Scope 2 Emissions Accounting

Everything you need to know about getting to net zero

TLDR:

• True Zero = Locational Emissions

• Net Zero = Market Emissions

The World Resources Institute (WRI) is preparing to update its Scope 2 Emissions reporting guidelines. A key part of the debate will center on the practice of reporting two different Scope 2 emissions numbers - locational emissions and market emissions. The former is an emissions inventory; the latter allows companies to claim progress toward net zero Scope 2 emissions.

The basis of this distinction, its purpose, and the implications for procurement as a form of climate action are the source of much current confusion, if not outright ignorance. It’s worth revisiting these concepts so that updated guidelines can continue to enable markets to drive investments into carbon free energy.

Emissions 101

The GHG Protocols attempt to create an emissions inventory. Scope 1 emissions are direct and under an organization’s control. Scope 2 emissions are indirect and largely out of an organization’s control. Scope 3 emissions are related to upstream (e.g., supply chain emissions) and downstream (e.g., consumer use) of an organization’s products or services.

Scope 2 emissions are mostly related to the use of electricity supplied by a power grid. The Scope 2 emission is indirect because the emission happens independent of the consumption of the resource. In the case of electricity, the emission happens at the power plant when creating the electricity, not at the site where the electricity is consumed (contrast this with natural gas, for example, where the reported emissions are associated with its actual end use).

When you consume electricity from a grid that shares multiple power plants, you can’t pick and choose which electrons you receive. So the emissions you report have to reflect the mix of all the power plants that combine to produce your electricity. It’s likely that, because of the physics of electricity, your electricity comes from power plants nearby, but the transmission and distribution infrastructure of modern grids makes it just as likely that you are getting electrons from hundreds of miles away.

That said, it is possible to identify the sources of clean electricity on the grid. One way to mitigate Scope 2 emissions is to match electricity consumption with an equivalent amount of clean electricity generation. Organizations can take unique credit for clean energy generation by purchasing the clean energy attribute associated with the generation. 

The WRI’s Scope 2 emissions reporting framework makes this distinction explicit. Scope 2 locational emissions reflect each reporting organization’s shared percentage of emissions from the grid based on total consumption. Scope 2 market emissions reflect each organization’s unique claim on clean energy that contributes to reducing the overall emissions intensity of the grid.

Locational Emissions

The theory behind locational emissions is that your GHG inventory should account for the mix of fuels that are required to produce the electricity you draw from your grid. What constitutes a “grid” can be debatable, but generally there is an organization responsible for dispatching power plants so that supply is available to meet demand at every hour of the day. In the United States, these organizations are called Balancing Authorities and they report the output of their power resources every hour of the day to the U.S. Energy Information Agency (EIA). Your grid operator knows how much of the electrical supply at any given hour was delivered from solar or wind or natural gas or coal or any of the myriad other ways in which electricity is generated. They even know how much had to be imported from neighboring Balancing Authorities and how much was sent to other neighboring Balancing Authorities. The EIA knows this too and, as of a few months ago, updates all of this information on its website every day.

The methodology the GHG Protocol establishes for calculating locational emissions takes the total amount of electricity consumed and multiplies it by the emissions factor for the grid. The emissions factor is the amount of CO2 emitted per unit of electricity produced. Different power plants emit different amounts of CO2 per unit of electricity. Obviously, wind and solar emit zero emissions. Natural gas, coal, biomass, oil, and diesel all emit different amounts. Since it’s impractical to try to determine which exact electricity flows to which exact locations within a Balancing Authority, the emissions intensity is calculated for the Balancing Authority as a whole.

In 2015, when the GHG Protocols were last updated, it was rare to be able to access hourly energy consumption or hourly emissions rates. As a result, locational emissions accounting became known as “average” emissions accounting. Typically, an organization would calculate its total annual energy consumption and multiply by the average emissions rate for its grid for the entire year. This number has proven misleading as solar and wind energy become more prevalent and grid carbon emissions rates vary within the day and over the course of the year. An organization with most of its electricity consumption in the middle of the day that’s located within a grid with large amounts of solar (but reliant on natural gas overnight) will have significantly lower emissions if hourly calculations are used instead of annual calculations.

Location emissions might be average emissions, but average emissions means something very different if they are being calculated on an hourly basis versus an annual basis.

In sum, locational emissions are meant to establish a sort of ground truth for Scope 2. Any organization’s emissions can be directly compared against any other organization’s emissions. The only way in which locational emissions improve is if the grid gets cleaner or your energy consumption from the grid decreases. Putting solar panels on a building will decrease its locational emissions. If using hourly accounting, shifting more energy consumption to low carbon times of day will decrease locational emissions. But otherwise, the only way that locational emissions truly decline is by the grid as a whole becoming cleaner. In this sense, locational emissions provide us with an incontrovertible measuring stick for evaluating energy decarbonization progress.

Market Emissions

While all organizations are required to report locational emissions, the WRI also requires organizations to report market emissions if they are located in markets where contractual data is available. If an organization is purchasing clean energy in some form or another it must report a market emissions number in addition to its locational emissions number. This is known as “dual reporting.”

