Climate Now

Updates to the GHG protocol: Scope 1, 2, 3 and more?

February 20, 2023 James Lawler Season 1 Episode 87
Climate Now
Updates to the GHG protocol: Scope 1, 2, 3 and more?
Show Notes Transcript

More than one third of the world’s 2,000 largest publicly traded companies have made some kind of net-zero commitment, and the list is growing quickly. A critical part of those corporate plans will be securing cleanly sourced electricity for their energy needs, but that requires that there is enough fossil-free electricity available on the grid for every company that prefers to use it. In 2021, renewable energy and nuclear power, combined, accounted for only about 37% of global electricity production. How can a company ensure that their electricity comes from among those fossil-free sources? And how can companies encourage the growth of clean electrical capacity, so that it will meet the growing demand of consumers?

These kinds of questions are exactly what Doug Miller, Deputy Director of Market & Policy Innovation at the Clean Energy Buyers Institute (CEBI), aims to answer. CEBI is a non-profit organization that collaborates with policy makers, leading philanthropies, and energy market stakeholders to identify and expedite the implementation of clean energy market solutions. They have also worked closely with the World Resources Institute (WRI), who designed the Greenhouse Gas Protocol, the most commonly used standards for companies to assess their carbon emissions impact. Doug joined Climate Now to explain what those standards are, why they are evolving, and some of the innovative tools that CEBI has identified that could be incorporated into the GHG Protocol to help both national electricity grids and the companies that use them achieve their decarbonization goals faster.

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James Lawler: Welcome to Climate Now, a podcast that explores and explains the ideas, technologies, and the practical on the ground solutions that we’ll need to address the climate crisis and achieve a Net-Zero future. I’m James Lawler, and if you like this episode, leave us a review wherever you get your podcasts, share the episode with your friends or tell us what you think at contactclimatenow.com. We’d love to hear from our listeners. So for today’s interview segment, we’ll be joined by Doug Miller of Clean Energy Buyers Institute to discuss how energy attribute certificates encourage more renewable energy growth and how the upcoming update of the World Resources Institute’s Greenhouse Gas protocol could help catalyze additional investment into clean energy technology.

But first, let’s dive into our segment This Week in Climate News.

This week I’m joined by our co-hosts, Dina Capiello from RMI, Monica Varman from G2 Venture Partners and Julio Friedmann from Carbon Direct. Monica, do you wanna kick it off? 

Monica Varman: Sure, sure. A great piece of news this week was Nextracker’s IPO, their solar tracker provider and software provider that spun out of Flex with help from TPG Rise, the climate investing arm of TPG, a very large private equity firm.

Nextracker priced at the high end of its IPO, raising 628 million on February 8th, and largely the story with Nextracker, you know, especially given it’s a known entity and um, unknown technology for some time, the story is around the massive rise in deployment of solar assets.

Basically, the deployment of solar assets is set to six to seven X over the next decade with the IRE and of course, the market fundamentals behind the cost of solar and the rise of electrification. So, the Nextracker IPO is really a bright spot for all of climate tech and for investors looking for more public equity exposure in climate.

On the other hand, LanzaTech SPAC this week, um, the SPAC was not quite as strong as, as Nextracker’s IPO which could reflect quite frankly, the cooling SPAC market. Since the rise of SPACs and the popularity of SPACs two years ago, there have been quite a few changes in the rules behind SPACs.

And so what was particularly attractive two years ago is that companies had safe harbor. So basically, we’re not how liable to, disclosures around future revenues, and in some ways, this helped a lot of really growth stage, more risky companies go to public markets and, and get public market investors as part of their cap table.

But on the other hand, it also did lead to some bad actors, basically giving misleading projections. And so the SEC cracked down on that, that led to a drying up of the SPAC market, of course, with the backdrop of the general downturn in public equities. And so, by the time LanzaTech has SPAC with this past week, there was much less investor appetite for SPACs.

And so the company’s now trading at half the, the price it went public at and, while it went public with a 2 billion valuation, the market cap right now was closer to one. 

James Lawler: What is LanzaTech? 

Julio Friedmann: LanzaTech turns carbon dioxide and wastes gases from steel mills into fuels and chemical. 

James Lawler: Oh. 

