Scope 2 for the Age of Deep Decarbonization

In a recent blog post, the GHGP summarized the current proposal for updated inventory rules and potential consequential emissions reporting. Each author of this essay is honored to serve on the diverse, expert-led Scope 2 Technical Working Group that has proposed reforms to improve the accuracy of emissions inventories. In this blog, we describe the proposed changes in the Scope 2 standard to improve spatial and temporal alignment to substantiate market-based clean energy use claims, and why these changes are both necessary and feasible. In a second forthcoming blog, we will also respond to some frequent questions and misunderstandings about the proposed Scope 2 update.

Why Today’s Scope 2 Guidance Must Be Updated 

As the GHGP notes in their recent blog post, today’s Scope 2 “market-based” standard, which assigns emissions to electricity consumers based on contracts with specific sources of generation, has helped scale clean energy procurement in a period of early market development. At the same time, the Scope 2 Guidance has been rightly criticized for lacking accuracy and transparency, undermining the credibility of corporate clean energy and emissions reduction claims. Consequently, some reporting standards, such as the International Sustainability Standards Board (ISSB) and International Organization for Standardization (ISO), have decided to require only “location-based” accounting, which assigns all electricity consumers on a grid the same average emission rate, with market-based accounting remaining optional.  

It’s not hard to see why today’s market-based standard lacks credibility. Consider that today:  

• A company consuming power in West Virginia or Poland can claim to use clean energy generated in California or Ireland, respectively (No deliverability from where clean power is generated to where that power is consumed).
• A company consuming fossil-generated electricity at night in December can claim to have used solar power generated at midday in June (No clean supply when power is consumed).
• A company can claim to be 100% powered by clean energy even if their supplier just shuffles existing clean energy resources away from other consumers to meet the company’s voluntary claim (No additional voluntary procurement beyond standard delivery carbon-free electricity (CFE)).
• A company can claim grid-mix clean energy to which they have no contractual relationship and which may already be claimed by other consumers, by using location-based grid average emissions factors in their market-based calculation (Double counting of clean energy).

In short, today’s standard does not ensure that reported market-based emissions are credible, accurate, or comparable across reporters or geographies. Moreover, companies are structurally incentivized to purchase the cheapest Energy Attribute Certificates (EACs – the basic contractual instruments underpinning market-based reporting) that allow them to make the same emissions reductions claims, regardless of whether the purchases align with their actual electricity consumption or enable system-wide emissions reductions. This leads to obvious distortions such as Norway exporting five times the amount of EACs as it does electricity.

Insofar as the standard shapes voluntary procurement behavior, it is no longer driving the action that is needed to meet tomorrow’s grid decarbonization challenges. While today’s standard has helped accelerate the addition of significant amounts of clean energy capacity to the grid, the next phase of grid decarbonization requires not only adding capacity but also reliably integrating higher shares of clean energy. As the International Energy Agency writes in their recent report on integrating wind and solar power,

“Corporations seeking to match their demand with clean generation may be tempted to purchase power from the cheapest resources (often solar PV generation) regardless of the temporal alignment with their demand and the availability of grids. Compared to yearly matching, shorter matching periods can deliver a more diverse clean energy portfolio, bringing wind, batteries and clean dispatchable capacities online in addition to cheaper solar PV.”

Unfortunately, the existing Scope 2 standard does little to incentivize this full range of technologies needed to fully decarbonize electricity systems. 

Proposed Updates Will Lead to Greater Integrity and Impact

The GHG Protocol update process is guided by three core principles: integrity, environmental impact and feasibility. We and many others within the Scope 2 TWG have recommended changes to improve the integrity and impact of Scope 2 market-based inventories, while enabling feasible implementation. 

The proposed update can be summarized as follows: a company’s market-based Scope 2 emissions should be calculated based on purchased clean energy that aligns with where and when a company consumes electricity, without relying on clean energy rightfully claimed by others. This ensures that claims to use clean energy are credible.  There are four key updates that enable this:

• Deliverability: The proposal narrows the geographic boundaries for Scope 2 market-based claims to ensure that the purchased clean energy that companies claim to use could reasonably be expected to reach the point of use. This means better aligning market-based inventory boundaries with existing electricity market boundaries (e.g. European bidding zones). 
• Hourly Accounting: The proposal requires companies to use hourly accounting for their market-based Scope 2 inventories. To make a market-based claim, a company would need to match their consumption to generation occurring in the same hour. This change would better align corporate clean energy claims to the reality of electricity markets and systems, which operate at hourly (or sub-hourly) intervals. 
• Standard Supply: The proposal clarifies how to account for electricity from publicly funded, mandated, or shared resources such as those delivered through default utility service or government clean energy programs. It limits a company’s claims to a fair and proportionate allocation of CFE resources that a company is required to support and disincentivizes shuffling of these shared CFE generation resources (e.g., public or regulated hydro or nuclear) to support exclusive voluntary claims. 
• Residual Mix: The proposal no longer allows the use of location-based emissions factors for market-based accounting. Instead, in the absence of supplier-specific emissions factors, companies would use residual mix factors, backstopped by fossil-only emission rates, in order to avoid double-counting of clean energy and claiming clean energy to which a company has no contractual link.

