Author: Devon Lukas

Devon Lukas, Senior Associate, Energy Emissions and Consulting Services

In part one of this series, we explored the disconnect in current Scope 2 carbon accounting, specifically how the traditional attributional matching system fails to distinguish between differing emissions impacts across grid regions. Measuring by impact is long overdue.

Now we’ll dive into the mechanics of the proposed “consequential metric,” how it leverages marginal emissions to measure the emissions actually displaced by a project, and what’s next for the GHG Protocol’s Actions and Market Instruments (AMI) workstream. While the Greenhouse Gas Protocol’s existing framework helped kickstart the renewables market, this next phase of global decarbonization requires us to take a long look at what matters most: real-world impact. 

The “consequential metric”: what is it?

The consequential metric, as outlined in the GHG Protocol’s electricity-sector consultation, is a reporting method designed to estimate the system-wide emissions impact of specific actions (such as clean energy procurement or infrastructure investment) by comparing them against a “business-as-usual” baseline. Unlike traditional attributional Scope 2 accounting,  (which assigns a portion of the grid’s emissions to an organization’s footprint), this metric measures the change in emissions that results from an intervention at a specific location. It utilizes marginal emissions rates (MERs) to reflect how a specific action influences the grid and its fluctuating power plants, rather than using its average emissions.

It’s worth noting that the consequential metric does not measure an organization’s total carbon footprint or its annual inventory, and currently cannot be used in a Scope 2 inventory (though this part of the proposal is currently debated as it differs from TWG recommendations). Instead, the metric is intended to be used as a decision-making tool to help organizations prioritize high impact strategies, such as building energy storage or developing clean power in coal-heavy regions, where their actions will lead to the greatest real world decarbonization. While many details still need to be developed, the consequential view offers a start towards ensuring that corporate procurement leads to high impact development rather than just accounting shifts.

Why does marginal matter?

When you turn on a battery or buy wind power, you aren’t displacing the average grid mix. You are displacing the specific power plant that ramps down in response to this new, clean power (the marginal generator). This concept is measured by Marginal Emissions Rates (MERs), which are a central part of the consequential framework.

To demonstrate the importance of this, let’s look back at our example from part one, where nearby wind projects had diverging emissions abatement potential. Looking back at the November day that we zeroed in on, the chart below illustrates how localized congestion and demand create unique redispatch behaviour for the neighboring projects. Redispatch is the ramp up or down of generators by grid operators to ensure stability and cost-efficiency by balancing fluctuating supply and demand. Negative redispatch represents when generation is lowered in congested areas, and positive when it is increased elsewhere.

At Project A’s location, natural gas plants are the marginal generators ramping up to meet load; and at Project B’s location, that marginal increment is being met by wind. Consequently, a project at node A has a much higher “consequential” impact because it has the potential to displace fossil fuels, whereas the same project at node B simply offsets other clean energy (wind, in this case). This hourly difference adds up over time, resulting in two very different carbon avoiding potentials for clean energy projects at each location. Measuring this distinction would provide an organization with decision-making metrics that are not currently measured in Scope 2, and would incentivize investment in Project A’s location in this case; ensuring that capital is funneled toward the specific points on the grid where it can do the most heavy lifting for the climate.
ions reductions?

What’s next?

Beyond intended application (in or outside of Scope 2), several elements of the consequential metric require further development, including load emissions, emissions rate weighting, and additionality verification (proof that new clean power is getting built). For example, the TWG proposes the Marginal Impact Method (MIM), which accounts for both consumption and avoided emissions (unlike the current GHG Protocol proposal, which focuses on avoided emissions only). 

The AMI will be tackling unfinished items like these, alongside multiple other issues in their upcoming public consultation period later this month. As guidance develops, it’s clear that the consequential metric offers an unprecedented opportunity to transparently measure what really matters, and incentivize building new clean power where it’s needed most. Certainly a metric worth engaging with – be sure to share your thoughts once the AMI survey opens!

To see how your emissions impact might look under a consequential framework or the proposed GHGP Scope 2 revision, try out our Scope 2 Calculator: https://calculator.gridemissionsdata.io/

REsurety’s Consulting Team is following this topic closely. Refer here for part 1 of the series. For additional information or to speak to one of our experts, please complete the form below:

DISCLAIMER: This blog post contains information related to REsurety and the commodity interest derivatives 

services and other services that REsurety provides. Any statements of fact in this presentation are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed with respect to any such statement, nor with respect to any expression of opinion which may be contained herein. The risk of loss in trading commodity interest derivatives contracts can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them or their company. Please be aware that past performance is not necessarily indicative of future results.

This material is intended for informational purposes only. REsurety does not provide research reports as defined under CFTC Regulation 1.71, and this material should not be construed as a recommendation or advice with respect to any commodity interest transaction.

Devon Lukas, Senior Associate, Energy Emissions and Consulting Services

Corporate climate action is undergoing a quiet but massive revolution. For the last decade, the primary goal for sustainability teams via Greenhouse Gas Protocol (GHGP) guidance has been straightforward: measure your footprint, then buy enough clean power or certificates to match it. While this accounting framework was designed to bootstrap the early renewables market – and had major success doing so – a lot has changed in 10 years. 

