Top Ten Questions about the Scope 2 Guidance

On January 20, the GHG Protocol released the Scope 2 Guidance: an amendment to the Corporate Standard. It is the first major revision to the Corporate Standard in over 11 years. The key tenants of the Guidance are summarized by a video, the Executive Summary, and a PowerPoint slide deck.

To help companies start implementing the Guidance, here are a few answers to the top ten questions you might have and where to find more information in the Guidance document.

1. When does the new Guidance go into effect?
The Guidance takes effect as of January 20, 2015, applying to activities and data going forward in 2015. Inventories covering 2014 do not need to conform to the new Guidance as they reflect activity and data from before the Guidance was issued.

2. Is CDP going to be adopting this Guidance?

Yes! CDP updates its questionnaire every September, and has been incorporating key components of the Guidance over the last few years as it was being developed. This September’s CDP questionnaire (applying to 2015 data) will be updated to align fully with the new Scope 2 Guidance.

3. The market-based method seems to be the main new thing that was introduced. What’s its value and purpose?

The term “market-based method” is new, but the concept was originally referenced in the Corporate Standard. The Corporate Standard suggests that companies use source- or supplier-specific emission factors, and gave examples of how renewable energy supplier contracts and renewable energy certificates could reduce scope 2 emissions. The new Guidance has formalized this method, allowing different types of contractual data to now work together to create a complete allocation of energy generation emissions without double counting between consumers.

In short, the market-based method reflects the emissions from the electricity that a company is purchasing, which may be different from the electricity that is generated locally. Why is this important? Different electricity suppliers and contracts emit more or less greenhouse gases depending on the energy source or technology, and companies in most major electricity markets around the world have the choice to put their money towards low-carbon energy. As with any product, more demand for low-carbon energy will drive greater supply over time and reduced global emissions. Voluntary program design choices also impact the pace and extent of this supply change.

Many suppliers are already required by law to disclose to consumers the fuel mix and GHG emissions associated with their portfolio or tariffs. There’s a long history of suppliers using certificates to track attributes associated with energy generation for consumer-facing programs, both regulatory and voluntary purposes.

For more information, read Chapter 2 (Business Goals), Chapter 4 (Scope 2 Accounting Methods) and Chapter 10 (Background)

4. What if I don’t make specified renewable energy purchases—do I still have to do dual reporting?

Yes. The market-based method identifies a hierarchy of different types of contractual instruments from which emission factors can be derived. It’s not just green power or specific supplier tariffs that count, it’s any type of supplier-provided GHG emission data or contract that meets the Scope 2 Quality Criteria, including contracts for energy purchased from natural gas, coal or nuclear plants. If you don’t have access to any of these data, you can use a residual mix (if available) or grid average emission factors that you would also be using in the location-based method total. If the latter option is used, the two scope 2 totals will be identical – but this is expected to be a short-term anomaly in the process of developing residual mixes. European agencies have already published residual mixes, and similar mixes are expected to be developed for the US and other markets in the coming years.

For more information on the market-based method hierarchy, see Chapter 6 (Calculating Emissions) and for the Scope 2 Quality Criteria and residual mixes, see Chapter 7 (Reporting Requirements.)

5. What should I ask my electricity supplier about? I’m not sure about the emissions numbers my supplier gave me.

Electricity suppliers may calculate a fuel mix and related GHG emissions using different methods and parameters, following different regulatory requirements. Criteria #6 of the Scope 2 Quality Criteria identifies key features and methods that supplier-specific emission factors need to have to be used in a consumer’s scope 2 total.

For more information on the market-based method hierarchy, see Chapter 6 (Calculating Emissions) and for the Scope 2 Quality Criteria and residual mixes, see Chapter 7 (Reporting Requirements.)

6. How do these new requirements impact my base year and any targets I have based on that?

Companies can choose which method total – market-based, location-based or both—to use for performance tracking and must disclose this in their inventory. This Guidance’s new requirement constitutes a change that could trigger base-year recalculation. Companies should ensure that the base-year inventory includes both a location-based and market- based scope 2 total, if applicable and feasible. For most companies, product or supplier-specific market-based data in the base year will not be available, so companies should state that the location-based result has been used as a proxy for the market-based method.