Julio Friedmann: And it’s a 17 year old company and they have done an enormous amount of stuff.

Among other things, they have deals with like Lululemon to make yoga pants out of waste gases from the steel mills. They spun off a company, LanzaJet ,that makes jet fuel. Um, it is a reflection of tough tech. Tough tech takes time and money, and that is very difficult in a lot of markets. But the fact that this technology has gone public, I think is noteworthy even.

Even though the challenges with SPACs that Monica mentioned are real, even though they lost some valuation in the first week, I’m still delighted to see them go public. I think that’s a maturation of the market as a whole. 

James Lawler: Interesting. Who wants to jump in next?

Dina Capiello: Sure. There was three, a trio of stories that all can be characterized around electric vehicles and automobiles in general. So, there was, and they kind of hit three different areas. One was obviously the consumer angle and the fact that consumers are buying more electric cars than ever. Sales topped 1 trillion in 2022. We also had news out this week that the EU has formally banned the sale of gas and diesel cars from 2035 on.

And the last one was Wales halting road building because of climate change. And what I think is so interesting about these is like connecting the dots, right? So, consumer demand for these cars being up, obviously policy as the lever in terms of sale of cars in the European Union and then the third, which I think is kind of the one that’s least talked about but is really important is roads.

Even here in the US when we have construction projects to expand highways or build additional road capacity, greenhouse gases and climate pollution aren’t considered by many states. This is actually something that we’re working on at RMI and we have developed a calculator called the Shift Calculator that enables states to actually look at the greenhouse gas footprint.

And our experts who are much smarter than me would tell you that if we went all electric today and still didn’t reduce vehicle miles traveled, we still wouldn’t meet our climate targets. So, this look at infrastructure through the climate lens is absolutely critical.

James Lawler: Those are great. Thanks, Dina. Nikki Haley?

Dina Capiello: Julio, do you want to do the honors here, my friend? 

Julio Friedmann: Sure. It’ll come as no surprise to those who have followed me that I am an enthusiast of carbon capture technology. I think it plays a very important role in the energy transition, particularly for things like heavy industry and the hard to abate sectors.

That said, Nikki Haley’s presidential announcement focused a lot on carbon capture, as a business, as usual strategy as opposed to a component of the energy transition strategy. I don’t think that was a great look. And her reluctance to admit that there will be de fossilization as well as decarbonization, I think was disingenuous.

James Lawler: It also kind of does a disservice to carbon capture if you put it out there as something that allows you to continue business as usual, burning fossil fuels, which it cannot be, then it just becomes more of a target, right? 

Julio Friedmann: You know, there are some good things that you get with carbon capture, like reduced pollution loads.

That is not what Nikki Haley was talking about. She was, and unfortunately it forges a political axis. It starts to become Republicans like carbon capture and nuclear, and Democrats like solar and wind. And the fact is that the energy transition needs all these things. Painting a partisan access around this becomes counterproductive.

Dina Capiello: This is kind of like the cake, have your cake and eat it too strategy, right? Which is to say that we can continue going on and not change our habits, right? And all will be fine, and we’ll just capture it. It’s not there yet. And, although even RMI, we look at carbon capture and sequestration as, you know, an insurance policy, we recognize that we need, you know, rapid decarbonization as well on the positive side. If there’s a silver lining here it is having a person that is a Republican, even on the edge, talk about climate change and recognize that carbon pollution is the main culprit in that. 

Julio Friedmann: Thinking about the energy transition, there’s two mental frameworks people use.

One of them is the big switch where everything looks exactly the same, it’s just cleaner. The other is radical change in which there are some sets of things that you don’t do anymore. And experts go back and forth about how much of one versus the other. You should imagine ultimately, that shouldn’t be a partisan issue.

That should be a practical issue. What does it cost? What are the markets? What’s the infrastructure? This sort of stuff. In that exact context, Pakistan reminded us this week that not everybody cares about climate the same way. And a point of fact, they made an announcement saying that they were going to stop building natural gas plants and instead build only coal plants.

And they have a long set of coal plants that they have announced construction. And they are in fact responding to the price shocks with natural gas. They are responding to price shocks in renewables and the cost of capital in a place like Pakistan that makes it hard to get the buying and building done. 

