Introducing Carbon Offsets from Buildings

Plant Heat Pumps, not Trees

Happy Climate Week to all those who celebrate! It’s been a little while since we put out a new post, but for good reason. We’ve been busy figuring out how to use granular carbon accounting as a mechanism for decarbonizing buildings at scale. To that end, we are excited to announce the launch of a new feature on our platform - the ability to buy carbon offsets that fund decarbonization in buildings. I’ll explain more below, but the basic idea is that when we offset our emissions, we should do it in a way that accelerates decarbonization of our built environment. Now, even if the energy you get from your grid is produced by fossil fuels, you can fund the development of new renewables, help drive down the cost of electrification, and even send a price signal to DER dispatchers to use energy when the grid is cleaner. We call this “one click to net-zero.”

Read on for all the details.

Why we decided to build carbon offsets for decarbonizing buildings

When we tell the story of how the United States stepped forward to combat climate change, 2022 will loom as large as any year, between the Inflation Reduction Act, the SEC’s proposed GHG emissions reporting requirements, and various state and local decarbonization commitments that promise to transform the way we approach this problem. These policies underscore a larger shift that has moved us away from trying to abate carbon emissions toward an emphasis on eliminating carbon emissions.

As we look ahead, the next frontier is decarbonizing the buildings we occupy and the energy required to power them (what are called the operational emissions of the built environment), which account for 35% of global annual emissions and stand as the proximate obstacle to achieving net-zero goals. While new tax credits will bend the adoption curve of new technologies and speed the deployment of clean energy solutions, a massive gap remains.

• Renewable energy barely registers in places like St. Petersburg, Florida, where despite ample sunlight, the grid is as dirty as anywhere in the country. 

• Roughly twenty-thousand furnaces and water heaters are replaced with a similar fossil-fuel model each day in the United States, locking in millions of tons of CO2 emissions for the next twenty years. 

• Batteries, vehicle chargers, and connected devices are set to respond to utility prices, not carbon emissions. Waiting around for grid emergencies wastes massive potential to drive consumption toward the times of day in which the grid is cleanest.

Given the urgency of emissions reductions and clear, strategic alignment around carbon-free electricity, electrification, and advanced load management, we need to blitzscale building decarbonization, both in the US and around the world.

Over the past year, WattCarbon has modeled the hourly carbon emissions of millions of commercial and residential buildings, hundreds of renewable energy projects, and thousands of connected devices. We’ve seen how much opportunity exists to rapidly decarbonize and yet how difficult it remains to spur action when information is scarce and incentives are misaligned. 

This is why we are creating the first system dedicated to certifying and selling carbon offsets sourced from building decarbonization projects. We invite you to join this mission with us, as we drive systemic changes in the way building decarbonization projects are sourced, financed, and funded. Our platform will enable carbon offset buyers to back high-impact building decarbonization projects, certified with revenue-grade measurement and verification (M&V) that leverages open-source data, tools, and methodologies for completely auditable and traceable carbon accounting.

The benefits of granular, temporal carbon offsets from buildings

Emissions Matching. Offsets from buildings are different from many nature-based solutions because they can be matched granularly and temporally to Scope 2 emissions. Just as it is possible to know exactly the volume of CO2 emissions in a given hour from energy consumption, it is also possible to know the exact volume of CO2 emissions avoided in any given hour from decarbonizing buildings. Matching both the volume and the timing of avoided emissions allows for the offset to serve its intended purpose. A permanent reduction in emissions from any one building serves the same functional benefit as a permanent reduction in emissions from any other building.

Accountability. Most organizations have now adopted a climate goal, and many of these have declared a net-zero target within the next two decades. But net-zero is a fuzzy concept, and a near-continuous stream of revelations suggest that many early net-zero steps have simply served to disguise intentions to continue business as usual. Offsets sourced from buildings can be audited down to the project level (and even visually inspected), such that organizations investing in offsets sourced from buildings are more protected from the questionable practices that plague many existing solutions.

Impact. The ability to precisely match emissions that are difficult to reduce (such as the composition of fuels used by utilities to serve load) with measurable emissions reductions in buildings that are attainable (such as swapping heat pumps for gas furnaces) enables the immediate deployment of high-impact, scalable solutions that generate the highest returns of carbon reductions per dollar invested. Moreover, offsets that are truly additional can serve as a catalyst for projects that would not have been possible without the financial payment accompanying the offset. 

Core Principles for Building-Based Carbon Offsets

Additionality. Beyond any other principle, additionality stands alone as the most important for driving systemic changes. Offsets must be used to enable projects that would not otherwise be feasible. A carbon offset sourced from a project where the work already happened, or would have happened anyway, is simply a proverbial shuffling of deck chairs. 

We solve for additionality in two ways. First, and most importantly, carbon offsets from buildings can only be sourced from new projects. Any effort to retroactively create an offset is simply moving money without impact. The role of the offset is to create a pathway for providing upfront financing or directly funding building decarbonization projects. In the future, offset purchases will form the core of the financial ecosystem for new decarbonization projects. By agreeing in advance to pay for the environmental benefits of a project, the offset buyer can essentially eliminate most of the financial risk associated with a portfolio of decarbonization projects, making them both feasible and investable.

