Technical Working Group discussion for Scope 2
Accounting Guidance
Mary Sotos
February 6,7,8 2013
www.ghgprotocol.org
Today’s Agenda
•
Summary of prior TWG discussion (10 min)
– Summarize December feedback
•
Proposed definitions and rationale (15 min)
– Provide refined definition of “electricity as product”
– Provide GHG Protocol rationale for quantifying emissions from electricity
•
Proposed reporting option (15 min)
– Present reporting options that follow from definition and rationale
•
TWG Discussion (45 min)
– Feedback on proposed definitions, reporting options, next steps
•
Next Steps (5 min)
– Identify major next steps and areas for feedback
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Summary of prior TWG discussion
www.ghgprotocol.org
Decision-making
Define
electricity as
a product and
its production
boundaries
Determine
whether and
where it can
be a
differentiated
product
Scope 3 framing
Determine the
implications and
conditions for this
treatment
Operational
element (no
double counting,
Drafting
Write draft
explaining
accounting
procedures,
conditions
and
rationale
How affect
“reduction”
tracking in scope
2?
Additionality and
eligibility?
www.ghgprotocol.org
Bigger picture journey
Timing
TWG phases of inquiry
Final Guidance
Identify current practices and issues associated with
contractual quantification
Appendix of
instruments
Categorize contractual instrument issues (attributes,
ownership, eligibility) and draft text of potential treatment
Operational
Criteria
Summer
2012
Re-assess underlying assumptions about contractual
quantification, compare to grid average quantification in
terms of 5 GHG Protocol principles, identify reporting
options
Description of
method and
GHG Protocol
principles
Dec 2012
Articulate indirect corporate accounting principles
regarding “reductions” and the role of
eligibility/additionality
Appendix on
eligibility
features
Frame two quantification methods in “product” terms to
identify the product, and activity, being quantified
Description of
method and
rationale
Dec 2010May 2011
Summer
2011 –
Spring 2012
Feb 2013
www.ghgprotocol.org
December webinar questions
#1.Electricity may be a product that can be “differentiated” within a grid
system on the basis of contractual relationships, for accounting purposes. Is the
logic presented here sound?
#2. The allocation criteria and examples from scope 3 should be a basis for
determining where and how this allocation can be operationalized for
accounting purposes. Which apply, and what is the degree of GHGP stringency?
#3. These Guidelines can support recognition for activities that, in aggregate,
change global GHG emissions through several means. Which of these
recommendations applies?
www.ghgprotocol.org
Additional TWG feedback (1 of 3)
Electricity grid system diagram
Yes it can be differentiated. Instruments decouple attributes from physical delivery, and attributes allow
consumers to choose purchased electricity on the basis of environmental preference – treat like
purchase of any other product
-
Electricity is different than other products - need to keep sight of link between consuming an actual
product and the resulting emissions. Decision to buy attributes does not necessarily influence amount
generated, as we assume with other products
-
Electricity is actually a uniform product, closer to first model presented
-
Is the contractual method a form of allocation, or avoiding allocation?
-
Will this analogy address heat/steam?
-
Allocation analogy impractical if it’s being executed by a single company – better done by grid admin or
regional/national government
-
Language about liberalization of the electricity market not correct, liberalization is more about
competition of “middle” actors rather than between generator and consumer
www.ghgprotocol.org
Additional TWG feedback (2 of 3)
Operational criteria for allocation (based on scope 3)
Overall helpful, but shouldn’t be too prescriptive given the imperfect analogy
-
Hierarchy of method should be based on reporting entity’s options, not the location
- Physical delivery depends on electricity scheduling, availability of transmission capacity– all factors
that shouldn't constrain transfer of generation attributes or usage claims
-
Boundary should be based on consistency in the regulator framework
- International or transoceanic transactions would not be appropriate unless physical
interconnection
-
Need to define criteria and then present some proof that criteria are met. This burden should fall on
these green power purchasing programs.