The idea behind also reporting market emissions is to provide a way for organizations to claim credit for taking action to reduce Scope 2 emissions. Recognizing the inherent barriers to locational emissions reductions, the WRI introduced the concept of market emissions so that companies could show progress toward net zero, even if their locational emissions were moving more slowly. Importantly, the two numbers should never be conflated with each other.

A reduction in market emissions will have no bearing on locational emissions except for the incremental benefit to the overall carbon intensity of the grid due to the presence of more renewable energy in the mix.

Market emissions are calculated by substituting the emissions from the grid for the emissions of the energy attribute procured by the organization. If an organization purchases carbon free energy, market emissions will be zero. If the organization purchases electricity sourced from a fossil fuel plant, market emissions will be the emissions of the fossil fuel plant.

The goal of market emissions accounting is to provide a pathway for achieving net zero Scope 2 emissions. Using annual accounting practices, net zero emissions are achieved by matching 100% of annual energy consumption with an equal amount of purchased clean energy. If an organization purchases less than 100% of its annual consumption, whatever is left over is assigned the same rate as the locational emissions number. For example, if an organization uses 100 mWh per year of electricity and purchases 75 mWh of clean energy, the remaining 25 mWh would be assigned the locational emissions rate, such that the total market emissions would be 25% of the total locational emissions.

Using hourly accounting for market emissions requires an organization to match its consumption to procured clean energy on an hourly basis. While with annual matching an organization may reach net zero simply by purchasing enough solar RECs, hourly matching requires procurement of a mix of clean energy resources that show up at different times of the day. The goal of 24/7 CFE matching is to match 100% of load with procured clean energy every hour of the year.

Double Counting

The GHG Protocols are explicit about avoiding double counting when reporting market emissions. The key to avoiding double counting is the energy attribute certificate that accompanies clean energy generation. In the United States these are called Renewable Energy Certificates (RECs). When a megawatt hour of clean energy is produced, the generator can register a REC with a REC registry, where it is assigned a serial number so that it can be tracked. When a company reports its market emissions, it will identify the specific serial numbers from the RECs that it is counting toward its net zero goal and these RECs will be retired on the registry on which they were first registered (or transferred to a different registry and retired there). In theory, no two RECs should be able to be claimed by the same entity.

Unlike locational emissions, which report on the energy consumed from the grid, market emissions provide an accounting of energy generation. Whereas locational emissions recognizes that everyone benefits equally from a cleaner grid, market emissions attempts to assign credit for making the grid cleaner. By adding clean energy to the grid, an organization might be helping to make everyone’s locational emissions lower, but only the procuring organization should get credit for adding the clean energy to the grid. In that sense, a REC basically allows an organization to claim a fractional share of the clean energy on the grid. Market emissions are the accounting mechanism for making this claim meaningful.

Implications for Demand Driven Decarbonization

Understanding the difference between locational and market emissions is critical for understanding how demand driven decarbonization works. Demand driven decarbonization allows an energy user to purchase clean energy (or energy reductions) from another energy user. Without the distinction between locational and market emissions, it would seem like double counting for one organization to purchase energy reductions from another organization. But because this distinction exists, we can see that there is no double counting when procurement comes from other energy users rather than from solar or wind farms.

In other words, demand driven decarbonization is just like all other forms of net zero in the eyes of the GHG Protocols.

For example, consider a scenario in which an organization is pursuing a 24/7 CFE goal and is using both locational and market emissions accounting. Its locational emissions will reflect the actual amount of electricity that it consumes and the actual carbon intensity of the grid from which it sources its electricity. Its market emissions will reflect purchases of wind and solar RECs from nearby facilities. These will probably mostly cover the organization’s hourly energy consumption. For the remaining missing hours of the year, the organization will need to purchase additional clean energy.

Let’s say there is a demand response provider nearby that aggregates devices that are capable of powering down during periods of high demand. This demand response provider offers to curtail the energy consumption of these devices during the hours that the wind and solar energy are inadequate for meeting the organization’s 24/7 CFE goal. The demand response provider gets paid to reduce consumption at the participating sites. The procuring organization now meets its full 24/7 CFE goal by combining the demand response with its solar and wind procurements. The participating organization reduces its locational emissions by reducing its own energy consumption.

Is this double counting? In short, no. The participants in the demand response program will reduce their energy consumption, thus lowering their locational emissions. The company procuring the demand response will lower its market emissions. As a double benefit, the organization participating in the demand response program will also have a lower baseline for its own market based procurement because it has lowered its own consumption. But because these numbers are reported separately under the GHG Protocol, there is no double counting. The procuring organization gets credit for the benefits delivered to the grid, while the participating organization gets credit for lowering its reliance on energy being delivered from the grid.

Future Guidance

The WRI is currently soliciting feedback from stakeholders on updates to Scope 2 reporting. Hourly locational emissions accounting should be table stakes for any organization taking this process seriously, especially because the data is now readily available. But hourly market emissions accounting might even be more important for accelerating grid decarbonization and expanding procurement options beyond solar and wind RECs. 24/7 matching of consumption to procured clean energy will help underwrite investments into additional sources of clean energy as well as provide a stronger price signal for making internal investments into energy efficiency and peak energy reduction.