As Cadmus has written previously, when companies, cities, and other organizations in the United States and Europe quantify their Scope 2 greenhouse gas (GHG) emissions from purchased electricity, they must report two inventory values: location-based and market-based. While gathering data for your organization’s location-based inventory is a relatively straightforward process, calculating—and getting credit for—market-based emissions can be a more complex process.
A location-based inventory uses average regional or national emissions factors, such as EPA’s eGrid, to estimate emissions. As average emissions factors change slowly and are out of most entities’ control, the only sure way for an organization to reduce location-based emissions is to reduce its overall electricity usage through energy efficiency and conservation.
On the other hand, a market-based inventory takes an organization’s energy procurement practices into account, reflecting the choices made about the source of electricity the organization consumes. Most organizations purchase power from their electric utility, unaware that they may have other options, such as purchasing or generating renewable energy or procuring energy from an independent electricity supplier.
For all organizations in the United States, market-based emissions should be calculated using an emissions factor specific to the organization’s electric utility or electricity supplier. At this time, few utilities publish emissions factors developed using the rigorous methods required by the World Resources Institute’s market-based Scope 2 accounting methodology. Customers can contact their electric utility to see if they calculate and publish an emissions factor. As more and more customers request utility-specific emissions factors it is likely that these supplier-specific emissions factors will become more readily available.
Pick Your Reduction Options
Once an organization has quantified market-based emissions, it then has numerous options to reduce emissions by procuring or producing clean or green energy. Depending on the organization’s location, green electricity products may be available from the electric utility or a third-party electricity supplier. Organizations may also choose to install renewable energy generation onsite or purchase renewable energy from an onsite or offsite generator through a power purchase agreement. Finally, an organization may procure Renewable Energy Credits (RECs), separate from their electricity. RECs are tradable instruments that represent the environmental attributes of 1 MWh of renewable energy.
There are pros and cons to each of these options that an organization must take into account. The two options also have different cost structures and benefit streams. Cadmus recommends that each organization begin by tracking its electricity usage and spending. These data can highlight the benefits of different procurement choices and opportunities to save energy. Once tracking is underway, the organization can develop electricity procurement priorities, which requires balancing electricity needs with price stability, cost, GHG emissions, and broader environmental impacts. The organization can then tailor its electricity procurement, and associated market-based emissions, to achieve these priorities.
No matter which method an organization uses to reduce market-based emissions, the Scope 2 guidance has rigorous requirements that an organization must meet in order to take credit for using renewable energy in its market-based inventory. For example, even though an organization generates solar power from a facility owned by the organization, it may not be able to count that electricity as carbon free depending on the structure of the agreements that govern how electricity from the solar panels is credited by the utility and who maintains ownership of any RECs produced by the solar panels.
Cadmus’ experts have experience assisting companies with the full life-cycle of energy tracking and procurement, as well as navigating the requirements of the market-based guidance to ensure that your organization meets its electricity and GHG goals at the lowest possible cost.