Month: April 2023

Sustainable snacking leader signs a 12-year PPA in Poland

As part of their journey to reach a 2050 goal of net zero greenhouse gas emissions, Mondelēz International, a global snacking company, has been working towards its aim to reduce its scope 2 footprint worldwide. With a short-term target of reducing their absolute end-to-end GHG emissions by 10% by 2025, relative to a 2018 baseline, they set their sights on Poland, where they could aim to make a meaningful contribution to emissions reductions in a carbon-intensive country.

Mondelēz International approached 3Degrees to develop and implement a renewable energy procurement strategy to help address emissions from electricity consumption in its Polish manufacturing facilities.

Challenges

In 2022, Europe faced unprecedented market volatility, with rising energy costs that made renewable energy developers hesitant to enter into long-term corporate power purchase agreements (PPAs). This resulted in limited project supply to meet corporate demand;
Mondelēz International needed a project that would aim to reduce its greenhouse gas footprint across its growing portfolio of production plants in Poland;
Ever-changing market conditions made it difficult to keep stakeholders up-to-date and educated on the process throughout. This was especially challenging as PPA prices continued to increase rapidly over short time periods.

How we helped

3Degrees worked with Mondelēz International to facilitate workshops to educate and align stakeholders on the current state of European energy markets and PPAs. Based on the input and feedback gathered in these workshops, the 3Degrees team was also able to determine the best-fit project characteristics to meet Mondelēz International’s needs and preferences.

With this information, 3Degrees developed a tender strategy and, upon Mondelēz International’s approval, issued a Request for Proposals, which included:

Financial modeling to estimate each offer’s projected Net Present Value (NPV), monthly cash flows, and implied guarantee of origin (GO) value;

Conducting comprehensive market development and contractual risk analyses;

Evaluating each project according to Mondelēz International’s criteria, specifically, geographic location, technology, development maturity, and counterparty qualifications.

Once Mondelēz International selected a project, 3Degrees supported the PPA contract negotiation process.

Results

Mondelēz International signed a 12-year PPA with a renewable energy developer in Poland for approximately 126 GWh of solar electricity. The project aims to enable Mondelēz International to:

Displace more than 1 million metric ton equivalent of CO₂ emissions from electricity generation during the PPA term, which will contribute to reaching 40% of its carbon reduction goal in Europe;
Achieve its goal of covering its annual Polish electricity consumption with GOs produced within Poland.

As part of our ongoing advisory support, 3Degrees will provide PPA monitoring services to Mondelēz International in order to evaluate project performance and incorporate the Poland PPA into its European renewable electricity portfolio.

“At Mondelēz we are as ambitious about sustainability as we are in chocolate making. We are very happy to work with 3Degrees who shared our ambition at a time when Europe was going through the biggest energy crisis since WW2. Several times we experienced the advantage of working together as we adapted our reach to the market and used your expertise in our tough negotiations.”

— Ilkem Yildiz , Sourcing Manager, Energy & Utilities Europe, Mondelez International

“Mondelēz International’s achievement of its ambitious goal in Poland is an excellent example of a corporate buyer making the maximum possible impact through project selection in a carbon intensive grid. We are thrilled to have supported Mondelēz in signing a 12-year PPA in Poland despite challenging market conditions, which is a testament to Mondelēz’s tenacity and a significant climate action milestone in Europe.”

— Tyler Espinoza, Senior Director, Energy and Climate Practice, 3Degrees

Scope 3 calculations, implementation and data challenges for financial institutions – ESG Europe event at a glance

Maureen Bray, April 24, 2023

On April 18, 3Degrees travelled to London to attend the ESG Europe event convening finance professionals, software companies, and consultants to discuss ESG best practices and methodologies to manage risks. The event covered a range of topics, from regulatory requirements and climate risk assessment to the ever-challenging data accuracy.

I had the pleasure of speaking at one of the sessions focusing on the implementation and data challenges within scope 3 calculations, particularly for financial institutions. Calculating scope 3 emissions leads to a better understanding of the environmental impacts of an organisation and the social and corporate governance topics associated with a business. Here are some further remarks from the panel.

FINANCIAL INSTITUTIONS IMPACT ON SCOPE 3 EMISSIONS

According to the CDP, portfolio emissions of global financial institutions are about 700 times larger than direct emissions. Hence, these institutions should clearly understand where their investments are going to mitigate financial risk, comply with regulations, meet stakeholder expectations, and influence and demonstrate environmental stewardship.

Financial institutions have a fiduciary duty to shareholders, but most importantly, to our planet. Funding sustainable activity drives progress towards a low carbon and a positive natural environment. Therefore, it is important to understand what it means to measure scope 3 emissions and how to address data challenges. These companies should follow the Partnership for Carbon Accounting Financials (PCAF) guidance, a standardised GHG Protocol methodology for calculating investment emissions under category 15 and take the following steps:

Choose the PCAF standard that is applicable (financed, facilitated, or insurance-related emissions)
Define organisational and operating boundaries
Identify and segment assets into 1 of 7 asset classes (listed equity and corporate bonds; business loans and unlisted equity; project finance; commercial RE; mortgages; motor vehicle loans; and sovereign debt)
Determine attribution factors
Gather data; alternatively, estimate emissions if they are not available
Disclose emissions

From a practical perspective, it is common for financial institutions to apply a phased approach where data is more readily available, tackling one or two asset classes in the first year and increasing coverage in subsequent years. Organisations are required to disclose quality scores and expected to increase data quality in each reporting year.

Addressing data challenges and third-party reporting

PCAF defines a hierarchy of data quality, which states that, where possible, financial institutions should use verified emissions data from investments or customers. Collecting unverified data is the next best approach if this information is unavailable.

However, if the first two options are unobtainable, calculations can be made from primary energy consumption or production data to calculate emissions. Ultimately, if none of the aforementioned datasets is accessible, company revenue, outstanding finance of asset units, or revenue and turnover could be used.

Given the complexity of gathering data, technology and software solutions serve as allies to ease the burden of automating and providing auditable data. When managing third-party reporting, businesses should be cognizant of the many available guidelines, standards, and regulations. It is important to take a common denominator approach, incorporate all requirements into one effort, and work to proactively engage with customers and investees.

URGENCY TO ACT NOW

The ESG conference as a whole combined a variety of topics to aid financial institutions, like insurance companies, asset managers, and regulators with up-to-date insights to effectively manage risks and address their financed emissions. The main message highlighted throughout the event, and particularly the panel was the urgency for the financial sector to act now and report on their emissions.

As a leading global climate solutions provider, 3Degrees can support those in the financial sector with tailored products and climate advice. Get in touch with us.

Key Insights from NACW: Trending Topics in the Voluntary Carbon Market

Nick Facciola, April 20, 2023

In late March, I had the pleasure of joining my colleagues and peers at the 20th anniversary of North America Carbon World (NACW) in Anaheim, California. Yes, I said the same thing – “Twenty years – wow!”. NACW is one of the premier events for all things carbon, and one that I look forward to each year. The three-day conference is dedicated to the North American carbon market and climate policies, and time and time again proves to be a terrific place to learn, collaborate, and network.

Sofia Barker, Joshua Thompson, and Devin Hagan, members of 3Degrees’ Carbon Markets team, at NACW.

After having a chance to debrief with the 3Degrees team that attended, we realized that three topics seemed to be a common theme throughout NACW.

Guidance for the voluntary carbon market (VCM)
Value chain mitigation – aka insetting
And of course, carbon removals

The voluntary carbon market may see more stringent requirements in the coming years…maybe.

Popular discussions around NACW were “What will happen to the VCM in the near future?”, “Will we soon see more stringent requirements for developers?”, “Are we headed for regulation?”, and “What will the pending guidelines from some of the largest standards parties soon tell us?”

The Integrity Council for the Voluntary Carbon Market (IC-VCM) actually teased that they will be launching their latest Core Carbon Principles (CCP) at the conference, creating even more chatter.

The VCM has seen unprecedented growth over the past few years, so proposed efforts have been amplified to ensure the market is fully equipped to mitigate risk for all players – sellers and buyers alike.

We were fortunate to snag a seat at a panel discussion with some of the key parties leading the way for these measures, including the IC-VCM, The International Emissions Trading Association (IETA), and the Carbon Credit Quality Initiative (CCQI), among others. While it seemed that most panel members were against full regulation, there was a direct call for transparency and integrity in the market. We are now also facing a perceived risk around carbon credits from buyers that will need to be addressed across the board. While initiatives like Net Zero are helping to shape a quasi-compliance-driven market, there will need to be more focus on quality from both a project and methodology standpoint.

We expect this to be a continued topic of discussion as guidelines are released.

To inset or not to inset?

Throughout the conference, the term “insetting” emerged as a buzzword during many keynotes and panel discussions I attended. Although insetting is ill-defined and lacks a standardized definition in the market, it generally refers to actions from companies that reduce emissions within their value chains, including, in some cases, through the purchase of carbon credits. Over the past few years, there has been a renewed focus on how insetting and value chain interventions can play a role in achieving corporate climate goals.

While some proponents proclaim insetting as key for organizations looking for long-standing reduction strategies, it’s still unclear how the Greenhouse Gas (GHG) Protocol will treat insetting and what types of data will be required to reflect an action in your greenhouse gas inventory.

