Stephanie Harris, 3Degrees’ Director of Carbon Markets, shares key benefits and considerations for organizations interested in supporting new carbon project development.
To address the growing climate crisis, more organizations than ever before are setting climate goals, such as net zero, carbon neutrality, or SBTi goals. But committing to reach net zero emissions and executing on climate goals are two very different things. In this first article of a two-part series, we’ll discuss how organizations can embrace this climate opportunity, and outline the first two of four key action areas to help companies get started on their journey to zero.
Regardless of where you are in your journey, the question at the heart of your net zero strategy should be: What is your organization’s climate opportunity?
While short-term, programmatic goals are important (more on that later), it’s critical to determine how you can leverage your company’s superpowers to help create a net zero world and thrive in it. While the climate emergency requires organizations to implement rapid and deep decarbonization initiatives across all three scopes of emissions, it also presents a unique opportunity for them to innovate around products and services that can support and propel faster decarbonization, creating real value for customers, employees, and shareholders. A great example of this is the dramatic shift the transportation sector has undertaken towards electrification.
Your organization’s climate superpowers may not be immediately apparent. Creating programmatic goals can help illuminate your unique climate opportunity, while also taking immediate action to reduce your greenhouse gas (GHG) emissions. Let’s take a deeper look at each of the following key action areas:
- Business Strategy Integration
- Operational Reductions
- Value Chain Reductions
- Remaining Emissions
Business Strategy Integration
Like any other important business initiative, an organization’s decarbonization efforts should be fully integrated into its existing business strategy. Getting started will require climate intelligence on topics such as:
- Benchmarking competitive actions and goals
- Reporting and climate disclosures
- Customer and shareholder expectations
- Annual greenhouse gas (GHG) inventory
Cumulatively, these pieces of information can help you clearly articulate your business case for action, which needs to be well-articulated, supported by emissions data, and shared in the language of your most important stakeholders.
To develop your business case, a common starting place is benchmarking. What are your peers doing with respect to net zero goals? How do your organization’s climate actions stack up?
Another starting point is conducting a risk assessment and disclosure of climate risk to investors. The most common climate risk reporting framework is the TCFD framework, which refers to the Taskforce for Climate-Related Financial Disclosures, the organization that put forth recommendations on how and what to report as part of climate risk.
Underpinning all of these efforts is a need for robust climate understanding and stakeholder education. A “climate boot camp” for stakeholders may include topics such as definitions of common climate commitments, high watermark activities of leaders, a crash course in greenhouse gas accounting, and identification of your climate risks and opportunities.
Finally, any foundational work needs to include an annual GHG emissions inventory. Including important data on key emissions hotspots is required in order to set a meaningful strategy.
The most effective climate strategies take all these actions together and weave them into an organization’s current business strategy to complement and support its mission, vision, and values.
Operational reductions refer to actions an organization can take to address their emissions from activities such as:
- Electricity purchased to operate office and manufacturing facilities where fossil fuels are burned to make the electricity
- Direct burning of fossil fuels, like gallons of gas purchased to fuel company cars or natural gas used in a co-gen plant
These operational emissions, known as Scope 1 and 2 emissions, are a common starting point for reductions. Many companies also consider some Scope 3 emissions, such as those from employee commuting and company travel, as part of their operational boundaries.
To accomplish these emissions reductions, companies often find quick wins from energy efficiency projects, installing rooftop solar, and purchasing renewable energy. Renewable technology is available today and can be a valuable source of near-term action since companies have direct control over their electricity procurement.
In part two of this blog series, we’ll cover the remaining action areas: Value Chain Reductions and Addressing Remaining Emissions. In the meantime, feel free to visit our new Net Zero Resource Center to download an infographic that covers all four stages, watch a quick video about beginning your journey to net zero, and view other helpful resources.
Flathead Electric Cooperative Landfill Gas-To-Energy-Project
3Degrees managed project
The Flathead County Landfill, located in Northwest Montana, roughly 30 miles outside of Glacier National Park, is turning a harmful landfill byproduct into energy. In 2009 the landfill collaborated with the Flathead Electric Cooperative to build the first methane gas-to-energy project in the state. This project, previously used a flare to burn the emitted methane, a greenhouse gas that is 25x more potent that carbon dioxide. With this upgrade, the facility now uses a vacuum system to extract the methane from the waste within the landfill.
The system captures and filters the gas to remove liquid and particulates, then burns it in a 20-cylinder engine. Burning methane drives the 1.6 MW electric generator, which is connected directly to Flathead Electric’s distribution system. The utility is able to use the electricity generated from this project to service its customers – roughly 1,600 households.
The project has an estimated 15-year lifespan. Currently, the landfill only uses a portion of the 150 acres permitted for waste acceptance. With room to expand, facility managers may add wells and a second generator gas flow increases. 3Degrees manages the monitoring, reporting, and verification of this project. As part of the project management and services agreement, 3Degrees also has exclusive ownership of the project’s carbon offset credits.
The Flathead Electric Cooperative Landfill Gas-To-Energy Project drastically reduces local greenhouse gas emissions.
A reduction in indoor air pollution from the switch has improved working conditions for factory employees.
The Flathead Valley community benefited from the construction and continued operations and maintenance jobs related to the project.
Link to a virtual tour of the Gas-To-Energy project.
China wind energy displaces coal-fired power and reduces GHG emissions
In the past several years, China has seen remarkable growth in the installation of renewable energy projects. In 2020 alone, the country more than doubled its construction of new wind and solar power plants from the previous year. To help fund the construction and ongoing maintenance of many of these projects and make progress towards decommissioning the country’s heavily polluting coal-fired power plants, developers often rely on revenue from the sale of carbon credits where projects are proven to be additional or beyond business as usual.
