Taking action: Input needed on proposed GHG Protocol Scope 2 Revisions

During this busy fall event season, 3Degrees has been in conversation with corporate buyers across the globe. We heard one clear message: there is much uncertainty and concern around the Greenhouse Gas Protocol’s proposed scope 2 revisions. Recently, the GHG Protocol launched public consultations on its draft scope 2 and electricity sector consequential accounting proposals, and requested responses via a structured survey by December 19th. 

Now is the time for companies to weigh in – in fact, we’d say it is essential to provide the GHG Protocol team with input and feedback so they can properly assess the benefits, challenges, and practicality of the proposed changes. Though the input survey is lengthy, companies do not need to respond comprehensively – focusing on your key priorities or concerns is an excellent approach.

Below are some of 3Degrees’ most pressing thoughts regarding the proposed changes, along with pointers to the survey questions that address these topics.

3Degrees’ Core Principles in considering revisions to scope 2 accounting

In September, 3Degrees published an open letter raising several key points of concern regarding proposed revisions to the scope 2 standard. We received many meaningful points of feedback from clients and other stakeholders, which factored into our current viewpoints. In addition, we respect the GHG Protocol’s own principles of carbon accounting – relevance, completeness, consistency, transparency, and accuracy. With these as inputs, the following principles underlie 3Degrees’ thinking and priorities on scope 2 accounting.

• Climate progress requires all hands on deck. Electricity use is pervasive, and its contribution to climate change is indisputable. Fortunately, we have numerous tools to reduce these impacts, and if we give companies the right tools at the right time, we create an unstoppable force of business-savvy climate actors.

  We cannot afford to disenfranchise or dissuade companies from acting on climate change by insisting on highly burdensome administrative work or by limiting the action toolkit. Instead, we need to provide numerous tools that companies of all sizes can access with economics that make sense for their businesses, and we need an accounting system that dependably represents companies’ climate impacts and relevant mitigations.

• Credibility is essential.  A disclosure infrastructure only serves us to the extent it establishes and retains credibility with stakeholders. Today, GHG Protocol-compliant market-based inventories can sometimes lead to climate benefit claims that are technically correct but socially questionable across a range of stakeholder groups. This creates a credibility gap that must be resolved, and we applaud the GHG Protocol’s recognition of this need in constructing the proposed revisions.

  However, we believe the revisions need to address credibility directly, in particular by attending to claims. For example, the standard could require or provide examples of phrases that are and are not reflective of compliant inventory statements. In addition, the standard could adopt standardized graphic elements that provide richer information than text and numbers alone and enable clarity across language barriers. Our forthcoming Blue Sky proposal for scope 2 disclosures details one possible approach.

• High-emitting reporters warrant increased focus on their methods and results. The need to balance cost and administrative burdens with increased credibility and clarity of climate impact doesn’t lend itself to a simple “just right” solution. But within the universe of disparate choices, we believe that the costs and burdens of more accurate reporting and more difficult specifications for mitigation requirements are most appropriately borne by companies whose scope 2 (location-based) emissions are largest. Imposing similar burdens and costs on the vast majority of companies achieves little and risks much – potentially dissuading or disenfranchising otherwise-willing actors as outlined above.
• Well-functioning markets enable mass participation and create important price signals. As we see in the electricity sector across the world, well-designed and functioning markets for a desirable commodity provide a means for mass participation in the purchase and sale of that commodity, while simultaneously providing price signals for future participants and investors  – whether buying or selling. Today, EAC markets provide the largest open-access framework for climate action in the electricity sector.

3Degrees’ priority issues in the scope 2 revisions

We remain concerned with the feasibility of the GHG Protocol’s proposed changes, primarily related to the Core Principles outlined above. Our key priorities to address in the current consultation are as follows:

• Temporal Matching (Scope 2 Quality Criteria 4; Questions 71, 74, 75)
  To increase credibility, scope 2 temporal requirements need tuning to create inventories more reflective of electricity generation resources and patterns as they relate to a reporter’s load. The proposal accomplishes this tuning by shifting annual-average emission statements to hourly emission calculations for both location-based and market- based methods. As such, emission statements will require hourly load data, hourly generation data for procured supply, and matching hourly emission factors.

  This level of granularity makes scope 2 accounting an expensive and burdensome task. We believe this granular approach is narrowly warranted, but not broadly warranted because electricity emissions are highly concentrated amongst the largest emitters. Hourly scope 2 inventories should be optional for most scope 2 reporters and mandatory for the top ~10% of emitting companies.

• Spatial Matching (Scope 2 Quality Criteria 5; Questions 83, 86, 87)
  To increase credibility, scope 2 geographic boundaries need tuning to create inventories more reflective of the electricity system dynamics proximate to a reporter’s electricity load. We are not convinced, however, that this tuning is appropriately scoped as written.

  The proposal adopts a deliverability rubric that seeks to ensure clean energy purchases used for market-based calculations are plausibly part of the reporter’s physical electricity supply. While logical, this restriction has important knock-on effects. In some cases, for example, the proposed boundaries force otherwise-willing climate actors to contract for clean energy in locations that have ample regulatory development incentives, and/or where the grid is already relatively clean. This increases costs without commensurate climate benefits.

  Therefore, we prefer a different design that moderates certain market boundaries to increase their credibility while making “deliverability” largely optional with its own preferential claims.

• Legacy Clause & Exemption Thresholds (Questions 70, 77, 78, 79)
  The transition from the current standard to the new standard will be disruptive in many ways. We do not believe the current proposal sufficiently recognizes the importance, embedded investments, and fragility of corporate climate commitments in its approach to requirement thresholds, nor in its assessment of an appropriate transition.

  Thresholds: We do not support exemptions. Rather, the standard should articulate requirements that scale with emissions. We can envision at least three requirement groups – companies with very small emissions (less than 10,000 mT location-based scope 2/year); companies with very large emissions (greater than 500,000 mT/year); and companies with moderate emissions (everyone else).

  Small emitters might use the standard largely as-is. Moderate emitters might use monthly load and emission data, and moderated geographic boundaries. Very large emitters might be required to use hourly reporting and potentially the full deliverability boundaries (the latter perhaps only in places where their load is highly concentrated).

  These changes should be required no sooner than 2035 to preserve the integrity of companies’ preexisting goals or targets, but enhanced claims could encourage reporters to transition more quickly as dataflows become available.

  A Legacy Clause should enable a wide variety of procurement contracts to complete their tenors. Such contracts are few enough in number that their period of non-conformance is less concerning than the need to respect the leadership investments they represent.

As a registered Delaware Benefit Corporation and Certified B Corp, 3Degrees is obligated (and proud) to consider a broad array of stakeholders in our business decisions. As such, the core principles and priority issues we propose here are not fitted to our profit motives. Rather, we center our mission: to help businesses and their customers take urgent action on climate change. We believe this framing helps us all prosper in the long term.