6 September 2018
Climate change is an existential threat to our society, and its impacts are increasingly hard to escape from.
Electricity generation accounts for roughly 25% of global greenhouse gas (GHG) emissions annually. That’s equivalent to about 12.4 billion tonnes of harmful CO2 released into the atmosphere each year. More than two-thirds of this electricity is consumed by industrial users. Ensuring these emissions are measured accurately so action can be taken to reduce them should be an unambiguous priority.
During the past few years, one method of accounting for GHG emissions has become increasingly prevalent. The ‘market-based method’ encourages companies to buy green energy certificates from renewable producers, which they can then use to claim zero total emissions from their electricity use and meet carbon reduction targets.
These certificates are different from carbon offsets – which represent emission reductions – and those for allowances within an emissions trading systems – which represent the right to emit a unit of greenhouse gas.
Advocated by some climate change NGOs and powerful lobbies within the energy sector, the argument goes the revenue from these certificates acts like a subsidy to renewable producers, allowing them to invest and grow, which ultimately increases the supply of greener energy.
As an easy and low-cost means of appearing environmentally conscious, it is growing in popularity. More than 300 listed companies now use the market-based method to buy around $150 million of certificates each year, globally.
But my colleagues and I from University of Edinburgh Business School’s Centre for Business and Climate Change have found a few issues with the practice. And we’re not the only ones.
There is absolutely no empirical evidence the purchase of energy certificates increases renewable energy generation or reduces emissions. Neither does it lead to more accurate accounts of an organisation’s actual carbon footprint.
It’s nothing more than a corporate ‘greenwash’. To put it simply, an organisation can spend a fraction of a pound on a certificate for every £100 to £140 it spends on a megawatt-hour (MWh) of electricity from the grid, and claim the right to report zero emissions.
Imagine buying a 50p carton of caged-hen eggs and then spending 2p on a piece of paper which gives you the right to say they’re free-range organic. Moreover, it does nothing to increase the amount of free-range organic eggs produced. When you consider it like that, the practice is just plain odd.
It’s also a massive missed opportunity and one which is diverting £millions each year away from actions which can genuinely mitigate climate change.
The money renewable producers make from the certificates is just too small. Once you take away sales and marketing costs, each certificate might only be worth 5 or 10 pence per MWh to your local wind farm. Many don’t even take into account this revenue in their projections.
Moreover, we already have a considerable amount of renewable electricity (which is a very good thing). In Scotland, where I live and work, renewable sources now generate more than 50 per cent of gross electricity consumption. Demand for certificates would have to increase dramatically to reach the existing level of supply, and only once beyond this level would certificates increase the amount of renewables.
It may be reputationally hazardous for high profile and vocal advocates of the market-based method to suddenly change their positions. But they can’t keep their heads in the sand forever.
My colleagues and I have been working with legislators and regulators around the world, including the International Organization for Standardization (ISO) to bring an end to the market-based method.
To be published in autumn 2018, a revised international standard (ISO 14064-1) includes the recommendation that only the locational (or grid average) method should be used. This method is more accurate as it attributes a fixed average CO2 emissions value to each unit of electricity consumed depending on the nature of the electrical grid energy mix.
In the UK for example, where most of our electricity generation comes from gas, nuclear, some renewables, and a little coal, the grid average value is 0.4 kg of CO2 per kilowatt hour electricity produced. While in China, which is far more reliant on coal, it’s 0.8 kg of CO2 per kilowatt hour.
The new standard still permits the use of the market-based method, but it is not recommended, and the results should be reported separately from the main carbon footprint.
There are some contractual arrangements, such as long-term power purchase agreements, that may genuinely support new renewable generation. Essentially a contract to buy all of a green energy producer’s electricity for a set period, these deals guarantee income for the suppliers, allowing them to invest and borrow to finance the renewable energy project. They’re already used by giants like Google and Amazon. In such cases, the companies should separately report the reduction in emissions they have caused.
As a community dedicated to more ethical and sustainable business practices, we must encourage ourselves and others to ask: ‘Am I confident what I’m doing will actually reduce our emissions?’