With climate change arguably higher on the agenda than ever, businesses are striving to show their green credentials. But has the race to appear environmentally conscious created a smokescreen of carbon accounting? We hear from alumni on what they’re doing to cut through the haze and to give a clearer view of the challenges.

Matthew Brander
Dr Matthew Brander, PhD 2016.

The United Nations describes climate change as "one of the major challenges of our time". The impacts of climate change are, it says, "global in scope and unprecedented in scale".

In 2015 the Paris Agreement was adopted by consensus, and 181 countries are now party to it. The Agreement establishes the goal of keeping the temperature rise this century to below 2˚C, with the aspiration of limiting warming below 1.5˚C.

It is in this mood, of widespread acceptance that climate change is real (and that human activities are the main cause) that businesses are looking to not only reduce their carbon emissions, but to be seen to have rock solid green credentials.

In recent years, companies who want to show that they are actively combating climate change have been buying green energy certificates from renewable producers. They then use these certificates to claim zero total emissions from their electricity use, meet carbon reduction targets and trumpet their green credentials to a range of audiences, from governments to consumers.

For alumnus Dr Matthew Brander (PhD 2016) Senior Lecturer in Carbon Accounting at the Business School, there is a problem in the way these certificates are being used, which has far-reaching implications.

“Electricity generation currently produces around 25 per cent of global greenhouse gas (GHG) emissions so it’s a major source and driver of climate change,” he says. “There is an emerging method that companies are using when they disclose their greenhouse gas emissions called the market-based method. The research we’ve done has highlighted that this is highly problematic.

“Companies are buying certificates that allow them to claim that their electricity came from renewable sources, but this practice doesn’t actually increase the amount of renewable electricity generated and there is no environmental benefit. But companies are saying that their electricity comes from renewables and their emissions are zero.”

You get the electricity through the grid, and you don’t know where it really comes from.
Dr Matthew Brander

Matthew estimates that around £150m a year is spent on these certificates by more than 300 listed companies, which could be spent on other, more effective methods of reducing emissions. “Spend £150m on just about anything else and it would reduce electricity emissions more than these certificates,” he says.

When an energy producer generates electricity from, for instance, a wind farm, it means they are able to sell certificates that say a unit of renewable energy has been created, which in turn allows the company that buys the certificate to say it has consumed a unit of wind-generated power.

“The problem,” Matthew explains, “is that these energy companies have these wind farms because of government subsidies or legacy investments. So, when they sell the certificates, the revenue isn’t the driver for building the wind farm in the first place. Buying a certificate doesn’t increase the amount of wind power or solar power that is generated.

“It’s also important to understand that renewable energy certificates don’t reflect the actual delivery of renewable electricity either. If a company buys certificates it doesn’t mean that its electricity physically comes from a wind farm. You get the electricity through the grid, and you don’t know where it really comes from.”

Matthew and colleagues have looked into how this bizarre practice has emerged. “As an energy company, you’ve built the wind farm anyway, but if you can get a little extra money by selling the certificates, then that’s going to be really interesting to you,” he says.

In turn, companies who are reporting their emissions have a cheap way of purchasing a kind of smokescreen to make it look as though they are reducing their emissions, a key commercial driver.

Dr Francisco Ascui

Work that Matthew and his colleague, alumnus Dr Francisco Ascui (PhD 2014, pictured) have done in recent years has led to a revision of the International Organization for Standardization (ISO) standard relating to organisation-level greenhouse gas inventories (ISO 14064-1). To be published in early 2019, the new standard includes the recommendation that a more accurate alternative accounting method must be used than the market-based one alone.

In particular, a paper they published in Energy Policy in January 2018 described the ‘market-based’ method as misleading and that its use was ‘highly unlikely’ to increase the proportion of energy coming from renewable sources.

In the paper Matthew and Francisco recommend a practical solution to use the ‘locational grid average’ method for reporting emissions. According to the pair, this approach is more reliable as it attributes an average CO2 emissions value to each unit of electricity consumed depending on the nature of the electrical grid energy mix.

The problem is quite a technical one – that’s why we want to spread the word.
Dr Francisco Ascui

Francisco has carried out consultancy and research projects in over 20 countries for clients including multilateral and government agencies, carbon traders, investment banks and corporations. He’s uniquely placed to comment on how the current situation came about.

He explains: “The idea that the ‘green-ness’ of renewably-generated electricity could be separated from the physical supply of electrons was dreamt up in the late 1990s by the company regarded by Fortune magazine at the time – for six years in a row – as America’s most innovative: Enron.”

This history, he believes, should remind us that there is potential for misrepresentation and fraud in carbon accounting, just as there is with any form of accounting. But the massive challenge of climate change means that we have to be able to measure what is being done.

"There is nothing inherently wrong with the concept of separating renewable attributes from physical electricity,” he explains. “It can greatly encourage cost-effective investment in renewable energy generation. But as with any other form of accounting, we need to pay attention to the details."

He sees the situation as having parallels with the recent diesel engine emissions scandal that rocked the motor industry. While the market-based method has supported a multi-million dollar global trade in renewable energy certificates, it hasn’t had any real benefit to the environment.

“It’s like buying a diesel car on the basis of it having ultra-low emissions, and then discovering that it was fitted with a ‘defeat device’. There will no doubt be denial, anger, bargaining and a certain amount of collective depression when companies are faced with the reality of what they have purchased,” he predicts.

He suggests that companies should get through these stages as quickly as possible, as there is the threat of significant consumer backlash against greenwash – even if it wasn’t intentional.

He doesn’t suggest that the smokescreen of the market- based method was used to intentionally mislead the public. “Superficially, the market-based method seems to make some sense,” he says. “Many companies who genuinely want to reduce their emissions and are willing to put some money towards this have seized on it as a cost-effective solution.

“The problem is quite a technical one, and only a small number of people usually get close enough to the technicalities of carbon accounting to be aware of it – that’s why we want to spread the word.”

Francisco’s best piece of advice to businesses looking to reduce their carbon emissions is simple but to the point: “If it looks too good to be true, it probably is.”


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