Last month, the GHGP finished up its consultation on Scope 2 and, notably, launched the parallel “consequential method” via the Actions and Market Instruments (AMI) workstream to revise the framework for modern day emissions accounting. Ultimately, this inventory has much more impact than just voluntarily measuring emissions; it incentivises the decisions that companies make to reduce them. The GHGP has the opportunity to set a powerful guideline through these revisions that could incentivize and empower widespread global decarbonization.

The Problem: MWhs ≠ Emissions

Under the current Scope 2 Market-Based Method (MBM), corporations can claim carbon neutrality by matching electricity usage with Renewable Energy Certificates (RECs) on a simple total annual megawatt-hour (MWh) basis. While this system incentivized lots of clean power development over the past decade, it lacks accuracy and impact for the modern grid. It measures who uses which MWhs, not who reduces carbon emissions. To sum it up, this simplified measurement faces what the Greenhouse Gas Management Institute describes as a “fundamental disconnect between corporate actions and reported outcomes,” often insensitive to modern emissions mitigation efforts.¹

In response to the growing need for change, the GHGP recently held two public consultations for feedback on new revisions. The first revision includes mandatory “hourly matching” (the concept of matching load with an equal amount of clean generation within the same hour and location) in the Scope 2 MBM proposal in an attempt to improve accuracy. While it does not require new power to be built (the “additionality” pillar), this concept aligns energy usage with clean power production that could be applicable for greener grids. 

However, the grid is not fully clean yet, and the MBM lacks an impact-based measurement. This issue leads us to the second public consultation, in which the GHGP proposed a parallel “consequential method” in an attempt to quantify and report the impacts of actions. Requiring and incentivizing new clean power in dirtier regions (and out of renewables-saturated regions) is a key aspect to global decarbonization, and a gap that the consequential impact-based method could help address if done right.

The Solution: Accounting for impact

Historically, the standard has measured impact in units of energy, not emissions. In reality, no two MWhs have equal impact, regardless of how close in time or space they are. We can all agree that a MWh of clean energy generated in a grid with abundant solar power does not have the same emissions impact as one generated in a coal-heavy region, but even within the same region the grid is not uniform and impacts vary from transmission congestion.^2,3,4  So – how do we ensure that emissions accounting measures the right metric to incentivize the most clean power production and emissions reductions?

The current attributional MBM allows us to say “I bought 100 clean MWhs, so I’m 100% clean.” A consequential impact method has the ability to go a step further and allow us to ask, “Did those MWhs actually displace or avoid emissions from fossil fuels?”

The above highlights one example of how emissions impacts can vary for two nearby projects within a congested grid region leveraging our CleanSight Impact software. They are close enough that generation from both projects would likely be matched to load in equal ways under new GHGP guidance, yet they have different emissions impact stories. While they are experiencing roughly the same wind patterns, they are impacted by other surrounding generators on the grid, demand, and transmission infrastructure, causing them to have different emissions abating potentials especially during times of congestion.

Measuring by impact is long overdue as experts, academics, and the GHGP’s own Technical Working Group have studied its effectiveness, feasibility, and ability to encourage clean power development in locations that need it most.^5,6,7 As a result, the AMI was tasked with developing the consequential method, the first phase of which was released late last year and open for public comment through this past January. While the first phase is a step in the right direction, more work needs to be done in order to make this metric quantifiable and functional in emissions accounting frameworks. But – it has the crucial potential to be used as a baseline framework to guide clean power production to where it is most impactful. 

In part two of this series, we’ll break down the proposed consequential method, its components, and other impact accounting methodologies to examine how this concept can help fill the current gap. Be sure to check out part 2!

For for a case study view of how emissions impacts vary across location and time, check out our white paper (and underlying public dataset) comparing the impacts of electrolyzers and renewable projects across multiple regions: Emissions Implications for Clean Hydrogen Accounting Methods

REsurety’s Consulting Team is following this topic closely. Stay tuned for part 2 of the series. For additional information or to speak to one of our experts, please complete the form below:

[1] What is GHG Accounting? A reporting statement for corporate mitigation intervention impacts (Installment N.8)

[2] Carbon impact of intra-regional transmission congestion

[3] Scope 2: Physical Power Usage Accounting Is Fictional, Pricing And Marginal Impact Accounting Are Real

[4] SOME CONSIDERATIONS FOR SCOPE 2 EMISSIONS ACCOUNTING

[5] Cost and emissions impact of voluntary clean energy procurement strategies

[6] Evaluating the Impacts, Costs, and Consequences of Proposed Scope 2 GHG Emissions Reporting Standards

[7] Public Statement from Members of the GHG Protocol Scope 2 TWG Consequential Subgroup

DISCLAIMER: This blog post contains information related to REsurety and the commodity interest derivatives 

services and other services that REsurety provides. Any statements of fact in this presentation are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor do they purport to be complete. No responsibility is assumed with respect to any such statement, nor with respect to any expression of opinion which may be contained herein. The risk of loss in trading commodity interest derivatives contracts can be substantial. Each investor must carefully consider whether this type of investment is appropriate for them or their company. Please be aware that past performance is not necessarily indicative of future results.

This material is intended for informational purposes only. REsurety does not provide research reports as defined under CFTC Regulation 1.71, and this material should not be construed as a recommendation or advice with respect to any commodity interest transaction.