Available instruments to reduce scope 2 emissions
What ways and standardized instruments are available to reduce Scope 2 emissions? Markets differ as to what contractual instruments are commonly available or used by companies to purchase energy or claim specific attributes about it. These instruments can be divided into energy attribute certificates (EACs), green tariffs, power purchase agreements (PPAs) or even direct investments in renewable energy assets.
The Greenhouse Gas Protocol differentiates between three scopes of emissions which affect the global footprint of a corporate or a public institution. Between scope 1 emissions which are directly caused by the own business activities and these of scope 3, caused by stakeholders within a corporates value chain (e.g. suppliers), scope 2 emissions represent one of the largest sources of GHG emissions globally: almost all businesses generate these indirect emissions due to the consumption of electricity. Find a more detailed explanation of scope 1, 2 and 3 emissions in this article.
1. Energy Attribute Certificates (EACs)
EACs are a category of contractual instruments that represents certain information (or attributes) about the energy generated, but does not represent the energy itself. These certificates for neutralising scope 2 emissions follow a lifecycle. They are available short-term with a maximum lifetime of one year, but contain some limitation in sustainability effects.
There are several EAC markets like the Guarantees of Origin in Europe, and the Renewable Energy Certificates (RECs) in USA. EACs can be bought seperately from physical power or concluded energy contract (so-called unbundling). They can furthermore be traded on those secondary markets but not across different EAC schemes. In the end that means EACs could be bought from a wind farm or solar plant as an additive to the physical supply contract of your utility.
Our Knowledge Hub offers more information about EACs in this article.
2. Green tariffs
In contrast to most EACs, green tariffs are a bundled product and typically long-term agreements between a utility or energy trader and institutional electricity consumers. They commonly include both, the delivery of a certificate and the underlying physical electricity, e.g. you get 100% electricity with certificates from various renewable sources like hydropower from Norway.
Green tariffs often depend on renewables or other low-carbon energy sources but are not available for all domestic markets yet. An enquiry with local utilities and electricity suppliers whether they can provide green tariffs is needed. The green tariffs are a subcategory of Merchant Power Purchase Agreements (Merchant PPAs). These are related to the downstream part of the energetic value chain.
Our Knowledge Hub offers more information about green tariffs and merchant PPAs in this article.
3. Power Purchase Agreements (PPAs)
PPAs allow a renewable energy buyer, typically industrial or commercial entities, to close a long-term contract with a specific owner of a renewable energy asset. The agreement itself specifies the commercial terms, including delivery, price, payment, and more. PPAs provide payment certainty concerning the revenue flows of the renewable energy asset, which is often a significant barrier in developing a project. Buyers benefit from fixed electricity rates (e.g. strike price), direct access to local or remote projects, and the renewable energy attribute certificates (EACs).
Power Purchase Agreements offer an opportunity for businesses to directly contribute to the development of a renewable wind or solar power plant. These businesses are then getting 100% green electricity as well as the corresponding Energy Attribute Certificates. The electricity can be delivered virtually (Virtual PPA) or physically (Physical PPA). These contracts can be a robust option for corporates to fulfill their climate targets with high investment volumes. However, they are more complex to structure, are not available in every energy market and may induce additional risks. Some types may also induce adverse effects on the energy buyer's balance sheet.
Our Knowledge Hub offers more information about various PPA types in this article.
4. Direct Investment
The most obvious way to prove green energy consumption is directly investing in renewable power assets and becoming a majority or minority shareholder. In this context, the renewable energy project can be located on the corporate site and directly linked to the production facility or office building as well as offsite. That way, the corporate becomes the renewable energy supplier cooperating with a balancing responsible party to physically off take the produced amount at the grid connection point. However, these direct investments induce high capital expenditures and may impact major accounting KPIs such as e.g. equity ratio and leverage.
Our Knowledge Hub offers more information about various PPA types in this article.
Conclusion
What can we at Think RE do for you? To draw a conclusion there are various ways for your business to reduce its carbon footprint and every renewable project needs to be evaluated case by case. There is no standard solution but a variety of instruments to offset scope 2 emissions! We support you in choosing the right path for your corporate‘s sustainability strategy with multiple tools on our renewable energy platform RE Wave.