The second way in which we solve for additionality is to organize our market so that offset payments are directed at third-party project developers, not end-users. The problem with targeting incentives at end-users is that they self-select based on propensity to do a project. An incentive aimed at an end-user tends to subsidize projects that would have happened anyway - a phenomenon known as free-ridership. By contrast, third-party developers try to use as little of the incentive payment as possible to convince customers to say yes to a project. For any given project, some amount may be used to close the cost gap to get a customer to say yes, but the remainder can be reserved to recruit more customers, train new employees, and invest in infrastructure that allows the third-party developer to expand operations to deliver more projects. By aiming offsets at third-party developers, we can actually transform industries.

Systemic impact. Too often, decarbonization projects are undertaken without any consideration of their relative impact. In the same way that water tends to trickle downhill, decarbonization tends to happen where the least amount of friction is encountered. As a result, massive geographical, racial, class, and political disparities exist across the clean energy landscape. Many of these inequalities are traceable to the way that price signals work today. Decarbonization projects tend to follow incentive programs from states and utilities and often rely on customer bill savings or willingness to pay in order to do projects.

While there are other externalities that matter (health risks rank high), carbon emission reductions are a useful universal proxy for valuing the benefits of a decarbonization project. All else equal, new solar panels in Alabama will deliver more climate benefits than new solar panels in California. We consider the systemic impact of decarbonization by providing integrated carbon accounting across Scope 1, Scope 2 (locational), Scope 2 (market), and energy-related Scope 3 emissions. Every current end-use and every proposed offset is measured using hourly carbon emissions accounting at the most granular geographical level possible (typically a balancing authority). Because all grids are composed of unique combinations of generation facilities, projects will have different carbon emissions reduction impacts in different parts of the country (or the world). In some cases, offset prices may be higher because the cost of a project is greater, but in other cases the offset price may be higher because the impact is lower. This small amount of complexity will unlock a much more efficient market for lowering carbon emissions at the lowest possible cost to society.

Carbon-based, temporal accounting. Among the more galling aspects of the current carbon offset paradigm is the willingness to allow today's emissions to be offset by carbon reductions that may not happen for decades from now or even longer. If we are to take carbon offsets seriously, emissions that happen today must be matched by emission reductions that also happen today. When companies account for net-zero, they must be able to point to actual emission reductions from the same calendar year (seasonality and other factors make the calendar year the appropriate unit of time).

Longer term, we hope that all energy is measured in terms of its full lifecycle carbon emissions, but in the short term we are going to use the operational emissions of energy (following the GHG Protocol guidance from WRI) to measure carbon emissions. Because emissions can vary significantly from one part of the day to another, we use hourly temporal measurement of grid carbon intensity by default. 

How we create Decarbonization Offsets

WattCarbon is working with companies in renewable energy, electrification, and load management to find, finance, and fund decarbonization projects. We help these companies build portfolios of high-impact projects that can be matched to carbon offset buyers so that these projects have the financial backing to move forward. As the actual carbon emission reductions occur, WattCarbon certifies emission reductions and facilitates the companies’ payments. We make the performance of these portfolios transparent to the buyer and to any auditor - down to the hourly level - to ensure that these carbon offsets are not simply another way to kick the can down the road.

To ensure additionality, offset buyers and project developers must agree on terms ahead of time. We work with project developers to determine the price per ton of carbon offset required to make an average project feasible. Then, the carbon value is determined by calculating the expected energy savings yield and accounting for the carbon emissions of the status quo alternative. Based on these calculations, we can price the carbon offset accordingly in the form of a dollar per ton of carbon removed value.

Once the offset has been priced, buyers commit to purchasing the tons of carbon emissions saved from future projects. With this commitment in hand, project developers are then able to go out into the market and find high-impact projects that they can offer for less cost because these project developers know that they will have the value of the offset to include in their supply-side cost estimates. As they enroll projects, the savings from each individual project are assigned to the individual offset buyers for complete auditability and the carbon offset payment is transferred to the project developer.

Measurement and Verification

We are confident in our ability to provide the most sophisticated and accurate platform for carbon emissions reductions in the industry. Our team developed CalTRACK 2.0, the open-source standard for measuring demand-side energy savings in buildings using smart meter data. Our platform relies on hourly grid emissions data available to the public and does not require any black-box calculations to derive a carbon value. We incorporate both electricity and natural gas data from buildings and augment our savings calculations with open-source data from the National Renewable Energy Laboratory. All of our methods are carefully detailed and made available to the public.

We are making our project registry available to any third party that needs access in order to avoid double-counting of savings. If no existing registry is available for us to cross-reference for new projects, we require each participating company to document customer attestation that no other incentive has been provided that also purports to claim the carbon emission reductions for another entity in a way that would result in double-counting the savings.

Decarbonizing the Built Environment

Over the next year, we will onboard dozens of companies bringing innovative products and technologies and new business models to market, whose impacts will be amplified by Carbon Purchase Agreements that fund their projects. Within the next five years, we hope to find, finance, and fund billions of dollars per year in energy decarbonization projects and collectively transform not just the US building stock, but buildings across the globe as well. 

It’s time to decarb and prosper.