This update significantly improves the accuracy and comparability of Scope 2 market-based inventory claims and addresses key criticisms of the current standard that threaten the integrity of market-based accounting and the future credibility of voluntary clean energy markets. It also ensures the GHG Protocol remains relevant in the coming decades and incentivizes the development of clean energy when and where it is needed, presenting significant opportunities for a broad range of clean energy developers globally.

Proposed Updates Balance Integrity and Impact with Feasibility

While these updates are necessary for high-integrity Scope 2 accounting, they do represent changes from the status quo – as is the norm with any standard update. To ensure this transition is smooth and feasible, the proposal is considering a number of flexibilities: 

• Exempting smaller companies from hourly accounting: Companies with electricity use below a certain threshold (for example, 10 GWh annually per market boundary) would be exempt from hourly matching and may match on a monthly or annual basis.
• Standard profiles enabling hourly accounting: Where hourly meter data are unavailable, companies may use standardized, hourly load profiles to estimate the hourly profile of their monthly-metered load. Where hourly EACs are not yet available, hourly generation profiles may be combined with monthly EACs to enable hourly claims. 
• Lead time to adapt to new rules: The new guidance is expected to be finalized at the end of 2027, and implementation will follow a transition period, giving companies and markets time to adjust, and technology providers time to develop data and solutions to support the implementation of the new rules.
• Respecting existing clean energy contracts: Long-term contracts signed under today’s rules would continue to count in appropriate ways, ensuring companies are not penalized for long-term commitments made under today’s standard.

Proposed Updates Integrate Ideas with Broad Support

The idea of requiring hourly and spatially-matched energy use claims that better reflect grid realities was proposed and supported by a number of respondents to the Greenhouse Gas Protocol’s 2023 survey, as described by the GHGP’s Scope 2 Proposal Summary. A significant majority of the Scope 2 Technical Working Group (72%) supports the proposed updates to the Scope 2 market-based standard. These changes also have support from the Independent Standards Board (ISB), which ultimately approves of any changes to the GHGP. Outside of the official revision process, these proposed changes are consistent with granular accounting principles supported by a broad range of key energy stakeholders:

• Governments: The European Union, UK and US governments have adopted regulations requiring granular accounting for electrolytic hydrogen and other products. Several U.S. states, such as California and Minnesota, have adopted or are considering granular accounting rules in policy frameworks. 
• Researchers: Modelling done by TU Berlin, Princeton, and IEA, across the EU, US and APAC has shown the emissions and technology incentive benefits of this approach. 
• System Operators: ENTSO-E, which brings together 40 of Europe’s electricity system operators has clearly stated that hourly matching and deliverability are better for the power system. In the U.S., CAISO and SPP are actively exploring systems for granular emissions tracking in their markets.
• Suppliers: Globally, many electricity suppliers offer hourly matching e.g. AES, Constellation, Engie, Entergy Arkansas, Georgia Power,  Good Energy, Greenko, Jera, Octopus Energy,  Sembcorp, Sol Systems, TotalEnergies, Vattenfall and more.
• Civil Society: NGOs including Natural Resource Defense Council, Transport and Environment, Clean Air Task Force and Environmental Defense Fund have supported these principles in relation to hydrogen regulations in the US and Europe. 
• Corporate Coalitions: A diverse group of companies, NGOs, and service providers, including CEBA, Green Strategies, Meta, Microsoft, WattTime, and others, published a letter in 2023 calling for similar changes to those now being proposed. Other multi-stakeholder coalitions also support hourly-matched and local procurement. For example, the 24/7 Carbon-free Energy Compact includes over 170 signatories, and the Climate Group’s 24/7 Carbon-free Coalition includes a number of corporate clean energy buyers. Microsoft, Resurety, Google, and Iron Mountain have hourly matching goals, while many others have announced hourly matched procurement deals. 

The proposed update to Scope 2 market-based emissions inventories will ensure that corporate clean energy use claims are transparent, credible, and comparable across companies and geographies. It will also incentivize the development of a portfolio of technologies to accelerate clean energy integration and grid decarbonization. In a forthcoming blog, we will address some frequently asked questions about the proposed update. 

Co-signers

TWG members participate in the Scope 2 update process in their personal capacity, so the views expressed here are their own and not necessarily those of their organizations.

Simone Accornero

Pete Budden

Killian Daly

Neil Fisher

Erik Landry

Lissy Langer

Greg Miller

Wilson Ricks

Alexandra Styles