Organizations such as the Value Change Initiative (VCI) are stepping in to help companies define and implement value chain emissions reduction or removal strategies, resulting in adjusted emissions factors for affected products and services.

Verra is also preparing to launch a scope 3 program later this year to support the robust and consistent accounting of value chain interventions, prevent emissions reductions and removals from being double-counted, as well as establish flexible pathways for companies to engage in value chain interventions to incentivize greater climate action.

There was a unifying understanding that insetting will play a critical role in the development of the VCM and will likely be an increasingly key component of corporate scope 3 strategies.

Panel: “Biggest Challenges Facing Today’s Global Carbon Markets”

Carbon removals – high demand, low supply.

We were not surprised that carbon removals would be another trending topic at NACW, as it has been at most conferences in the past few years.

It has become abundantly clear that carbon removals will be the future of carbon offset projects — the problem though is simple: supply and demand.

Recently, SBTi indicated that only removals will be counted to reach Net Zero goals under their initiative, which understandably created a heightened sense of urgency to procure and develop these credits. On the project side of the market, last year only 3% of projects that sold credits into the VCM were pure removals, and only 13% of projects were both partial reduction and removals.

As expected, the limited supply keeps removal prices at a point significantly higher than reduction credits, making them unattainable for some organizations. This however should change over time as new technologies and methodologies are emerging daily to help bring new removal credits to the market, including biochar, sustainable concrete, and direct air capture.

Many experts throughout the conference have even concluded that without the deployment at scale of Carbon Capture, Utilization, and Storage (CCUS) and Direct Air Capture (DAC) technologies the world will not be able to hit our 1.5°C target.

Parting thoughts from NACW

As expected, the entire 3Degrees team returned from the conference with a renewed enthusiasm for, not only the carbon market, but the meaningful work we get to do daily. While there are clear cries for guidance from buyers and developers alike, the VCM is stronger than ever, and I cannot wait to see what the future holds for our industry. See you next year, NACW!

P.S. If you were keeping up at home, that’s a total of fifteen acronyms.

Balancing quality with quantity in the voluntary carbon market: ICVCM guidance

Tory Hoffmeister, April 24, 2023

The voluntary carbon market (VCM) is grappling with opposing forces: the need to ensure quality as the market grows larger and more complex. At a high level, the influx of resources into the market over the past few years is a positive signal for global efforts to mitigate climate change. But quality concerns have dogged the market. Until there is a widely accepted definition of credit quality, buyers risk potentially using credits that might not represent one ton of avoided or removed emissions in order to “offset” or “neutralize” one ton of their own emissions. Unsurprisingly, the media, market participants, nonprofit organizations, and other thought leaders in the voluntary carbon market have taken notice as this problem grows in size.

In response, efforts to create a clear, common framework for identifying quality credits and claims are accelerating and starting to come to fruition. Most recently, on March 29, the Integrity Council for the Voluntary Carbon Market (ICVCM), an industry working group seeking to establish a global threshold for supply-side integrity in the voluntary carbon market, released part one of its long-awaited guidance. The ICVCM’s March 2023 guidance revealed new information in the following key areas:

The Core Carbon Principles
Program-Level Assessment Framework Requirements & Procedure
Timeline for What’s Next

The Core Carbon Principles

The ICVCM’s guidance is framed around the establishment of the “Core Carbon Principles” (CCPs). The CCPs are 10 key principles that any carbon credit must meet to pass the organization’s high-integrity threshold. The principles are categorized into three buckets:

Program-Level Assessment Framework Requirements & Procedure

In addition to defining the CCPs, the new guidance includes a “program-level Assessment Framework” for how the CCPs will be applied to carbon programs managed by widely-recognized registries, the organizations that create the rules and requirements for issuing carbon credits.

The detailed Assessment Framework for “programs” flows logically from the 10 newly established CCPs. For example:

Under the Governance CCPs, the Integrity Council (IC) will consider whether a registry requires publication of enough information for stakeholders to review any given project in detail.
Under the Emission Impact CCPs, the IC will look at how registries ensure robust quantification of emission reductions, including their practices for addressing uncertainty, applying conservativeness, and updating baselines when renewing crediting periods.
Finally, under the Sustainable Development CCPs, the IC will consider registry practices for requiring stakeholder consultation and mitigating risks to communities that were identified as part of the project development process.

The new guidance also confirms that registries will need to proactively apply for ICVCM approval. This means that if the largest carbon credit programs – namely Verra, Gold Standard, Climate Action Reserve, and American Carbon Registry – do not apply, the CCPs are unlikely to be adopted as a quality threshold in the market. Gold Standard has already indicated that it intends to apply for approval.