And as a consequence, they said, we have a bunch of coal, we’re gonna use it for domestic energy supply. We’re gonna have energy access and bring people out of poverty, and we’re gonna do it by building coal. Now someday, that may be something where we do carbon capture in the future, but that volume of plants could very well undermine a lot of the good news we’ve been talking about this week.

But the last part of this story goes back to the idea of investors. The people who invested in coal companies made out like bandits this year. Some of them had 300% growth on their returns. If people keep getting those kinds of returns investing in coal, it’ll just be that much harder to make the energy transition stick.

James Lawler: And now for our interview segment. I’m joined this week by Doug Miller, who is Deputy Director of Market and Policy Innovation at the Clean Energy Buyers Institute or CEBI. CEBI is a research-based nonprofit working to solve market and policy barriers to a carbon-free energy system. Over the course of our conversation, we’ll discuss some of the basics of energy attribute certificates or EACs and how they can be used to help decarbonize the electricity grid.

Then we’ll dive into the World Resources Institute, WRI’s Greenhouse Gas Protocol. That is, why it’s an important tool and how it could be improved. The GHG protocol, as you may know, is the first stop for many companies in their assessments of their carbon emissions. The protocol’s Corporate Accounting and Reporting Standard was first published in 2004.

The Scope 3 Corporate Value Chain Standard was established in 2011 and Scope 2 Guidance was published in 2015, but a lot has changed since then. So WRI is currently accepting comments for its next update to the Greenhouse Gas Protocol Corporate standards and guidance until March 14th. So, this conversation is timely.

All right, Doug. Welcome to Climate Now, it’s great to have you on the podcast. 

Doug Miller: Thanks for having me. 

James Lawler: So maybe before we dive into some of our questions, I’m wondering if, you could give us a bit of the lay of the land when it comes to the obstacles that stand in the way of clean energy for every company.

It seems as though a lot of companies want clean electrons, but the challenge comes with actually sort of hooking up clean energy projects to the grid and making those electrons available for consumption. 

Doug Miller: Absolutely. There are companies around the world who are setting ambitious clean energy goals, and then they navigate the set of options, which varies from country to country to work toward achieving those goals.

And so, the point here is that it all begins with the goal setting process. And so, there are, there are a bunch of initiatives out there that inform and empower companies and other energy customers to set clean energy procurement goals, and then from there they have to look at different options. Whether it’s in the US and then within the US to Europe, to markets in Asia, Latin America, et cetera. 

Once you’ve reached the point of, of wanting to move forward with procuring carbon-free electricity, what an energy customer does is essentially they procure the green electrons in the grid. And so, the way that these markets work is around the world as we add more wind, solar, geothermal, hydro, et cetera, carbon-free electric resources to the grid, essentially there’s this whole tagging and trading system where every month, the carbon-free megawatt hours that become available, that were generated that month, companies can then procure those green megawatt hours that are on the grid, and by nature they’re carbon free and apply that to their actual energy consumption so that over the course of a year, they can say that yes, we can’t control which electrons are coming to our offices, our buildings, and other facilities. But we can claim that we bought the carbon-free megawatt hours that are on the grid to make a claim about being a 100% achieving a 100% carbon-free electric goal. 

James Lawler: How does that record keeping happen and how does the actual sort of claiming process work?

Doug Miller: So essentially the way the system works is that from country to country, and the US is the exception, maybe no surprise, but typically every country has one tracking system. They’re called an energy attribute certificate registry or issuing body. And so, the way the whole system works is someone who owns or operates a carbon free electric facility, they register their project.

Just like when you register for a passport, let’s say. That’s step one. And then once you’re in the system, once per month the electric grid operator or another trusted data source in that particular country, or in the US’ case, a particular part of the US, they issue a certain number of energy attribute certificates, which comes under a couple of different names across the globe. Where the number of certificates you get in your account if you’re a solar producer, wind producer, what have you, it’s every month you get the same number of certificates as has been determined the number of megawatt hours you generated and added to the grid. 

And then the idea is that this is what folks in the industry call an ex-post fact-based instrument. It’s not a modeled feature, it’s not a something that needs to be measured and verified later on, it has been measured and verified.

And so, you’re buying an existing carbon-free electric megawatt hour. 

James Lawler: Retroactively.

