By Hanna Ye and Doug Miller
To meet organizational goals, emerging regulations, and stakeholder demands, energy customers are beginning to assess solutions to reduce greenhouse gas emissions across their value chains. These Scope 3 emissions originate from upstream and downstream sources and on average represent 75% of an organization’s total emissions.
At the beginning of 2022, energy customers identified the ability to procure carbon-free electricity (CFE) on behalf of value chain partners as one of their top objectives for next generation energy procurement. During workshops convened last year by the Clean Energy Buyers Institute (CEBI) as part of its NextGen Initiative Activator series, customers, solution providers, and market system stakeholders aligned around the opportunity to scale voluntary CFE demand and hasten grid decarbonization investments by empowering energy customers to procure CFE, covering the subset of their Scope 3 emissions originating from their value chain partners’ electricity use. The U.S. Environmental Protection Agency (EPA) last year also issued guidance detailing how customers may procure CFE on behalf of value chain partners and allocate energy attribute certificates (EACs) to them.
These discussions elevated practical challenges hindering broader adoption. At the top of the list: How can energy customers determine the volume of CFE to procure on behalf of their respective value chain partners, given limited access to quality data? CEBI conducted numerous interviews in late 2022 with large commercial and industrial energy customers from diverse industries to investigate this challenge and identify potential solutions.
Three key themes emerged about the real-world challenges that customers face in reducing emissions from their value chain partners:
- Value chains’ complexity: Energy customers often have different value chain partners; these partners range from large resource-strapped manufacturers and dispersed small- and medium-size enterprise suppliers to diverse downstream partners that vary based on a customer’s product or service. Customers also likely have different contractual arrangements with different value chain partners that often vary across geographies.
- Limited data access: Customers have limited access to quality data about their value chain partners’ respective electricity use and emissions. In the absence of quality data, customers seeking to better understand their Scope 3 emissions associated with value chain partners must estimate partners’ respective electricity use and emissions.
- Resource constraints to develop and implement a CFE procurement strategy: Upstream suppliers and downstream users across an energy customer’s value chain have limited internal resources, capacities, skillsets, and practical options to develop and implement a CFE procurement strategy.
CEBI asked customers about currently available methods and stakeholder concerns around procuring CFE on behalf of value chain partners given these challenges, particularly about limited quality data access. Based on those conversations, CEBI identified potential solutions to address value chain data access and accounting challenges and promote CFE procurement on behalf of value chain partners:
- Short-term: Energy customers could use best-effort estimation methods to evaluate their upstream and downstream value chain partners’ electricity usage and related emissions. Customers then could procure CFE on behalf of value chain partners and decide how to allocate ownership over the energy attribute certificates (EACs) across value chain partners.
- Medium-term: Energy customers could rely on self-reported figures from a selection of value chain partners and use best-effort estimation methods for those that do not report directly. Some value chain partners procure CFE themselves and report evidence. For other non-reporting value chain partners, customers procure CFE on behalf of their partners and decide how to allocate ownership over the EACs among their partners.
- Long-term: All value chain partners could report their electricity use and associated emissions to energy customers, and a growing group of value chain partners could procure CFE themselves and deliver this evidence. For other non-reporting value chain partners, customers could procure CFE on behalf of their partners and decide how to allocate ownership of the EACs among their partners.
Wider market evolutions would also empower customers to procure CFE on behalf of value chain partners’ respective electricity use. CEBI explained those evolutions in its Next Generation CFE Procurement Activation Guide.
For example, the Greenhouse Gas Protocol, currently undergoing an updates process, could make changes to clarify acceptance of reducing Scope 3 electricity-based emissions by procuring CFE on behalf of and assigning the associated EACs to customers’ value chain partners. This clarification in greenhouse gas accounting, which is one of four recommendations that CEBI is submitting to the Greenhouse Gas Protocol for this updates process, would enable more customers to address their Scope 3 electricity-based emissions and create significant growth in voluntary CFE procurement.
CEBI’s NextGen CFE Initiative this year is focused on solving barriers to activating the market evolutions specified in our guide. This means finding opportunities to enrich EACs with more attributes, increase access to consistent and more granular data, update the Greenhouse Gas Protocol, and enhance customer leadership programs. Each of those endeavors will help create an evolved voluntary market system where customers have increased options to advance systemic grid decarbonization.