-
Is sensitivity analysis realistic?
-
A single figure still hides something
-
Are there areas where a utility-specific emission factors are a better representation of physical flows?
(single provider in a service region and balancing area)
www.ghgprotocol.org
Additional TWG feedback (3 of 3)
Description of Corporate Standard “reductions” in indirect emissions categories
Changing method does provide misleading picture—need to ensure continuity
-
Changes in scope 2 should still link to changes in global emissions in a relatively straightforward way in
order for GHG inventories to lead to the right business decisions
Eligibility framing
The risk that RE purchasing won’t affect GHG’s in aggregate is the same risk as for EE
- Accounting should not respond to short-term market dynamics
-
Challenges with allocation condition “best supporting effective decision-making and GHG reduction
activities.” Not the task of the accountant to save money…
-
Frame contractual instruments as working together with other mechanisms and policies – together, have
the potential to increase amount of low-carbon generation
-
Whether or not the generator is additional does not affect allocation
Specific example criteria
- Regulatory surplus is a quality vs. eligibility criteria
- Subsidy only relevant to accurate accounting if it represents a societal purchase of the attributes
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Examples of sensitivity analysis
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Proposed definitions and rationale
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Outline
•
Modified analogy for electricity production
•
Three unique features of electricity products/supply chains that
distinguish it from other products
•
Distinction of activity types and data types
•
Re-statement of underlying scope 2 methodology question
•
Proposed rationale
www.ghgprotocol.org
emissions
Inputs
#1. Electricity as a uniform product
from a single system
Output
Natural
gas
Coal
Wind
Facility or
system
Electricity
units
Emissions-peroutput calculation
uses system/grid
average reflecting
generation that is
consumed by a
customer
www.ghgprotocol.org
emissions
Inputs
Natural
gas
#2. Electricity as a differentiate-able
product from generators/suppliers
boundaries, functionally independent but
still ultimately within a single system
Output
emissions
G or S*
electricity
units
emissions
Coal
G or S
electricity
units
emissions
Wind
G or S
Facility or
system
electricity
units
* G or S = generator or supplier, the entity within the system
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Proposal Model #3: A “differentiated” product
Inputs - Facilities
whose origin and attributes (including productspecific emission rate) may be unknowable to
end-users, and the delivery of products is
outside consumer’s control
emissions
Natural
gas
Output
electricity
units
emissions
Coal
electricity
units
Distribution
System
Electricity
units
emissions
Wind
electricity
units
www.ghgprotocol.org
These are the emissions from the products consumed
An estimate of the
production
emissions from the
specific generation
sources providing
electricity to a
reporting entity’s
facilities
“Product-specific” information
Data source: Advanced grid studies
“Average product” information
Preferred data source: Emissions from electricity production, adjusted to boundaries reflecting
consumption regions (i.e., adjusting for imports/exports)
Secondary data source: Emissions from electricity production, reflecting only production regions
www.ghgprotocol.org
Other applicable product comparisons
• Where products are pooled/combined, where origin/s and features of product
are untraceable or virtually unknowable at the point of the end-user, and
where choice of product and/or delivery is out of end-user control.
• Biogenic and fossil gas mixed in a pipeline
Example: CSA
• Crude oil
• Water
Cannot control type of
delivered vegetable
Dependent on farm-level
decisions, and in
example, cannot choose
farm
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3 qualities of electricity products and their supply chain
•
“We can’t know what electricity
products we’re consuming”
•
“We can’t control what specific
electricity products are delivered to
our facility”
Distribution limitation
•
“We can’t change what electricity
products are generated in the first
place”
Project development
limitation
Data limitation
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Due to the highly unique way that electricity is produced,
“bought,” distributed and consumed, delivered products (and
emissions) are not necessarily the products that a consumer can
contractually “buy”…
•
De-link attributes from physical flows, via different contractual instruments
designed to give end-users of that product a claim to those attributes.
•
When tracked and aggregated across a region, they can provide an “allocation”
of GHG emissions from generation to end-users on the basis of purchase choices.
