Managing measures for reducing Scope 2 emissions
The UN Sustainable Development Goals (SDG) are the blueprint to achieve a better and more sustainable future for all. According to goal 7 ensuring access to affordable, reliable, sustainable and modern energy as well as mitigating climate change is necessary. Improving energy efficiency is furthermore central to reduce greenhouse gas emissions. 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. To boost sustainability, companies will need to set their energy efficiency ambitions higher, but particularly for Off-takers with global operations and facilities in multiple countries, reducing Scope 2 emissions can be challenging. In case of consuming off-site produced and grid-supplied electricity, corporates are struggling to directly link their consumption to the concrete point of generation. An Off-taker can reduce these emissions by procuring green energy through standardized green products. Now that we know that, the fundamental question is:
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.
Way 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 and are available short-term with a maximum lifetime of one year but contain some limitation in sustainability effects. There are several EAC markets like Guarantees of Origin in Europe, Renewable Energy Certificates (RECs) in USA etc. EACs can be bought seperately from physical power or concluded energy contract (so-called unbundling) and 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.
Think RE’s Knowledge Hub
offers more information about EACs.
Way 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, and an enquiry with local utilities and electricity suppliers whether they can provide green tariffs is needed. As well as green premium program the green tariffs are also a subcategory of Utility Power Purchase Agreements (Utility PPAs) which are related to the downstream part of the energetic value chain.
Learn more about this contractual instrument
Way 3: Power Purchase Agreements (PPAs)
PPAs allow an off-taker, 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, etc. 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). Thus, Power Purchase Agreements offer an opportunity for businesses to directly contribute to the development of a renewable wind or solar power plant and 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, may induce additional risks and some types may induce adverse effects on the off-taker's balance sheet.
Get familiar with the various PPA types
and how they work.
Way 4: Direct Investment
The most obvious way to prove green energy consumption is directly investing in renewable power assets and become 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, so 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.
Get more information about direct investments.
pyramid of instruments to reduce carbon emissions and their effect on sustainability
What Think RE can do for you?
To draw a conclusion there are various ways for your business to reduce 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! For your guidance Think RE supports you in choosing the right path for your corporate‘s sustainability strategy with two innovative free tools:
It gives you a rough guidance of potential economic savings while entering PPAs for more than 25 countries.
2. PPA Impact Analysis
If you would like to know in which core markets PPAs are available, please use our free Impact Analysis to calculate the PPA effect for your individual consumption profile: