Seems everyone wants the National Energy Guarantee (NEG) to succeed. Certainty is the key word, more specifically investment certainty for generation assets. But in the rush to reach agreement could all the good, largely voluntary, work done by individuals and corporations to reduce carbon emissions through energy efficiency and renewable energy investment come undone? What if the credibility of the most careful carbon accounting was shredded because of some clumsy regulation.

Key to carbon accounting in Australia has been the use of standardised, state-based emission factors for the various emission-producing activities. The National Greenhouse Accounts Factors include emission factors, by state and activity, that are used in the National Greenhouse and Energy Reporting Scheme (NGERS), relevant to large corporations, but also to voluntary accounting of carbon footprint that might be reported through sustainability reports.

The emission factors have never provided a perfect measure of a company’s emissions. There are a number of variables that make precise measurement hard, but they served as an approximation that everyone could use. In reality, emission factors can change by the hour and by the season, solar contributing more energy during the day and so on. Fore example, an electricity customer that has a predominantly night time load could have a very different emissions profile to one that has a daytime profile, or a customer with a high summer load could have a different profile to another company that has a dominant heating load in winter. One customer could be signed up to an electricity retailer that relied predominantly on coal-fired generation while others relied on less emission intensive generation. Trying to take all the relevant variables into account at the consumer level risked confusing everyone.

So, years back, recognising the perfect as the enemy of the good, there was broad agreement to use state-based factors that averaged all these variables over a year– a decision that has served the community well and allowed for carbon reporting to be verifiable and credible.

Now the NEG is introducing a focus on retailer (or “market customers” as they describe them) emission factors. Most of us, private citizens and companies alike, buy electricity through an electricity retailer and it’s these retailers, and some other large electricity users, that will carry the burden of the emissions component of the National Energy Guarantee. The government will set an emissions trajectory and there will be penalties for those retailers that don’t achieve an emissions target.

The “National Energy Guarantee – Draft Detailed Design Consultation Paper” provides some information on how these factors are to be calculated with the caveat that not all information will be made public. The paper suggests that allocation of generated energy and the allocation of associated emissions will be separated to allow independent trading of these elements. These steps could lead to a significant shake-up in the way we all account for carbon emissions.

A reference standard for carbon accounting is the “Greenhouse Gas Protocol”, which has historically relied on organisations using an emission factor relevant to the source of the electricity – source-based emission factors. Australia’s state-based emission factors were somewhat consistent with this principle as the physical flow of electrons, from the nearest source, would be associated with those emissions. The GHG Protocol was updated in January 2015 to include “market-based emission factors”, recognising that contracts could be struck between consumers and electricity retailers to buy electricity from specific generators, resulting in an agreed emissions factor. Many corporate consumers are looking at similar contracts that might include power purchase agreements (PPA) from renewable energy generators.

There are pros and cons involved in a move towards market-based emission factors.

Amongst the cons will be the disruption and confusion of companies recasting their emissions along with credible, verifiable information from electricity of their emission profile.

The pros include creating a market where consumers can specify, and contract, for a particular emission factor. It would be similar to buying a proportion of Green Power, an action that effectively sets a consumer level emission factor. Moving to market factors may also allow organisations a clearer pathway to zero emissions electricity with associated contracts with retailers in support.

It’s a good time to have this discussion so that any transition of carbon accounting can be transparent, credible and understood by the relevant stakeholders. While the Energy Security Board strives for certainty in generation and reliability markets, they also need to be sure of certainty in carbon accounting.

Bruce Precious is principal consultant at Six Capitals Consulting.

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