•
This should match, and mirror, physical generation over a defined time period,
but may encompass different boundaries than those used by grid average data.
• Operational criteria
www.ghgprotocol.org
Separate, parallel flow of information
Certificate
Certificate
Certificate
Certificate
Certificate
Certificate
Certificate
Certificate
Certificate
Contractual
allocation and
claims
Delivered and
consumed (grid
average)
www.ghgprotocol.org
How are we quantifying the emissions associated with
electricity use, and why?
i.e. What product or activity are we quantifying?
•
What electricity generation sources
are “keeping the lights on” at my
facility?
•
What electricity generation sources
have I contracted to receive, via
my supplier? Or, what attributes
about the generation have I
purchased?
www.ghgprotocol.org
Re-statement of scope 2 methodological inquiry:
If contractual instruments are available to companies, and they can form a
re-allocated picture of the grid on a contractual “plane” of parallel
information –
are they a superior basis for quantifying scope 2?
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GHG Protocol rationale:
•
Contractual quantification is a different, but equally important, portrait of emissions
associated with the activity of purchasing and consuming electricity.
•
Electricity is generated and distributed in a geographically-limited supply chain;
consuming the same product (electricity) has a different GHG impact depending on
the circumstances and features of the production and distribution facility serving your
grid. A contractual scope 2 number does not show the GHG impact of the products
that are likely actually consumed in a company’s facility, and in that way falls short of
the requirement accuracy and completeness of documenting the GHG emissions from
electricity consumption.
•
However, contractual instruments are the means by which companies express
demand for specific types of electricity products and their generation origin. Without
such tools, consumers cannot explicitly and directly demand low GHG-emission
electricity. When consumers to participate in a “market” separate from the physical
delivery and consumption (over which they have no control), supported by tracking
instruments, they can express demand for, and purchase, low-GHG electricity
products. The GHG quantification of these instruments, when applied holistically for
all energy generation and/or integrated with other energy data, can provide a parallel
picture of emissions from purchased electricity. This figure meets the need for
relevant data that informs decision-making about market and product choices.
www.ghgprotocol.org
How to frame criteria for contractual quantification
•
Operational criteria: Those qualities which allow contractual instruments
and other data sources to function together as a complete, “mirror”
representation of physical generation, and which ensure accurate allocation of
emissions from generators to end-users.
– Defined attributes, clear ownership
– Implicit/explicit double counting
– Shall/should discussion as part of “next steps”
•
Eligibility criteria: Programmatic criteria specifying the types of generation
plants or projects that can issue instruments with attribute claims, generally
designed to meet consumer expectations or achieve policy-goals.
– Not directly applicable to operationalizing attributional GHG accounting
and allocation
– Primary purview of regulators, programs, certification schemes
– Disclosure of features or descriptive chapter/appendix treatment
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Proposed reporting option
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Caveats and clarification on reporting options
•
No “net” adjustment
– Corporate Standard requires gross reporting of scope totals, and offsets reported
separately
– Offsets should represent additional reductions, represent an equivalency in
magnitude to the internal (gross) emissions it is offsetting (CS, p. 82)
– The contractual instruments we are looking at are not offsets, so should not be
made equivalent to offsets in a “net” adjustment for target setting
– Contract does not represent emissions reductions that compensate for the actual
emissions associated with your consumption – they represent generation
information and attributes, matched to a company’s consumption on a MWh basis.
www.ghgprotocol.org
Contractual hierarchy
Scope 2 quantification
Certificates/Products
Contracts
Required disclosure
Total electricity
consumption in MWh’s
or kWh’s *
Optional disclosure
Any avoided emissions*
Product features*
Supplier-specific
emission rates
Residual mix
Grid average
* Pending group discussion
www.ghgprotocol.org
Dual reporting in scope 2
Scope 2 quantification
Consumed scope 2
Grid average
Purchased scope 2
Certificates/Products
Required disclosure
Total electricity
consumption in
MWh’s or kWh’s*
Optional disclosure
Any avoided
emissions*
Product features*
Contracts
Supplier-specific
emission rates
Residual mix
* Pending group discussion
www.ghgprotocol.org
“Dual reporting” recommendation
•
•
In the UK, guidance states that all purchased electricity supplied via the
national grid, should be accounted in an organisation’s GHG footprint by using
a grid average emission factor relative to their electricity consumed.