The guidance also included some more unexpected details within each of the three CCP categories. The Governance CCPs specify that any registry already approved by the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) will immediately meet most ICVCM Governance criteria. This is a sign that the ICVCM is beginning to lean on other market standards and quality assessments. The Governance CCPs also state that registries must require identification of the entity on whose behalf carbon credits were retired, as well as the purpose of the retirements. As of now, these are details that registries do not universally require, particularly from entities purchasing credits with the intent to resell them, such as brokers and secondary marketplaces.

The Emissions Impact CCPs reveal that carbon credits issued in advance of actual emission reductions, based on expected emissions impact (credits issued “ex-ante”) will not be CCP-eligible. However, registries issuing both ex-ante credits and credits based on already-achieved emission reductions (called “ex-post” credits) may still apply for approval of their ex-post credits. This is significant in that registries like Climate Action Reserve Climate Forward Program and Plan Vivo that may apply for ICVCM approval do issue both ex-ante and ex-post credits.

Finally, the Sustainable Development CCPs go further than the practices adopted by many registries today to avoid the unintended social and environmental consequences of carbon projects. Specifically, the Assessment Framework requires registries to include local stakeholders as part of project design and implementation in a manner that is “inclusive, culturally appropriate, and respectful of local knowledge,” and take these consultations into account and respond to local stakeholders’ views.

Going beyond the CCPs, the new guidance outlines requirements for registries’ optional application of additional “attributes” or tags to CCP-approved credits displaying specific characteristics. The three possible attribute tags include: (1) Host country authorization to internationally transfer (i.e., “export”) project credits under Article 6 of the Paris Agreement; (2) a share of project proceeds flowing to adaptation to climate change (specifically, contributing to the UNFCCC Adaptation Fund); and/or (3) quantified positive Sustainable Development Goal impacts.

Timeline for what’s next

Building from this release, the ICVCM is planning to publish quality requirements for unique combinations of project types, programs, and protocols (called project “categories”) in Q2 of this year. Together, the March 2023 and Q2 2023 guidance documents will make up the full framework through which the ICVCM will assess the quality of registries and carbon project categories.

Upon release of the project category Assessment Framework criteria, the ICVCM will create expert working groups to evaluate whether specific project categories meet the requirements of the CCPs. This will be a large undertaking given the sheer number and complexity of unique project methodologies in the market. It is not yet clear how the ICVCM will form these groups and who will be included.

Following creation of these working groups, the ICVCM plans to open the application process for projects and announce the first CCP-approved credits by Q3 2023.

ICVCM guidance reception and implications for carbon credit buyers

Ensuring transparency, treating common project-level uncertainties conservatively, avoiding double-counting, and engaging community stakeholders are already considered table stakes for major carbon credit registries and corporate buyers seeking high-quality carbon credits. In other words, the ICVCM’s new requirements of registries will likely function mainly to ensure a universal “floor” for high-integrity practices and add another layer of third-party oversight by the ICVCM. As a result, this partial release of guidance has been interpreted by some as falling short of expectations to shore up quality in the market.

At 3Degrees, we remain encouraged by the potential of the ICVCM to enhance quality across the supply side of the voluntary carbon market. Although the ICVCM’s program-level guidance may not represent an immediate and substantial leap in ambition for many registries, we see centralized oversight of voluntary carbon credit programs as key to ensuring all carbon credits meet critical baseline quality criteria. Starting with a realistic and achievable level of ambition will allow the ICVCM to ratchet up its requirements over time, gradually raising the “floor” on high-integrity practices in the market. We hope that the forthcoming release of project category-level guidance represents the next level of ambition that stakeholders are looking for within the voluntary carbon market to ensure the market can reach its full potential as a powerful tool to help reach our global climate goals.

If you have questions about what the ICVCM’s new guidance means for your carbon strategy, please reach out.

Understanding climate risk reporting – TCFD event takeaways

Elena Cernov, April 7, 2023

Understanding how climate risk reporting is evolving has escalated in priority for many businesses and investors as they remain increasingly alert to the impact of climate change on their operations and decision-making.

Aware of this need, 3Degrees participated in the TCFD and Climate Risk Reporting event in London in March where I had the pleasure of speaking on a panel about providing a harmonised sustainability message across reporting. Over the two-day conference, we also had the chance to hear unique perspectives into implementing the latest developments in climate risk disclosures and mitigation plans.

I’ve outlined some highlights of the event that will hopefully shine a light on the understanding that climate reporting must commence now.

Factors behind climate-related financial disclosure

Traditionally, companies have been required to disclose how their operations impact the environment. The Taskforce on Climate-related Financial Disclosures (TCFD) was created in 2017 to provide a more effective financial disclosure framework, as it considers the impact of climate change on businesses.

