Contributor: Companies purchasing GreenPower renewable energy certificates may not be as green as they’d like to think.
GreenPower – and by extension, the voluntary surrender of large-scale generation certificates (LGCs) – has become a popular option for Australian businesses to meet voluntary emission reduction targets.
Using GreenPower allows the buyer to claim zero emissions for each MWh of renewable energy purchased.
In other words, the buyer is obtaining a contractual claim to a zero emissions factor.
But is the buyer really getting what they are paying for?
The fundamental issue is that this contractual method does not represent any causal relationship between the reporting company and the emissions reported.
It does not reflect the emissions actually caused by the reporting company’s emissions.
However it is this physical relationship that is the basis for establishing a “true and fair” account of a company’s emissions.
For all other reporting under the GHG Protocol, a physical relationship is presumed between the company’s activities and the emissions that result from these activities.
A contractual approach in the form used by GreenPower breaks that fundamental relationship and does not represent the physical realities of how electricity and electricity distribution works.
The choice that companies make by purchasing GreenPower only relates to the purchase of a contractual zero emission factor, not to the physical delivery or generation of electricity.
There are four challenges to consider:
1. How do we balance the needs of different stakeholders to achieve the best environmental outcomes?
The relationship between GreenPower and offsets can be confusing, and actions taken by organisations to reduce their emissions may not have the expected positive impact.
In this context it is important to briefly discuss additionality, that is, the question of whether an emission reduction project would have occurred in the absence of the financial incentive provided by the sale of LGCs – a form of renewable energy currency that retailers use to buy electricity from power stations.
The regulatory additionality test applied to (voluntary) LGCs requires that the same MWh of renewable generation must not be counted toward the Government’s Renewable Energy Target (RET) compliance.
The technology test is simply that electricity is generated from an eligible renewable energy technology (for example, wind, solar or geothermal).
The initiation date test is formulated such that all generation capacity installed since the early days of the voluntary green power market is eligible.
In combination, these tests assume that all renewable energy generation capacity not counted towards the RET and built after 1996 would not have been constructed without revenue from REC (Renewable Energy Certificate) sales into the voluntary market – which is not the case. It is, therefore, inaccurate to assume that GreenPower represent additional megawatt-hours of renewable energy generation because they have a market demand effect.
Furthermore, GreenPower is taken from the surplus supply of LGCs, that is, those LGCs that are not bought for RET compliance.
There still is an oversupply of LGCs, there is no scarcity and as such GreenPower purchases do not drive investment in renewable energy generation.
GreenPower is more accurately regarded as a production subsidy for renewable electricity generation.
It is also difficult to estimate the effect renewable energy generation has on fossil fuel-based electricity delivered to the grid, as well as the effect the voluntary market has on the uptake of large-scale renewable energy generation.
There is insufficient evidence of any causal link between the vast majority of GreenPower purchases and the quantity of additional renewable energy produced.
2. How do we ensure consistent reporting?
GreenPower is considered a zero-emission source under various reporting programs. However, how it is treated varies greatly. For example:
- Under the National Greenhouse and Energy Reporting Act 2007, GreenPower does not reduce scope 2 emissions whatsoever (even though the Clean Energy Regulator allows for the voluntary reporting of LGCs purchased and surrendered).
- Under the National Carbon Offset Standard, GreenPower offsets scope 2 emissions, but not scope 3 transmission and distribution losses (which, if we recognise contractual emission factors as a legitimate means to reduce emissions, is the way to account for GreenPower).
- Under NABERS and GreenStar GreenPower offsets scope 2 and scope 3 emissions.
3. How can we recognise action and avoid double counting?
In Australia, the scope 2 emission factor for emissions associated with electricity purchases considers all (!) electricity delivered to the grid.
The legislation is very clear about the fact that GreenPower purchases and other emissions reduction programs are not used in the calculation of scope 2 emission factors.
While such purchases may impact the emissions intensity of electricity generation, GreenPower is not directly related to the calculation of scope 2 emission factors.
There also is no residual energy mix factor in Australia which would represent the emission intensity of the grid minus the GreenPower purchases.
If an organisation claims zero emissions for its electricity purchasing, other organisations may claim the same zero emissions as part of the grid average they use in estimating their scope 2 emissions.
This represents double-counting of the environmental benefit.
4. How do we make the process fair?
Should an organisation get the same zero emissions recognition for purchasing renewable energy as one installing renewables?
Installing on-site renewable energy or investing in energy efficiency are capital-intensive options; But while purchasing GreenPower may be less expensive, grid consumption by the reporting organisation may remain unchanged.
If a company purchases GreenPower for all of its consumed grid electricity it might report a scope 2 value of zero tonnes CO2e, as well as a 25 per cent reduction in its overall emissions.
An otherwise identical company may decide not to purchase contractual GreenPower but instead invest the same amount of money to implement an energy efficiency measure that reduces its electricity consumption and scope 2 emissions by 10 per cent.
Now consider that investors and consumers use the carbon footprint from both companies to inform their purchasing and investment decisions, and may prefer the first business, as it appears to demonstrate superior environmental performance even though its consumption of grid electricity is unchanged, the purchase of GreenPower has not increased the amount of renewable generation, and therefore its actions have not reduced emissions.
The other business has actually reduced its demand for grid electricity, some of which is supplied by fossil fuel power stations, and therefore has achieved an actual and credible emission reduction.
And because we need to consider double-counting, if we did apply a residual energy mix, the second company’s performance again looks worse because that factor would be higher, even though its contribution to emission reductions is real and credible.
This does not mean that there should not be any (voluntary) investment into renewable energy generation.
But carbon accounting is inherently technical.
The purchase of renewable energy should be accounted for and reported properly and in accordance with internationally recognised carbon accounting principles.
Alex Stathakis is director and founder of Conversio Pty Ltd, a Brisbane-based carbon and energy management consultancy. Previously he worked at EY’s Climate Change and Sustainability Services and he has been an analyst for Low Carbon Australia Ltd. Alex played a key role delivering the Australian Government’s National Carbon Offset Standard Carbon Neutral Program. He has guest-lectured on corporate sustainability, climate change and strategy, and published articles on carbon reporting, climate policy, and adaptation to extreme weather events and climate change. He is an approved verifier under the Airport Carbon Accreditation program in Australia.
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