Doug Miller: Retroactively. 

James Lawler: So if I’m an electricity producer, say with a utility scale solar farm, would I be essentially double selling my electrons because I’m getting paid by the grid for the electricity along with selling my energy attribute certificates?

Doug Miller: So what you’re selling is different than what you’re selling the grid operator or utility. So essentially the role of these market instruments, the EAC, is that they provide additional revenue for electric project generator or developers. And so, the electricity sale is the bulk of the revenue that just like their competitors and the, you know, say the natural gas or coal side, the electricity sale is the bulk of their revenue.

The EAC sale, the energy attribute certificate sale is on top of that. So you can almost look at it as icing on the cake. But what it does is it helps make carbon-free electric resources just that much more profitable than they otherwise would be, providing that extra income and also helping projects get better financing terms than they otherwise would get because it’s a new revenue source. 

James Lawler: Makes sense. So WRI, World Resource Institute, is taking suggestions on updating something called the Greenhouse Gas Protocol, which you are, you are planning to submit comments to by, I think the deadline is now March 14th. I wonder if you could tell us what the Greenhouse Gas Protocol is, what’s in it, and why is it being updated?

Doug Miller: Sure. So the Greenhouse Gas Protocol has been around for roughly a decade, and essentially, it’s a, it provides a framework for, for any given organization to, to get a better idea of what are my greenhouse gas emissions. So it provides guidance on how should you think about what are segmented as three different scopes of emissions.

Scope 1 being what are you emitting directly from your site? Do you have a smokestack that’s spewing pollution into the air? Scope 2 is what, what are the emissions associated with your electricity use? Scope 3 is everything else where that could be anything from your company travel, employee commuting, where you get your supplies from, how customers are using your products, et cetera.

And so, there were a couple of different standards that the Greenhouse Gas Protocol developed, starting in the early 2010s, up until about 2015. And so, what’s happening now is a process to say, hey it’s been a little while since we launched this, these different standards. Should we take a look at different ways that we could update the protocol to make it more effective and meet today’s needs?

And so, what’s at play right now in this particular process is updates to scope 2 and scope 3. There was a process involving scope 1 last year, but this particular process is scope 2 and 3. It’s probably going to be a multi-year process. The first phase that ends next month is an invitation for people to submit responses to a survey or open-ended responses. After the protocol goes through those comments, there will be a stakeholder engagement process that very likely will last a year or two. 

James Lawler: Mm-hmm. And so why does the greenhouse gas protocol need updating? Like what, when you say it has to be brought up to date with today’s needs, how are today’s needs any different from yesterday’s needs when it comes to reducing greenhouse gas emissions?

Doug Miller: Sure. There are a couple of dimensions to this question, but I’ll start with where we think the conversation should go at CEBI. What we’ve done over the past 16 months because we knew this, this updates process was well known in advance that it was coming, we started engaging a stakeholder group of over a hundred organizations and over the past year had about a dozen workshops and various stakeholder meetings where we essentially went into what has to change, how can we drive more impact with procurement. 

And in the background of this is that we know just big picture, we have to move faster, bolder, with driving grid decarbonization on top of all the other areas of emissions outside of the electricity sector. And so, in terms of how we approached this particular issue, we started by developing principles before we developed our recommendations.

And so, we developed several principles and they all, at the end of the day focused on, we know that this market has been tremendously impactful in getting more investment in grid decarbonization. And so, one of our principles is about we need to maintain but accelerate this momentum.

Any changes to the protocol secondly, should essentially, promote greater, as the maximum amount of ambition as possible for a given organization while recognizing that every organization has different skillsets, resources, geographic dispersal. There are very real constraints on organizations to engage in these markets on a voluntary basis.

And then lastly, the main point in terms of the principles we have, and I’ll explain what this means is we think that any updates to the protocol should help expand the available set of options available to companies. And the reason for that is we need to include some of the easier to navigate options to try to get more organizations in these markets while introducing new options that don’t yet readily exist, where essentially energy customers can send even more precise or targeted market signals with what they’re buying.

In other words, our goal is to make sure we’re deploying carbon free electric resources in those places and times that aren’t yet carbon free. The way I think about is almost if you know those maps of the world where you can sketch out places you’ve been.