At the conference, it was discussed that sustainability reporting and specifically, TCFD, have been evolving due to various drivers:

TCFD is a strategic tool that focuses on transition plans that significantly help companies with their reporting and investment decisions. Transition plans are defined as an organisation’s roadmap for addressing climate-related risks and opportunities aligned with business strategy.These plans will play an increasingly key role in the short-, medium-, and long-term. Successful companies will be those who regard TCFD reporting as an opportunity to self-assess, plan, and prioritise investments.

Harmonising frameworks within the risk management landscape

A central highlight of the event was the focus on reporting bodies aligning to work together to support businesses in their climate-related financial disclosures. In light of harmonising frameworks, Mardi McBrien, Managing Director at the International Financial Reporting Standard (IFRS) Foundation, shared that the International Sustainability Standards Board (ISSB) objectives aim to develop global standards for sustainability disclosures; meet investors’ requirements; help companies build their sustainability dossier; and integrate disclosures that tackle specific jurisdictions or target bigger stakeholder groups.

On the second day of the event, at the “Harmonising Sustainability Message Reporting” panel, we dove deeper into the concept of harmonisation. Companies have been facing the burdensome task of understanding and implementing different reporting standards into their financial disclosures. Several umbrella frameworks, such as CSRD, ISSB, and CDP, are looking to help businesses with having fewer platforms to report on and adding a third-party verification to ensure data quality. They aim to implement a mix of best practice standards and provide additional guidance for successful reporting in their framework.

In an effort to become better aligned, reporting bodies are in constant communication. Each system has a crucial focus on developing detailed disclosure guidance, paving a path to a more standardised reporting landscape, aiding both financial and non-financial sectors.

Most market participants affected by these sustainability reporting requirements have global or multi-country exposure. Additionally, the main actors imposing TCFD are investors with complex portfolios that need comparability of potential investments in ESG terms for decision-making.

Harmonisation of the disclosing mechanisms allows companies to easily report using the same data in various frameworks for comparability. Given the constant cooperation between standard setters, businesses would have much better alignment of data requirements, and more granular guidance on reporting processes and priority setting.

Climate risk reporting is a team effort

Climate reporting tools, particularly TCFD, bring a new, more advanced layer to a business’ emissions reduction strategies by assessing climate change risks and opportunities.

TCFD is shifting sustainability reporting, awareness, and action from a task performed by few people to a vital element of company planning affecting all organisational divisions.

In this context, a key observation during the conference was the importance of distributing sustainability responsibilities amongst all company functions. The conference itself convened finance, operations, and procurement roles, and less than 50% had job titles directly connected to sustainability, reflecting that the transition to a low-carbon future is a shared arena and a team effort.

Looking forward

Data is a crucial reporting component, and part of it depends on an assumption-based perspective at the start. Yet, data quality will evolve with time. CSRD is adding a third-party verification requirement for reported data, considerably improving information transparency and reliability. This will provide better industry average activity and emissions data that could lead to more robust, industry-specific databases.

More businesses are adopting sustainability reporting frameworks into their strategies. This awareness is increasing the need for data quality, technological solutions for emissions calculation and scenario analysis, and additional capacity building.

Our team at 3Degrees supports businesses around the world in identifying their climate risks and defining mitigation plans through a variety of best-fit solutions. Please reach out to learn more.

United States Renewable Markets Insight Report | March 2023

3Degrees Staff,

In recent years, electricity market prices and trends in the U.S. have been impacted by global geopolitical issues and extreme weather events, among other external pressures. With so many aspects of the market in flux, it can be challenging to stay up-to-speed. We’ve created the inaugural U.S. Renewable Markets Insight Report so that our audience can easily track important developments.

In this edition, we will:

Provide an overview of the current U.S. energy market
Identify fundamental power and gas market drivers
Outline substantial policy and regulatory activity
Highlight key PPA trends and REC prices

Start reading the Renewable Markets Insight Report now to take a closer look at the energy and PPA market landscape in the United States.

Carbon credit buyers take more nuanced strategies amid market criticism

Jacob Isaacson, April 5, 2023

In recent weeks, criticisms of the climate integrity of various types of carbon credits have surfaced in mainstream media, capturing the attention of many stakeholders. As a result, organizations looking to supplement their emissions reduction efforts by financing carbon credit projects are increasingly aware of the reputational risks associated with projects that may have less climate impact than they claim. Consequently, buyers are adopting more nuanced approaches toward engaging the voluntary carbon market to ensure that the projects from which they buy carbon credits have undergone sufficient due diligence.

