The Imperative for Robust Electricity Accounting
Clean electricity is, by far, the most important tool we have to reach net-zero. According to the IEA, we need electricity to make up over 50% of final consumption in 2050 (i.e. tripling electricity supply), and for that supply to be completely decarbonized by 2040. This challenge is massive, and all levers of the energy system must be pulled in the right direction. How we do electricity (i.e. Scope 2) carbon accounting is crucial to ensuring we track and incentivize demand for clean electricity and reduce demand for fossil electricity.
The Greenhouse Gas Protocol is the little-known carbon accounting “bible”, used by over 90% of the Fortune 500 to calculate their carbon emissions and set Net Zero targets. Corporate procurement is a critical decarbonization lever. IEA numbers show that corporates account for 60% of global electricity consumption and, outside of China, their procurement will drive 30% of global renewable capacity additions in 2023-24. A good foundation, but plenty of room for improvement, particularly in Asia and Europe.
Corporate procurement plays a key role in decarbonization (Source: CATF, IEA)
One barrier to more effective corporate procurement is today’s GHG Scope 2 rules, which contain a number of significant loopholes that weaken its accuracy. These flaws have been covered in Nature and the Wall Street Journal, which showed how corporates could be underreporting emissions by over 50%. Accounting claims that diverge so much from reality slow down our path to Net Zero. Luckily, to address these concerns, the GHG Protocol is currently under review, offering a golden opportunity to fix things.
This EnergyTag blog series, focuses on the electricity accounting (i.e. Scope 2) aspect of the GHG Protocol update, covering five crucial messages in about five minutes each:
- Opportunity – A Golden Chance to fix Carbon Accounting. Roots and All.
- Problem & Solution – What’s wrong with Scope 2 and how to fix it (Read here).
- Impact – Scientific Consensus on the benefits of Granular Accounting (Read here).
- Regulation – A Global Policy Shift to Granularity for Clean Electrification (Read here).
- Feasibility – Granularity is happening today, let’s make it the norm (Read here).
We hope you enjoy it! Let’s get started with Part 1.
The Systemic Role of the GHG Protocol
Corporate Emissions Disclosures Hinge on the GHG Protocol (Source: GHGP)
The GHGP is at the root of almost all global carbon emissions reporting and target setting initiatives. It’s also the foundation for corporate disclosure regulations such as the EU’s Corporate Sustainability Reporting Directive, and is set to be the basis for similar disclosures in the United States.
If the Protocol is not robust, the voluntary and regulatory climate reporting ecosystem is compromised from the very core. On the other hand, there are is huge opportunity for a robust protocol to transform how we:
- Define which consumers are leaders and laggards.
- Structure ESG indexes to favour capital allocation to true leaders.
- Drive consumer investments in clean power and storage.
The Review Process and How You Can Get Involved
Timeline of Review Process (Source: GHG Protocol)
The GHG Protocol review process is run by the World Resources Institute and the World Business Council for Sustainable Development, who co-host the Protocol. It’s expected to release updated rules in late 2025 which would cover the overall corporate accounting framework (e.g. Scopes 1,2,3). The survey phase of the process, which gathered stakeholder feedback on the various elements of the Protocol, is now over (see survey summaries here).
GHG Protocol Governance Structure (Source: GHG Protocol).
We are currently in a critical phase of the review process, as the GHG Protocol has recently opened up calls for applicants, closed on January 15, 2024, to the major working groups and governing bodies of the protocol. Here’s a summary of the responsibilities and roles of each part of the protocol:
GHG Protocol Governance Process (Source: EnergyTag based on GHGP).
If your organization wants to contribute to carbon accounting standards fit for Net Zero then make sure you apply by January 15 2024!
In our next blog, we will dive into the fundamental issues with today’s Scope 2 accounting and how Granular Accounting helps fix it! Tune in on Friday.