See Chapter 9 (Setting Reduction Targets and Tracking Emissions Over Time) to learn more about recalculating base year emissions.

7. What exactly do I need to report about my purchases?

The Guidance requires companies to disclose the categories of instruments from which the emission factors were derived and, where possible, specify the energy generation technologies. This means disclosing the instruments on the market-based method hierarchy. In the top category of “certificates,” for instance, companies should also disclose whether it is unbundled REC purchases, RECs conveyed through a power purchase agreement (PPA), or RECs conveyed to consumers via a supplier-specific emission rate or program. Companies also have to indicate that the Scope 2 Quality Criteria have been met for the instruments used in the calculation.

For more information on reporting requirements, see Chapter 7 (Reporting Requirements.) For a discussion of recommended disclosure about corporate energy purchases and their policy context, see Chapter 8 (Recommending Reporting on Instruments Features and Policy Context.)

8. Does the new Guidance require certificates to be “additional”? Do they have to “cause” new projects?

No. The Scope 2 Guidance and corporate GHG accounting framework is based on attributional accounting, which in this context means allocating electricity emissions to end-users—but not the “impact” of a given action or activity outside of the inventory boundary. “Additionality” is a core concept of offset credits quantified using the project-level methodology to ensure that the offset was the decisive reason a project was implemented; but it’s not a core concept for contractual electricity supply data in scope 2. Projects may be implemented for a variety of reasons—regulatory, favorable economics, or active consumer-driven demand—but the underlying GHG emissions information from that power plant would be the same. It’s a matter of which instruments convey those emissions to which customers—and policy makers, 3rd party certification (like Green-e) and supplier programs can all influence this through program design and eligibility. The only requirements the Guidance has for contractual instruments in the market-based method are the Scope 2 Quality Criteria, which aim to ensure accurate allocation and eliminate emissions double counting between end-users.

For more reading on the concept of additionality in scope 2, see Chapter 11 (How Companies Can Drive Electricity Supply Changes with the Market-Based Method).

9. Right now, voluntary certificate prices are low. Will this allow the achievement of “zero emissions” and ignore the harder, more expensive work of efficiency and conservation?

Generally speaking, the location-based method total can only be reduced by decreasing the activity data (or electricity consumption) since the grid average emission factor is largely outside of corporate control. By contrast, the market-based method is designed to highlight supply choices, including low-or zero carbon supply. Purchasing and applying certificates to one year’s inventory sets a precedent for continuing purchases in future years in order to report annual reductions, and cost ranges for certificates may vary each year.

Bottom line: reducing electricity consumption can reduce both totals, and the Guidance recommends separate reporting of energy consumption (in MWh, kWh, BTU, etc.) for enhanced transparency and focus on efficiency. The CDP questionnaire currently requests this information.

Read more about this in Chapter 2 (Business Goals), Chapter 4 (Scope 2 Accounting Methods) and Chapter 9 (Goal Setting.)

10. Does the Guidance distinguish between “higher impact” purchasing and “lower-impact”?

It depends on the intended meaning of “impact.” As noted above, the Guidance adheres to an objective, attributional approach to documenting emissions from contractual energy supply. The Guidance discusses how companies can design their electricity procurement strategy to have specific types of impact. For instance, some companies may want to purchase certificates from renewable energy located in their grid region or state to help support local air pollution reduction or economic development. Others may prioritize purchases where the company can have a more direct impact on project development (as an energy off-taker, financier, providing land/siting for facilities, or collaborative purchasing.) Markets for contractual instruments like certificates are designed to deploy renewable energy where it is most cost-effective, so any purchase contributes to long-term, collective “impact” in the market. Stakeholders will identify different levels of “leadership” in the range of these procurement actions. Ultimately, these are differences in strategy and program design but not the underlying emissions information. The Guidance maintains policy-neutrality by not trying to distinguish which types of impact are best. Instead, companies can document the key features of their purchases separately to illustrate the types of impact they intend to have.

For more on reporting key features, see Chapter 8 (Recommended Reporting.) For more on how to use the market-based method for different types of impact, see Chapter 11 (How Companies Can Drive Electricity Supply Changes with the Market-Based Method.)