Not all registry-issued carbon credits are alike

The voluntary carbon market has structures in place to safeguard climate integrity, such as methodologies developed and approved by non-profit registries like Verra, Gold Standard, the American Carbon Registry, and the Climate Action Reserve. These methodologies provide guidelines for quantifying the climate benefits of carbon credit projects. Independent third-party verifiers must also certify a carbon project’s compliance with registries’ methodologies in order for the project to generate carbon credits. While both registries and verifiers play key roles in ensuring a credit’s climate integrity, not all registry-issued credits are created equal.

Credits generated from different project types, such as forest conservation, tree planting, energy efficiency measures, landfill gas destruction, and others, each reflect the unique benefits and risks associated with their underlying emissions reduction or removal activities. For example, improved forest management projects may provide co-benefits such as biodiversity conservation, but face challenges in demonstrating additionality and ensuring permanent climate impact. Although registries design their methodologies to address the risks associated with each project type, there is often inherent uncertainty associated with proving additionality; robustly and conservatively quantifying avoided, reduced or removed emissions; and/or ensuring adequate permanence. Additionally, new data sources and technologies are making it easier to track real-time climate impact and identify outdated assumptions under current quantification approaches. Ultimately, this means that all methodologies stand to benefit from cycles of continuous improvement to ensure they align with new scientific consensus and emerging best practices.

Many reputable carbon credit project developers rigorously design their projects to safeguard climate integrity in line with registry methodologies and best practices. However, there are varying quality risks associated with all carbon credit project types. In some cases, methodologies have not yet been revised to adequately address these risks, which has in turn contributed to the recent wave of academic and media criticism of the voluntary carbon market.

Shift in carbon credit product preferences

As awareness of carbon credit quality risks has grown, some buyers have been shifting their purchasing activity toward structures that offer transparency into the underlying projects. Buyers are increasingly making over-the-counter purchases of credits from individual projects or buying portfolios of credits from specific projects that have undergone due diligence by a third party, on top of the required registry verification process. While buyers often used to enter purchase agreements in which the individual projects would not be specified until delivery, they are now increasingly wanting the projects to be specified at the time of contracting. This trend has been reflected in the price gap between over-the-counter credits and standardized contracts, which has grown in recent months. For example, the N-GEO standardized contract, which can consist of any agriculture, forestry, and land-use credits issued by Verra with Climate, Community, and Biodiversity accreditation, has seen its 2023 futures price decrease more than 50% since the start of 2023. Over the same time period, prices for over-the-counter, project-specific transactions have either remained flat or decreased at a much slower rate.

Standardized contracts play a key role in providing liquidity to the entire voluntary carbon market, but end-buyers seem to be less interested in standardized products that filter carbon credits for only high-level criteria, such as project type, vintage, and geography. Instead, many end-buyers want to ensure that the specific projects from which they are purchasing credits meet rigorous standards for climate integrity.

Professional procurement approaches reduce risk

Buyers should understand the risks associated with the carbon credits projects they are supporting. This could include knowing from which projects they are purchasing credits and conducting project-specific due diligence to ensure these projects will help them achieve their climate objectives, tell a compelling sustainability story, and minimize reputational risk. In cases where buyers lack relevant in-house expertise, trusted advisors can fill the gap by sourcing credits from reputable project developers and conducting project-specific red-flag analyses to identify potential reputational risks.

At 3Degrees, we remain committed to supporting clients with effective carbon credit strategies and procurements – both within and beyond our own portfolio of carbon projects – that uphold the integrity of the voluntary carbon market. If you have questions about your carbon credit strategy or are interested in discussing your procurement options, please reach out.

The nexus of EU grid emission intensity and PPA project location

Luca Dotto, April 24, 2023

When looking at the EU grid emission intensity, any company with European-based operations looking to decarbonise their activities would consider a power purchase agreement (PPA) as a natural step to tackle their scope 2 emissions. Hereafter, selecting the project location is a crucial factor to ensure that the energy project has the maximum climate benefit.

Procuring renewable electricity with careful selection of the PPA location goes a step further than looking at solely the environmental attributes of the commitment. For example, Guarantees of Origin (GOs) can be freely traded between countries that are Association of Issuing Bodies (AIB) members. It also requires analysing the electricity generation mix for the best decision-making.

CARBON INTENSITY IN THE EU GRID

Moving beyond the MWh, an organisation that prioritises a PPA located in a high grid carbon intensity (CI) country seeks to maximise the climate impact of their investment.

The CI of electricity refers to the amount of CO2 emitted per unit of electricity generated. Poland is an example of a carbon-intensive grid, consisting of heavy polluting fossil fuels like coal. The EU’s electricity CI varies drastically by country, but collectively, it’s ruled in greater part by low-carbon technologies like nuclear, solar, hydro, wind and bioenergy.

Figure 1: EU electricity generation mix in year 2022. Data from EMBER Climate’s “Ember European Review 2023”.