James Lawler: Mm-hmm.

Doug Miller: If you think of a given country and the hours of the day across a year, which are not yet carbon free, how do we make sure, how do we as best as we can enable-

James Lawler: So like nighttime and winter? 

Doug Miller: Nighttime and winter versus daytime and summer. 

James Lawler: Mm-hmm. 

Doug Miller: How do we develop better tools so that customers can deploy more investments in those places that aren’t yet powered with carbon free electricity? 

James Lawler: In the world of renewable energy, not all carbon-free electricity or CFE is equally valuable. Because wind and solar are intermittent resources, it’s important to develop other clean energy technologies that can be dispatched during periods of high stress on the grid. Or that can support the grid when wind and solar are not producing energy. As we discussed in our episode last year with Stanford researcher, EJ Baike, developing dispatchable resources like geothermal energy, nuclear, and bioenergy in conjunction with battery storage and increased transmission will likely be key aspects to filling the gaps left by wind and solar and rapidly decarbonizing the grid.

So, Doug, can you describe some ways that organizations buying clean energy would ideally be able to send more specific signals about how they’re impacting the grid, but maybe can’t or don’t under the current greenhouse gas protocol guidelines?

Doug Miller: Absolutely. So I’ll go into a couple of the recommendations, but not all of them, just to answer this question.

So one recommendation we have is that we think the protocol should explore the pros and cons of a new third number and where this third number should live. And what I mean by that is a number that reflects the avoided emissions-based impact of procurement. 

James Lawler: The avoided emissions-based impact of procurement. Okay. I think you’re gonna have to explain what that means to me. 

Doug Miller: I will definitely do that. 

James Lawler: Thank you. 

Doug Miller: It is a complicated thing and lots of people use the term avoided emissions to mean different things. Essentially what this is about is we think we need to add information, a new data field or two to the EAC that captures how carbon intensive is the grid right now based on the grid mix. And looking, for example, at the marginal emissions factor, if you get renewables here, does that mean a gas plant doesn’t get built? We need some way to show that if you’re buying a megawatt hour of CFE here or there, there might be a difference in terms of what market signal it’s sending.

So the idea for those third numbers is to find some way to encapsulate that different dimension to a procurement decision. 

James Lawler: Now, why would that do that? Why would, why would buying a CFE in one place send a different signal than in another place?

Doug Miller: So here, we’ll go to an example. So let’s, it’s not gonna be, not no examples perfect, but let’s imagine we have company A, company B.

They both have two offices. One in New York, one in South Paulo, Brazil, let’s just say. They both are consuming the same amount of electricity every year. They both have 100% electric, um, CFE goal. So it essentially, at the beginning of this process. They’re all the, they’re the same. They have the same ambition, same locations. 

Company A follows the more typical approach where they would buy, and let’s say it’s 50-50 split between New York and South Paulo, they would buy 50% of their carbon free electricity in from New York State, let’s say, or the surrounding region. They would buy 50% Brazilian international renewable energy certificates, I-RECs, and in that case, their market-based accounting would go to zero because they’ve matched one for one, the, the consumption with their procurement.

Company B, on the other hand, same split, 50-50 between the two places. It might be that they purchase all of their CFE from say, PJM territory or in the United States or MISO, the Midwestern territory of the United States because those two grids are more carbon intensive than New York City or Brazil. 

Brazil being very hydro heavy and New York having a lot of hydro as well. Again, it all goes back to goal setting. What’s the impact you want to have if a company wants to send the most targeted market signal for getting CFE resources on the grid in the places that are most carbon intensive. The Company B would be sending a different market signal than company A.

James Lawler: And maybe making more of a difference, and that’s better. 

Doug Miller: Maybe. Maybe. 

James Lawler: Yeah. 

Doug Miller: But then the perspective of CEBI is that both are great. Both are voluntary actions, and it might be that one maps better to one company’s strategy or another.

We don’t think we should change the bread and butter of these markets to facilitate some of these edge cases. At least things that are edge cases right now. But we also want to potentially empower and incentivize customers to make decisions that reflect scenarios more like company B. 

James Lawler: Now, what are some of the other updates that are important to, to make to the protocol? I know that clean hydrogen, I guess, was absent and why might it be important that we account for and get data on other clean technology activities as well? 

