Navigating Double Counting

Accounting Challenges in Demand-Side Energy Resources

We often receive questions regarding accounting for demand-side energy resources due to the prevalence of scandals within the nature-based carbon markets. A particular concern is double counting. For example, how can one sell the energy efficiency credits (EACs) from a building without counting them towards the emissions reductions of the building itself? This is an analogous problem to the one caused by selling supply-side energy efficiency credits (RECs). Let's explore this further by delving into the details of the accounting.

The World Resource Institute’s GHG Protocols require companies that report their emissions to keep two sets of books for their Scope 2 emissions. The first, locational emissions, tallies up all of their consumed energy and multiplies it by the emissions intensity of the source. In the case of electricity, the source is the grid. Whether calculated with hourly or annual granularity, the only way to reduce locational emissions is to reduce the amount of electricity sourced from the grid.

The second set of books, market emissions, calculates emissions based on direct purchases of energy. Market-based emissions accounting allows companies to take credit for renewable energy purchases, which are certified through EACs (RECs in the United States, and Guarantees of Origin in Europe).

Avoiding Double Counting of Renewables

Using two sets of books, as it were, avoids the problem of double counting of renewables, wherein onsite renewables would reduce the locational emissions of one company and also potentially count for someone else’s reduction in market emissions.

Under market emissions accounting, the RECs from onsite renewable energy can be sold to a third party, but the party selling the REC must add the electricity back into its ledger and attribute the residual carbon intensity of the grid to the consumption or purchase an equivalent REC from elsewhere. The most common use case for this type of accounting is what is known as REC arbitrage, where a company will secure RECs through a PPA agreement and sell the RECs into a compliance market. The company then replaces the RECs sold into the compliance market with RECs sourced elsewhere (typically from the voluntary market).

Equivalent Accounting for Demand and Supply Side Solutions

As we have discussed, demand and supply side solutions are equivalent in terms of emissions impact, as well as in requiring proper accounting. Just like clean energy RECs, demand-side EACs sourced from a company that uses market based emissions accounting will need to be replaced by an equivalent EAC when that company files its emissions report, else the company should add the energy back into its total mix and use the residual grid mix to calculate emissions for that energy.ﾠ

For the procuring organization, the demand-side EAC looks like any supply-side EAC/REC in terms of emissions accounting. If using standard EAC accounting, the EAC simply represents an amount of clean energy procured that can be matched to an equivalent amount of energy consumed. If using hourly EAC accounting, the EAC can be matched to the time of day for a more accurate statement of environmental impact.

More comprehensive EAC registries are needed to fully ensure compliance with emissions accounting standards. That’s why WattCarbon has built a fully functional hourly EAC registry for all types of energy attributes with serial number granularity at the watt-hour and gram of carbon. This makes it possible to accurately report EAC retirements and claims transparently while also respecting the data privacy of the underlying asset owners.