Upon visualising figure 1, low-carbon technologies accounted for over half of the total electricity generation in the EU. In the following graph, we observe a breakdown of the fuel mix by each EU country in 2022.

Figure 2: EU electricity generation mix in year 2022, by country. Data from EMBER Climate’s “Ember European Review 2023”.

Coal, the most carbon-intensive fossil fuel, still comprised 16 percent of the total fuel mix. Poland has the highest percentage of coal in its composite and topmost grid emission intensity, followed by Czech Republic and Bulgaria. Cyprus uses primarily oil and petroleum products, and Estonia consumes domestically produced shale oil, resulting in high emissions despite the lack of coal burning.

Roughly a third of Germany’s electricity production was derived from carbon-intensive fossil fuels, which is relevant considering the absolute size of its economy and electricity generation compared to other aforementioned countries (21 percent of the EU’s total in 2022).

CALCULATING GRID CARBON INTENSITY

Organisations we work with often wonder about how a grid’s CI is calculated. Various methodologies for calculating the CI of a market depend on how the grid emissions factors are calculated. A grid emission factor denotes the carbon emissions variable used to analyse a unit of electricity from a power system.

Two of the most widely used grid emission factors are:

Average emissions method:

Looks at all operative power plants in a particular market and their associated emissions during a specific time frame.The total emissions are divided by the amount of electricity generated during that same time period.

Marginal emissions method:

Requires the emission factor of the marginal power plant in the generation stack for a given market, with no consideration given to the remaining operating power plants when calculating carbon intensity.

Marginal fuel, when referring to an electrical grid, represents the resource that will be used to generate the next additional kilowatt of power that is required to meet the electricity demand. If a coal power plant were on the margin, for example, and there was an increase in power usage, then the generator would need to burn more coal. When calculating marginal emissions, the last resource added into the generation mix is taken into account. Referred to as the marginal plant, this source of power is what’s displaced when additional electricity is injected into the grid at a given moment during the day. Thus, marginal emissions can give an indication of the impact associated with a change in the supply mix.

TIME OF DAY MATTERS TO A GRID

The marginal emissions method assumes the effect that a small change to electricity load would have on the average rate of GHG emissions — specifically taking into account which power plant would be displaced by adding renewable electricity to the grid at a given moment. On account of renewable resources’ (wind, solar) intermittency, the time between the generation periods of each technology becomes particularly important.

Despite the challenge of finding comprehensive data to calculate the marginal fuel, there are some best practices to use for certain generation mixes within a given market.

Baseload plays into the marginal fuel. For example, wind generation peaks at night – a time of low electricity utilisation – which means most generation is coming from base load plants. Thus, a wind project would have a lower carbon displacement impact in a country that has a lot of baseload nuclear or hydro generation, like Sweden or France, compared to a country that has a high coal baseload. In this type of scenario, if solar were used, it would have a high carbon displacement potential, especially during shoulder hours when gas fired plants usually operate.

According to EMBER Climate’s estimates, the EU average CI was 255 gCO2/kWh in 2022. As displayed in Figure 3, the highest CI was reported in Poland, Cyprus, Czech Republic, and Bulgaria. These countries use a lot of coal or oil, and they have limited renewable capacity. The countries with the lowest CI in 2022 were Sweden, France, and Finland, which all have a large amount of nuclear and hydro in their electricity fuel mix.

Figure 3: EU countries CO2 intensity in year 2022, measured in gCO2/kWh. Data from EMBER Climate’s “Ember European Review 2023”. CO2 intensity for 2022 was estimated using greenhouse gas emission intensity of electricity generation from the European Environment Agency (EEA) and Eurostat’s gross electricity production.

CHOOSING PPA PROJECT LOCATION

For a corporate off-taker with loads in several EU countries, taking this map into account would help maximising the impact of signing a new physical PPA or VPPA, as the impact of the same renewable project could be much higher in countries such as Poland as opposed to those like Sweden.

When deciding on a PPA procurement strategy, the maturity of the market is a critical component to think about. As shown in our European Market Insights Report, countries with high CI, such as Poland, Bulgaria and Estonia, are now emerging PPA markets or new market entrants in recent years. The ability to make a significant impact through PPA transactions has become increasingly feasible.

Ultimately, when deciding where to procure renewable electricity, considering the market and what technologies intersect with that market, will ensure that the maximum carbon displacement impact is made.

Our team at 3Degrees supports clients around the world in developing and implementing renewable energy procurement strategies for maximum climate benefit. Don’t hesitate to get in touch.

