The Greenhouse Gas Protocol (GHG Protocol), a global standard-setter on carbon emissions accounting, is set to revise its rules on how entities report their Scope 1, 2, and 3 emissions. The proposed changes have sparked a debate on the effectiveness of environmental certificates and market-based accounting in emissions reporting. In this blog post, we will provide an overview of the proposed revisions and their potential impact on the voluntary carbon market and green technologies.
Scope 1, 2, and 3 emissions
The GHG Protocol's proposed changes include tightening market-based accounting rules, particularly the use of renewable energy certificates (RECs), and introducing an additionality requirement for market-based Scope 2 emissions. Almost all companies and organisations reporting emissions use the GHG Protocol's guidance, creating a growing market for environmental certificates used by businesses to boost their green credentials.
Scope 1 emissions include emissions sources directly under the control of an entity, while Scope 2 covers indirect emissions from bought power or energy. Scope 3 involves other value chain emissions.
The proposed revisions may affect the use of RECs for Scope 1 and Scope 3 emissions, as critics have questioned their additionality—i.e. the extent to which buying a certificate results in creating new renewables that would not otherwise exist.
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Market-based accounting and renewable energy certificates
Market-based accounting is a system that allows entities to meet emissions targets through contractual agreements or by buying environmental certificates. This system enables the use of RECs in Scope 2 reporting, as well as other certificates such as hydrogen, sustainable aviation fuel, green steel, and renewable natural gas. However, there’s a debate on the additionality of these certificates, with some suggesting the GHG Protocol should tighten its rules on their use in emissions reporting.
A professor of carbon accounting suggests that there will be some form of additionality requirement for market-based Scope 2, which will reduce demand for non-additional RECs and increase interest in RECs with additionality and power purchase agreements. The professor further suggests excluding market-based accounting from greenhouse gas inventories and having separate reporting of the changes due to company actions, including emissions reductions of buying RECs if and when RECs do reduce emissions.
Response from the industry
Certificates organisations have fought back against the push not to include RECs and other certificates in reporting carbon reductions, stating that tighter rules will restrict support for green technologies. The RECS Energy Certificates Association argues that renewable energy markets based on Energy Attribute Certificates (EACs) clearly support additionality, help to accelerate the energy transition, and cut emissions by displacing fossil fuels. They also suggest that every purchase of renewable energy attributes provides additionality.
There is also a strong objection to the proposed changes to the rules on biomethane certificates. Over 50 companies, including Shell and TotalEnergies, have signed a joint letter of objection, stating that the changes will undermine the emerging market for biomethane certificates. These certificates fund new anaerobic digestion infrastructure capable of tracking biomethane through a gas grid. Their letter also said that, with effective eligibility criteria, certificates could fund the production of additional green gas, breaking the sector's current reliance on government support and driving biogas growth to its full potential.
Impact on the voluntary carbon market
The current emissions reporting standards are separate from guidance on the voluntary carbon market (VCM). However, the GHG Protocol still considers carbon offsets or carbon credits as one example of a market-based instrument. The organisation seeks suggestions from survey respondents if carbon offsets should apply in calculating Scope 3 emissions.
Industry experts say that if the market-based method extends to cover Scope 3 emissions, or if the guidance on reporting those emissions changes, the VCM would also be affected. Currently, the VCM is undergoing a significant transition focusing on integrity and quality initiatives. Alongside standardisation, transparency in carbon credit transactions is also crucial. The proposed revisions to the GHG Protocol's rules can promote integrity and transparency in carbon credit transactions.
To respond to the integrity concerns, the Integrity Council for the Voluntary Carbon Market (VCMI) will introduce high-integrity carbon credit labels in the third quarter of 2023. In addition, it will publish its final Core Carbon Principles (CCPs) next month to make the VCM more transparent, liquid, and high-integrity. Meanwhile, the VCMI is drafting a consultation to bring integrity to corporate claims involving carbon credits.
Conclusion
The proposed revisions to the GHG Protocol's rules on reporting emissions scopes and market-based accounting have sparked a debate on the effectiveness of environmental certificates and their additionality. The revisions may affect the VCM and green technologies, prompting objections and suggestions from the industry. However, the proposed revisions can also promote integrity and transparency in carbon credit transactions, which is crucial in promoting the credibility of green initiatives.