Doug Miller: So clean hydrogen falls within a different recommendation that we’re making. So we have another recommendation that includes several parts.

Where the crux of it is we think we should maintain market-based accounting. It should remain allowable, but there are ways to improve it and the, the clean hydrogen point falls within that. So one, we think there’s, we can improve market-based accounting by clarifying where more granular data and more granular certificates exist. You probably have heard about notions of hourly purchasing. 

James Lawler: For some context, hourly purchasing refers to clean energy purchased to align with the hourly consumption of a business or organization, usually from the same region as where the electricity is sourced. This can help groups better align their clean energy credits with the actual carbon footprint of their energy consumption.

Doug Miller: We don’t think that hourly purchasing should be required, but we think it should become an option for those whose strategy requires it. And so, we think the protocol has a role to clarify, where does that, where does granular data and granular certificates sit within the emission factor hierarchy using the vernacular of the protocol?

Two, we think we need greater clarity around all carbon-free electric resources, not just renewable, not just generation. 

James Lawler: What would be some one or two examples of such things? 

Doug Miller: For example, that would mean that you, in one of these EAC registry systems, if somebody registered a nuclear resource or registered a big hydro resource or registered a co-located battery storage with some other CFE resource that if there’s a customer who wants that product, they can count it for their market-based accounting because it is a carbon-free resource.

And then regarding clean hydrogen, we see a need for greater clarity around complimentary technologies and storage technologies, like clean hydrogen. As we see it, first we need an EAC for clean hydrogen. So a way to capture that a given kilogram of hydrogen was generated by electrolysis, powered by carbon-free electricity.

So that’s outside the protocol. But then once these products become available in the market, we think the protocol needs to clarify that if you buy a kilogram of hydrogen, that’s linked to a carbon-free, electric resource and you have that EAC for the audit trail that you should be able to apply that zero emission factor from the hydrogen in your annual greenhouse gas inventory if you have that, you know, all these things in your books.

James Lawler: Interesting. So why is all of this so important? You know, what role do you see like the greenhouse gas protocol playing in the years to come? 

Doug Miller: Well, it’s become clear the past few months in particular that these conversations are critically important in that on one end, the greenhouse gas protocols become the de facto standard. It’s the tool or the framework that most organizations use to document what their greenhouse gas inventories are. 

James Lawler: Mm-hmm

Doug Miller: It’s also being written into final or proposed regulation. For example, we’ll see what actually happens with the final rule, but the US Security and Exchange Commission, the SEC, about a year ago issued a rule on disclosing your carbon emissions as a publicly listed company.

It’s essentially said whatever the greenhouse gas protocol says, that’s how you should do your carbon accounting. And there are similar regulations, say in the UK and elsewhere that have included similar wording and so on one end, purely as an accounting tool it’s the most commonly used tool. And so, any organization that actually is looking at its greenhouse gas inventory, this is the standard that they’re using, and so any changes to it will impact all of these organizations.

The other which is, would not be a stated objective of the greenhouse gas protocol is that the way the accounting rules are written, shape the incentives and potentially the strategies of organizations with their, with their goals. As I mentioned earlier, the ability to say that a purchase of a carbon-free megawatt hour can be applied to your scope 2 emissions to reduce your scope 2 emissions. That’s an accounting rule. But that on its own has been fundamentally critical to getting as many organizations as we have today engaging in these markets. 

James Lawler: That was Doug Miller of the Clean Energy Buyers Institute or CEBI, on how we can increase the decarbonization impact of clean energy purchasing. For anyone interested in learning more about updates to the Greenhouse Gas Protocol or submitting your own feedback on the impending revision process, go to GHGprotocol.org.

That’s it for this episode of Climate Now. If you liked it, leave us a review, share it on your social networks, share it with your friends. To get in touch with us, email us @contactclimatenow.com or tweet us @weareclimatenow. We hope you’ll join us for our next conversation. Climate Now is made possible in part by our science partners, like the Livermore Lab Foundation.

The Livermore Lab Foundation supports climate research and carbon cleanup initiatives at the Lawrence Livermore National Lab, which is a Department of Energy applied science and research facility. More information on the foundation’s climate work can be found @livermorelabfoundation.org.