be subsidized by other entities. This is fine as long as only one entity claims the abatement (the purpose of the EAC). The net result will be an efficient allocation of capital.

8. Is there evidence that shows that the use of these instruments (i.e. procurement of the attribute certificate) could contribute to scale-up of climate finance compared to alternative interventions? Or could it result in climate finance dilution?

EACs are most powerful when they are connected to climate finance. If designed properly, an EAC is an advance market commitment for emissions reductions. This means that a corporation is procuring future emissions reductions through a project that eliminates current fossil fuel combustion. One of the biggest barriers to progress is the high upfront costs associated with decarbonization projects. Even though these projects generally result in long term cost savings, the costs of switching from fossil fuels and the long payback period dissuade individuals and organizations from making the investment.

When an EAC purchase is made, this purchase can be layered into a finance option so that the end customer can adopt the emission saving technology without bearing the upfront cost. Instead, the EAC serves as a credit enhancement for project finance that significantly reduces the costs associated with the equipment upgrade.