Good Intentions, Bad Policy, and the Threat to the Clean Energy Transition

Good Intentions, Bad Policy, and the Threat to the Clean Energy Transition

Insights |
By The Sol Systems Team

Why Additionality Should Not Be a Requirement for Corporate Clean Energy Goals

Electricity generation accounts for 25% of global CO₂ emissions, and addressing this through a transition to renewable energy sources - like solar or wind - is critical to solving the climate crisis. The good news is that corporations are stepping up to procure massive amounts of clean energy to minimize their carbon footprints, documented by retiring renewable energy certificates (RECs). The World Resource Institute (WRI) establishes the global ‘rules of the road’ for emissions accounting. But those rules – specifically its Scope 2 Guidance on indirect emissions from purchased electricity, steam, heat, or cooling – are under review to be changed, and the consequences could be catastrophic to the progress of the clean energy transition.

What’s at Stake

These new proposed rules will make accounting for voluntary purchases of renewable energy, specifically of unbundled RECs, much more challenging for corporations and threatens REC markets that are vital for the transition to renewable energy. These new rules, while well-intended, will actually slow down clean energy procurement at a time when we need it most.

Perspective from the Practitioners

Clean energy practitioners who develop, finance, build, operate, invest in, or purchase power from renewable energy projects widely agree that a more difficult process for corporations to make emissions claims is not a path forward that will bolster clean energy procurement - in fact, it will set us backward. In contrast to the proposed changes, the following principles represent a consensus among most practitioners – and the evidence included in our detailed white paper offers practical examples and explanations for why these principles should be adopted:

  • Market-Based Instruments are Critical and Enabled by REC Markets: Market-based instruments, such as Virtual Power Purchase Agreements (VPPAs), or contracts that ensure the long-term financial backing of clean energy projects, and unbundled RECs, are critical to enable and motivate corporations to meet GHG emissions accounting requirements. REC markets are critical enablers for voluntary procurement. The new rules consider eliminating market-based accounting; this would discourage voluntary procurement of renewable energy.
  • An Additionality Requirement is Not Reasonable: A binary ‘additionality test’, or the requirement of clean energy projects to be new versus existing ones in order to “count” (as some academics propose), should not be a prerequisite for making an emissions reduction claim but could voluntarily be disclosed alongside such claim. Corporations simply won’t be able to buy as many ‘additional’ RECs, and the clean energy industry won’t be able to finance and build as many projects. Requiring additionality is a mistake and would be detrimental to the clean energy transition.
  • Time and Location Data Tracking is Critical: Time and location data tracking associated with customer load and renewable energy generation is essential to match, measure, and account for the underlying emissions impacts. There is broad consensus for working towards adapting GHG accounting guidance for emissionality, which reflects the avoided emissions. Renewable energy markets, particularly REC markets, will ultimately better reflect underlying carbon intensity and direct clean energy investments and procurements into carbon-intense markets where emissions reductions are most needed. Many of our recommendations to integrate emissionality into REC markets and Scope 2 requirements, shared in 2023 in our perspective on “Reimagining REC Markets,” are now being discussed for implementation.

A Better Path Forward

Continuing progress requires collaboration. We call on WRI to emphasize the practical evidence from clean energy buyers, developers, financiers, and our industry associations in the new accounting guidance so these rules support (not prohibit) the clean energy transition. We also call on the clean energy practitioner community to continue actively engaging in this critical debate and sharing their insights.

We recommend accounting frameworks and policies that support:

  • Emissions reduction claims that ultimately integrate carbon intensity into any reporting; corporations should be given the option of how to report depending on their capabilities
  • Flexibility of differentiating the impact of their emissions reduction claims through a hierarchy of voluntary contractual instruments under market-based accounting to bolster action
  • Reframing ‘additionality’ and ‘emissionality’ as a disclosure feature to allow for transparency and flexibility while driving ambition.

We all want a sustainable energy future that drastically reduces carbon emissions. Carbon accounting is not a purpose in itself – global emissions reduction is. To get there, we need conducive accounting frameworks and supportive policies, not prohibitive ones, to motivate the clean energy transition for diverse corporations that can provide immediate impact toward reaching our collective climate goals.

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