The energy sector is responsible for over three-quarters of human-caused emissions,1 making decarbonisation of our energy supplies the single biggest carbon dioxide challenge our generation faces today.
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Many of the perceivable solutions involve transitioning to an electricity-based economy; for instance, updating to electric heat and transport, or replacing natural gas with hydrogen produced in electrolysers. Yet, pursuing these solutions will increase demand for electricity and put more pressure on our power grids, which are currently running on a mix of carbon-free and carbon-intensive sources. For the electrification of our society to truly reduce emissions, we need carbon-free electricity grids.
As some of the largest energy buyers, companies have a crucial role to play in generating enough demand for carbon-free electricity. Voluntary corporate procurement has been critical in expanding the deployment and installation of new renewable electricity so far. According to the current, most adopted global carbon accounting standard (The GHG Protocol), organisations can buy renewable electricity to meet their annual electricity demand and claim they are running on ‘100% renewable energy’ in their Scope 2 market-based emissions accounting.
Whereas market-based emissions accounting has provided incentives for companies to act, the challenge is that it does not consider the real locational and market constraints of our electricity grids, nor the hourly or sub-hourly fluctuations in where electricity comes from. ‘100% renewable energy’ claims do not mean that a business is running on carbon-free electricity every hour of the day.2 To give an example, a Dutch data centre consuming electricity throughout the day and during the night could claim to be ‘100% renewable’ by covering its annual consumption with electricity generated from a solar plant in Portugal. There is no chance at all that the actual electrons related to the volume of electricity (and the underlying certificates as assurance) procured from the solar plant (which will only be producing electricity when it is sunny during the day) ever actually reach the data centre (which is on an entirely different power grid to these electrons).
To remain credible and effective,3 Scope 2 market-based emissions accounting needs to be modernised and adapted to represent the current and future market reality. Market-based accounting needs to reflect the physical constraints of the power grid by imposing stricter requirements4 for quality criteria with regards to location (production should take place in the same or neighbouring power grid as consumption) and time (production should take place in the same hour as consumption).
As the rules of the energy game change to favour a more granular, accurate, and data-led accounting system, the right price incentives will be implemented to drive deeper decarbonisation of our power grids. Many of the technologies needed to fully decarbonise our energy grids – such as long-duration storage – currently suffer from a lack of demand driving down their costs and stimulating further adoption. If businesses begin accounting for their actual electricity usage on an hourly rather than annual basis, and focusing on the local grids that businesses actually operate on, corporate energy buyers will start to seek out these solutions for the times of the day when they are currently reliant on fossil fuels, using their purchasing power to much greater effect.5
- ‘4 Charts Explain Greenhouse Gas Emissions by Countries and Sectors’, World Resources Institute, (2020), www.wri.org/insights/4-charts-explain-greenhouse-gas-emissions-countries-and-sectors
- BJØRN, A., LLOYD, S. M., BRANDER, M., and MATTHEWS, H. D., ‘Renewable energy certificates threaten the integrity of corporate science-based targets’, Nature Climate Change, No.12, pp.539 – 546, (2022), https://doi.org/10.1038/s41558-022-01379-5
- ELGIN, B. and RANGARAJAN, S., ‘What Really Happens When Emissions Vanish’, Bloomberg UK, (2022), www.bloomberg.com/news/features/2022-11-01/intel-p-g-cisco-among-major-companies-exaggerating-climate-progress
- ‘GHG Protocol to assess the need for additional guidance building on existing corporate standards’, Greenhouse Gas Protocol, (2022), https://ghgprotocol.org/blog/ghg-protocol-assess-need-additional-guidance-building-existing-corporate-standards
- ‘Advancing Decarbonisation through Clean Electricity Procurement’, International Energy Agency, (2022), www.iea.org/reports/advancing-decarbonisation-through-clean-electricity-procurement