Roger Ballentine is president of Green Strategies.
June and July are critical months for the once-in-a-decade update to the Greenhouse Gas Protocol’s Scope 2 rules — the rules that guide voluntary corporate investment in clean energy. Since the Protocol first issued its Scope 2 Guidance in 2015, the private sector has responded resoundingly — corporate investment has since enabled the deployment of 100 GW of new renewable energy.
At a time when federal support for clean energy is receding and unprecedented increases in electricity demand are leading to new fossil generation development, ensuring the continued growth and impact of the voluntary market is a climate imperative. As the Protocol update process moves into its decision-making phase, that climate imperative would lead one to assume that the voices of those that make the decisions and approve the investments that drive the voluntary market would be front and center in the update process. That, however, is not at all clear.
Evidence that the voices of the broad buyer community are not being adequately heard is reflected in some of the current front-running proposals of the Protocol’s Technical Working Group — the body developing the new Scope 2 Guidance. Under current Scope 2 rules, companies reduce Scope 2 inventories by matching their consumption on an annual basis with clean electricity purchased within broad market boundaries. The Technical Working Group, however, is evaluating proposals to scrap the current framework and replace it with requirements for companies to match their electricity consumption with clean electricity purchases on a granular hourly basis and only with procurements made within narrow geographic boundaries (sometimes called “24/7” accounting).
Many companies, thought leaders and stakeholders (including this author) recognize that the decade-old Scope 2 guidance needs modernization. Consistent with the over-riding imperative that updates to the Scope 2 Guidance should be designed to maintain the growth of the voluntary market and increase its actual impact of reducing fossil emissions, many support, for example, better incentives for companies to invest in new clean energy projects and to choose projects located in regions with heavy fossil fuel generation.
But a requirement for hourly matching and the dramatic narrowing of the geographies in which companies can make clean energy investments, however, could stifle the voluntary market.
How do we know this? Earlier this year, Green Strategies, a boutique energy consulting firm, sent a survey to nearly 100 of the leading companies active in the voluntary market to ask how potential changes to the Scope 2 rules might impact their clean electricity procurement practices. This survey asked how those practices might change under three scenarios which align with major stakeholder-proposed revisions now under consideration: 1) smaller market boundaries; 2) smaller market boundaries and hourly-matching requirements; and 3) changes to how companies report the actual emissions impacts of their transactions. These results are described in detail in the report, How Scope 2 Revisions May Change Clean Electricity Procurement Strategies.
Scenario 1: Smaller market boundaries:
The survey pointed to potential challenges from adopting smaller market boundaries:
- Seventy percent of respondents indicate they have current procurement contracts that would no longer be eligible under stricter and smaller market boundaries, such as balancing authorities or bidding zones.
- Significant majorities of respondents operating in locations without retail choice believe procurement would become more challenging.
- In markets without retail choice and no wholesale market, 65% of respondents indicate procurement would become significantly more challenging, while an additional 9% said it would be moderately more challenging.
- In markets without retail choice but with wholesale markets, 40% of respondents said procurement would be moderately more challenging while 40% said procurement would be significantly more challenging.
Scenario 2: Smaller market boundaries and time matching:
While hourly matching could indeed increase demand for crucial firm and dispatchable clean resources capable of meeting energy needs at all times, the combination of hourly matching and narrow geographies was seen as detrimental to corporate procurement.
- Nearly 80% of respondents lack confidence that they would be able to procure time-matched clean electricity within smaller market boundaries.
- About two-thirds of respondents expressed interest in increasing procurement of clean electricity from firm and dispatchable resources, with varying levels of cost sensitivity reported.
Scenario 3: Better accounting for impact:
The actual emissions impact of clean energy transactions is not accounted for under current Scope 2 rules. The survey indicated that adding new impact disclosure options would provide companies the incentive to increase their grid decarbonization impact.
- About 60% of respondents indicate that the flexibility to procure outside of limited market boundaries would allow them to increase the carbon reduction impact of their clean electricity procurements when they otherwise could not.
- Most respondents (70%) already include either additionality requirements or preferences in their procurement strategies or would add such requirements if broad market boundaries were maintained and if displaced emissions calculations for additional procurement were recommended.
This disconnect between what the Protocol’s working group is proposing and the views of the stakeholders that make the needed investments in clean energy in the voluntary marketplace suggests that we are on the wrong track. Over the next few critical months, these voices must be heard — and heeded.