The Hebei Guyuan Wind Farm located in the North China Plain is an example of one of these projects. The project consists of 133 wind turbines with a capacity of 199.5 MW. The project uses wind resources to supply clean, renewable electricity to the grid North China Power Grid (NCPG). The electricity generated from this project displaces part of the electricity from the NCPG which is predominantly generated by coal-fired power plants which are pervasive in the region.
Energy from the project displaces the electricity generated from fossil fuel-fired power plants connected to the NCPG. Replacing fossil fuel combustion with wind power significantly reduces greenhouse gas emissions.
Using wind energy avoids harmful pollutants from fossil fuel combustion, such as sulfur dioxide, nitrogen oxides and particulate matter. The project greatly improves air quality in the surrounding area.
The project construction and ongoing project maintenance creates job opportunities for local people which helps to stimulate economic growth in the region. New renewable energy capacity will add to the sustainable development of this region, as the project plans to utilize domestic-made, state-of-the-art wind turbines to promote turbine manufacturing industries in the Hebei Province.
Europe is by far the largest and most liquid market for energy attribute certificates globally, and it is poised for further expansion. For decades, Guarantees of Origin (GOs) have been used to claim the consumption of renewable electricity in Europe. Now, the GO system, which is enshrined in EU law through the Renewable Energy Directive, is being expanded to cover other energy carriers, specifically biomethane (also known as renewable natural gas) and hydrogen. In the coming months and years, companies will see increasingly accessible opportunities to use gas GOs to address their Scope 1 emissions on their journey to net zero. Compared to electricity markets, though, markets for renewable gases in Europe are nascent and exceedingly heterogeneous.
State of the European gas certificate market
The recast Renewable Energy Directive (RED II) requires the use of GOs to claim consumption of renewable energy. While this has become commonplace for renewable electricity claims in Europe, it is still an emerging option for renewable gases and is likely to be less familiar to many companies. This lack of familiarity can be compounded by the fact that the European gas GO market is fragmented, technically complex, and evolving quickly. Because of RED II requirements, EU member states are mandated to be actively implementing gas GO systems — or updating their existing GO systems — to accommodate energy carriers other than electricity.
Despite momentum at the EU level, there are currently only a handful of countries in Europe that have registries that can accommodate the issuance and trade of gas GOs, including Germany, Austria, France, Denmark, Lithuania, the Netherlands, and the United Kingdom. Although it did exit from the EU, the UK is actually one of the most mature markets for gas GOs in Europe. These countries with active gas GO registries are members of the European Renewable Gas Registry (ERGaR), which is a membership organization dedicated to enabling the cross-border transfer of renewable gas certificates. While the market for gas certificates is moving toward increased cross-border fungibility, such functionality is still fairly limited. ERGaR has designed two gas certification systems: one that strictly utilizes book-and-claim accounting, and one that incorporates mass balancing calculations. It is possible that the mass balancing scheme could be used to comply with RED II transportation decarbonization mandates.
Another layer of complexity arises from the fact that the Association of Issuing Bodies (AIB), a membership organization that includes competent bodies responsible for the issuance of electricity GOs in 28 European countries, is expanding the European Energy Certificate System (EECS) to accommodate the issuance, trade, and cancellation of gas GOs. EECS Rules have been updated to incorporate energy carriers other than electricity, and so far seven AIB members have been appointed as the competent bodies for gas GO issuance. Although the AIB Hub will eventually streamline fungibility between countries, cross-border trading in the near term will be limited to countries with bilateral trade agreements.
Forthcoming European market eevelopments
The gas GO market will evolve significantly over the next year (or years, depending on the ambition of regulators). Companies seeking to use gas GOs to address Scope 1 emissions in Europe should be aware of three main areas of change.
- Standardized gas GO issuance will spread across the European continent. The current patchwork of GO systems will homogenize, and cross-border fungibility will increase. The roles and relationship between AIB and ERGaR will become apparent.
- Rules for issuing, trading, and canceling gas GOs will be finalized as RED II is implemented, and the EN16325 Standard is finalized. Companies should note that adherence to EN16325 is required by RED II and is intended to ensure that GO systems are accurate, reliable, and secure. It should also resolve outstanding questions regarding topics such as gas certificate vintage, expiration, and market boundaries. Standardized rules for how gas certificates will interact with RED II transportation mandates and the EU Emissions Trading System should also emerge, but implementation could vary by country.
- In late 2022, the Greenhouse Gas Protocol will publish new guidance on bioenergy accounting and claims; a range of industry stakeholders are participating in this process, including 3Degrees. This will be critically important for companies seeking to use biomethane to reduce their Scope 1 emissions.
Best practices for early movers
Although the structures and rules of gas GO markets are evolving, this should not dissuade companies from becoming early participants in these markets. Sending early demand signals is crucial to kick-starting these markets, which will play a pivotal role in the EU bloc reaching its net zero by 2050 target. While EU-wide market rules are being finalized, and as stakeholders await updated Greenhouse Gas Protocol guidance, they should keep the following best practices in mind:
- Source certificates that were issued close in time to gas consumption: For electricity GOs, production and consumption are typically matched on a calendar-year basis, but the acceptable vintage window for gas GOs may be longer.
- Source certificates from within the same market: The EU gas grid is typically considered a single balancing facility, but other political and regulatory factors have historically influenced market boundaries.
- Source from sustainable feedstocks: Gas certificates originate from a range of feedstocks, which can vary considerably in terms of life cycle GHG intensity and price; companies should weigh cost-effectiveness with environmental impact and reputational risk.
Markets for renewable gases are beginning to emerge in other regions of the world as well, most notably in the United States and Canada. If your company is seeking to understand how to best leverage emerging markets for renewable gas certificates to address your Scope 1 emissions, feel free to reach out to us. We are happy to help.