Daring to innovate whilst making credible green claims: Insights from edie 23

3Degrees Staff, April 3, 2023

At the beginning of March, we travelled to London to take part in edie 23, a thought-leadership event for industry and sustainability leaders. It was inspiring to see the commitment of the attendees and speakers throughout the sessions as they discussed net zero strategy, policy changes, data reporting and more.

We consolidated numerous insightful discussions over the two-day event into three prevailing themes: calling for credible claims disclosure, bringing climate ambition to action, and balancing the tensions of climate action.

A call for credible claims disclosure

On day one, Emma Watson, Head of Standards at The Science Based Targets initiative (SBTi), highlighted three key guidelines for credible and ambitious decarbonisation commitments:

Mateja Penava, Climate Strategy Consultancy Manager at 3Degrees, took part in the carbon offsetting session at the event. Image courtesy from edie 23

In relation to the third guideline from Emma Watson’s keynote, the carbon offsetting panel that 3Degrees joined later that day, addressed the use of carbon credits as a means to act beyond an organisation’s value chain. These provide reliable streams of finance to emissions reduction or removal projects, which would otherwise not be viable. Yet, there are uncertainties and risks to Beyond Value Chain Mitigation (BVCM) strategies, thus, project-level due diligence should be incorporated to ensure projects are high quality and in line with overall sustainability strategy and ambition.

That is why setting credible goals is of the utmost importance. Concerns around greenwashing and greenhushing are on the rise and organisations are facing strong pressures to set credible targets and disclose viable decarbonisation pathways.

Cecilia Parker Aranha, Director of Consumer Protection at the UK’s Competition and Markets Authority (CMA), addressed this at the conference with the example of the UK Green Claims Code, which sets out guidelines for ensuring environmental claims made by businesses about their products, services, and brand comply with the updated consumer protection law. The key points could also serve as guidance for speaking more broadly about climate goals and actions.

Similarly to the UK’s Green Claims, the European Commission recently proposed the Directive on Green Claims, a set of rules that will mandate companies to substantiate, verify and communicate their green claims.

These regulations respond to an increasing need to provide guidance to organisations on how to share information around their products, services, and initiatives, as well as to halt inaccurate environmental claims that mislead the general public and bring about scepticism around corporate climate action.

Bringing climate ambition to action

Once companies have decided on a sustainability roadmap to tackle their GHG emissions, the next step is to bring that ambition into action. “Action” is the It word in the midst of environmental transformation. The net zero transition is accelerating and many companies are trying to find the best way to bring their ambitions into action.

In a workshop session, groups of delegates were asked to name the three most important actions for tackling emissions within supply chains. Almost all groups agreed collaboration is key, with innovation and education forming the essential pillars of a successful strategy.

Collaboration calls for openness and transparency, whilst innovation carries risks. In a keynote delivered by Paul Polman, climate advocate and former CEO of Unilever, he stressed that risks and stumbles are inherent to innovation. Therefore, to truly accelerate the decarbonisation of the economy, we must embrace the lessons of failings and successes alike and make them part of the communication of our climate actions.

Ultimately, investors will need to accept a higher level of risk and transcend traditional ideas of competitive advantage to develop solutions that can bring about a rapid and steady transition to a low-carbon economy. With strong financial muscle, emerging companies with fresh ideas will find the support they need to grow, and established companies will be encouraged to adapt and transform. Riskier investments in the short-term will, therefore, enable long-term stability.

Balancing inherent tensions of climate action

Unsurprisingly, the question posed across sessions was how to reconcile the need for credible communication around climate initiatives with the inherent uncertainty of innovation and call for urgent climate action. This is the tricky part for organisations. They need to secure funding, reduce their emissions, be nimble, and innovate on the go whilst dealing with the constant threat of public criticism.

Communication plays a vital role in any climate action roadmap. The traditional approach has been to announce successes and omit the difficulties. However, being specific in reporting involves publicly sharing the efforts taken for each milestone. The attitude of “if it’s not perfect, we shouldn’t do it” is causing hesitancy for action. Watson was very clear when she highlighted that companies must go further than the SBTi guidance, and Polman noted that the biggest risk we face is our own fatigue. The time to act is now.

3Degrees stands ready to support organisations across the globe with net zero solutions, climate technology advisory services and climate risk assessment and mitigation to surpass the threshold of hesitancy and bring credible claims to action. Connect with us today.

Mateja Penava, Manager for Climate Strategy on the Energy and Climate Practice team in Europe

Mateja has extensive experience in carbon and renewable energy strategy development, enabling companies with a global footprint to achieve emissions reduction targets and make legitimate claims.

Jo Burton, Consultant for Climate Strategy on the Energy and Climate Practice team in Europe

Jo specializes in net zero, decarbonisation strategies and scope 3 emissions reporting, supporting strategic and analytical sustainability and energy management.