Such instruments should meet best practices for operational criteria, as
described in this Guidance document
•
Companies can disclose the eligibility features of these instruments
•
Companies should set separate targets around reducing emissions from
contracted energy, as a complementary goal to reducing quantified scope 2
emissions from delivered and consumed electricity
www.ghgprotocol.org
Why dual reporting? (1 of 2)
•
Two types of quantification are fundamentally different, does not provide
complete picture of activity to stakeholders to report only one number
•
Companies don’t “consume” a contract, they consume a product, and features
of certificate not necessarily linked to what you are consuming
•
Both figures inform decision making
•
Both figures are imperfect and incomplete for different reasons (data quality,
action boundary)
• Individual data sets of either type of emission factor may vary in quality,
but the two methods reflect different information
•
Pragmatic: recognizing that this is an evolving landscape, ensure GHG
Protocol principles, demonstrate policy-neutrality, and provide corporate
and programmatic flexibility that is relevant to decision-making
www.ghgprotocol.org
Why dual reporting? (2 of 2)
• 5 Principles
– Completeness – full reflection of electricity purchase and
consumption
– Transparency – maximum information disclosure to stakeholders
– Accuracy – prioritizing either number in a hierarchy limits factual
reality
– Relevance – decision-making needs are broad and varied, need
maximum information
– Consistency – clearer means of tracking the same activity over
time
www.ghgprotocol.org
Responses to “Option 3” in July TWG notes
 Too impractical
o Option 3 has all of the complexities but none of the benefits – not very satisfying for companies to explain two separate numbers,
ultimately boils down to, ‘what progress have you made?’ How would you compare both numbers for a company? Showing the “math”
transparently is useful elaboration. Let’s accept that we’re already in a contractual world (Kevin DeGroat, Antares Group)
o Reporting two numbers is not optimal, and not consistent with financial reporting (on which GHG accounting was in large part
formulated) (Paul Bennett, EDF)
 Not helpful to users of information
o CDP currently allows Option 3 by asking for these two figures separately – one by grid average, and one question for contractual
purchase. But I’m not sure this has been helpful. One figure can still work for different purposes (Pedro Faria, CDP)
o There’s already confusion in the green power market, and Option 3 won’t add clarity to what’s happening. In Australia, all customers are
being charged carbon pass-through costs, even those who’ve purchased green power and thought they were shielded from
responsibility for “dirty” energy. The GHG information is actually being removed from utility customer bills, which could open the door to
allocating costs contractually, but the customer needs to know: what emissions are you basing this cost on? (Tim Kelly, Conservation
Council of South Australia)
 May provide a transition pathway
o We should accept that at best, this would be a slow transition, taking several years as the factors and information from different
countries becomes available. Option 2 may be the destination (though we need more clarity about this option), but Option 3 may
provide a “transition pathway.” Even in the best case, most regions are still using grid average…does that take us back where we
started? (Michael Gillenwater, GHG Management Institute)
 May provide needed transparency
o We need a fair and true documentation of emissions. Option 3 allows for transparent reporting, particularly for companies who feel a bit
exposed reporting a single number without context. Need to show what is being bought (contracts) and what is actually being used
(average mix by location). There is significant variation across different markets/regulatory situations. We should reflect the complexity
of the situation through required disclosure of features and emphasizing transparency. Also, Defra’s gross/net accounting format may
allow for this distinction (Nick Blyth, IEMA)
 Option 3 is a little too difficult, but the idea of increased disclosure in a transition is good. What can we do with current practice and accomplish
transparency? (Matt Clause, Environmental Protection Agency)
 A single scope 2 number is not a full-picture of corporate action, but no one number is the end-all. Need to see this www.ghgprotocol.org
in perspective (Jared
Braslawsky, RECs International)
Limitations of grid factors
•
“Lowest common denominator”
•
Inconsistent methodologies
– Represents an allocation practice with
similar, or worse assumptions than
contractual accounting
– Double Counting
– Consumption vs. production
boundaries
•
Data timeliness challenges
•
Ignores systems (often with legal
basis) established for supplier,
disclosure and for consumers
•
Irrelevant with respect to corporate
decision-making, other than moving
to new location
Response?
•
Reflects fundamentally separate part
of the activity of consuming and
purchasing electricity
•
This Guidance can identify current
short-comings and strong data
quality criteria to improve systems
over time
•
Systems recognized in purchased
scope 2
•
Many variables impact grid average
figure – companies may have range
of means to individually and
collectively influence.
www.ghgprotocol.org
Goal Setting Implications
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Programmatic and Company Flexibility
•
Consumed and purchased scope 2 figures are separate, complimentary
•
The two scope 2 totals should not be summed, and the two totals are not
“gross/net”
•
Both numbers are required for reporting, but companies can choose (and
specify) the figure being used for specific goal-setting
•
Programs (CDP, TCR, etc.) can recommend companies set goals around either,
or both, figures separately
•
Existing goals should be kept consistent with the base year methodology – or,
recalculate the base year.
www.ghgprotocol.org
Sample dual-scope 2 reporting and goal setting
•
“The emissions from delivered and consumed energy are XX. We would
like to reduce that over time through efficiency and collective changes in
the generation profile of our grid.
•
While we can’t control what products are actually delivered and consumed
on-site, we can use the market instruments within our operational power to
express demand for low-carbon energy and help support more new projects.
In this contractual instruments category, we have purchased
certificates/begun a PPA/chosen providers from generation projects with a
zero GHG-emission rate. Following the GHG Protocol practice for reporting
contractual purchases, our contractual emissions profile is YY.
• More organizations like us expressing demand for low-carbon energy
(purchased scope 2) can help reduce the emissions intensity (consumed
scope 2) of the grid over time.
www.ghgprotocol.org
Can reduce
Activity
delivered and
consumed
scope 2?
contracted
scope 2?
Can be used
as external
reduction to
offset any
emissions?
Reduces
quantity
purchases
needed
Efficiency/Consumption
reduction
Purchase low-GHG intensity
electricity products
Can
reduce
Intended
cumulative
impact on grid
Purchase offsets
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TWG discussion
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Areas for feedback
•
Rationale:
– Is this a fair and accurate description of the methods and a rationale for both of their
inclusion?
•
Reporting format and items:
– Does the proposed dual-reporting format and rationale adequately address the issues
that have been brought up to date?
– Is it a reasonable solution fulfilling GHG Protocol principles and serving company
needs?
– Should require separate discussion of electricity consumption in MWh/kWh?
•
Goal-setting implications
– Does this flexibility in target-setting serve corporate needs and provide transparency?
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Next Steps
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Next Steps
•
Feedback on discussion questions (2 weeks)
– Reporting options where contractual is not available (contractual vs. N/A)
•
Establish contractual instrument operational criteria and stringency
•
Determine how Guidance applies to other scope 2 sources (steam, heat,
cooling)
•
Decide and draft disclosure vs. chapter/appendix treatment of eligibility
criteria
•
Explore treatment of other possible disclosure items, including “avoided
emissions”
•
Draft grid average data quality list
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Next Steps
Early February
TWG introduction to GHG Protocol recommendation
Late February
If accepted, determine operational criteria and proceed
with “Next Steps”
Late February-March
Draft Guidance text
March
Complete TWG text
April
Internal WRI review
May
June
Release for Public Comment
Workshops?
Launch
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