We need to evolve and expand—rather than diminish—the market-based tools customers have at their disposal to drive systemic grid decarbonization and substantiate their carbon-free electricity procurement.
Corporate voluntary carbon-free electricity (CFE) procurement is a proven lever for accelerating grid decarbonization. Case in point, customers drove over one-third of all new CFE capacity additions in the United States since 2014 by signing contracts for 52 gigawatts (GW) of new CFE capacity. Just like any other voluntary energy procurement market scenario, these corporate energy customers received and used energy attribute certificates (EACs)1 to substantiate their CFE procurement. This CFE procurement also sends important market signals by increasing CFE supplier revenues through the resulting EAC sales to customers.
EACs, along with market-based accounting, fundamentally enable and incentivize energy customers to achieve their CFE procurement goals. The resulting collective voluntary CFE procurement power from a substantial and fast-growing community of clean energy customers drives investments in CFE resources that complement policymakers in advancing electric grid decarbonization.
Simply put, EACs represent the completed purchase of verified CFE generation. Underpinned by validated electric grid operator data, EACs convey the property title (or receipt) that energy customers receive along with standardized information (e.g., the EAC issuance date along with the type, location, capacity, etc. of the CFE resource that produced that EAC) about the CFE option they elected to buy to make progress toward their voluntary CFE and sustainability goals. Said another way, customers need EACs in their books to validate any of their CFE procurement claims.
EACs also facilitate the scaling of much-needed financing for grid decarbonization. Any time customers buy CFE—meaning they buy EACs, whether bundled or unbundled with an electricity product—they create a revenue stream and send market signals that make CFE investments more financially attractive among investors. EAC-generated revenue enhances the bankability of CFE projects and investment potential of developers that own and/or operate CFE resources. In other words, EACs provide an additional revenue stream to help attract more CFE investments. Their value can also help fill the bankability gap in countries that are phasing out subsidies or feed-in tariff schemes for new CFE capacity.
Despite the critical role of voluntary CFE markets and the instruments that make them possible, there is an emerging tension in discussions underway about the impact of voluntary markets and EACs. On one hand, publications like this June 2022 Nature paper can—despite presenting some valid observations about the need to enable and motivate customers to send more targeted market signals that advance systemic grid decarbonization through their CFE procurement—present misleading (and sometimes inaccurate) headlines and recommendations (e.g., some going as far as arguing that EACs should be discredited) as a result of misunderstanding how EACs enable market transactions. On the other hand, there is recognition across the clean energy industry that EACs must include more attributes to enable differentiated next generation procurement solutions so customers can better optimize the grid decarbonization impact of their CFE procurement. Either way, EACs underpin all voluntary market transactions. We need to continue to empower customers to engage in these markets to accelerate grid decarbonization, but we also need EACs that carry more specific attributes so that customers can drive deeper and differentiated grid decarbonization impact through their CFE procurement.
To support discussions underway about the role of energy customers in grid decarbonization, the following Q&A overview in Table 1 summarizes the critical role of EACs to support voluntary CFE markets, how EACs substantiate customers’ claims, and new attributes that EACs should include to activate next generation CFE procurement solutions.
Table 1: Q&A about how energy attribute certificates (EACs) create markets, business value, and verifiable claims for carbon-fee electricity procurement and ways to enhance EACs so energy customers can send more powerful, targeted market signals
|What is an energy attribute certificate (EAC)?
|An EAC is an accounting instrument representing one megawatt-hour (MWh) of electricity generated by a CFE resource that conveys a property right over the environmental attributes of that MWh, such as a zero or near-zero emissions factor depending on the CFE resource. Once the purchased EAC reaches the end consumer (or beneficiary), the EAC is retired (or cancelled) in the EAC registry/issuing body system so it cannot be double counted or double claimed.
|Are there different types of EACs?
|Yes, there are different types of EACs and associated standards across different markets. For example, the most common EACs in electricity markets are renewable energy certificates (RECs) in the United States., guarantees of origin (GOs) in the European Union, and international RECs (I-RECs) in 50+ countries across Africa, Asia, and Latin America.
|Who issues and tracks EACs?
|Countries typically have one entity—called an issuing body or registry—that issues EACs to CFE resources based on verified monthly MWh production data from electric grid operators. The United States has over ten registries based on its legacy grid design.
|How do energy customers buy carbon-free electricity (CFE) and what role do EACs play?
|Energy customers procure CFE through diverse product offerings and solution providers then deliver customers EACs as evidence customers use to substantiate their CFE procurement. Solution providers deliver customers EACs through various types of unbundled or bundled EAC products—such as unbundled EACs, virtual power purchase agreements, physical power purchase agreements—so that customers can verify their claims.
|Why do customers buy CFE?
|Customers buy CFE on a voluntary basis to make progress toward any goals they set around clean energy sourcing, greenhouse gas emission reductions, and/or broader sustainability.
|What is the business value of EACs for CFE resource investments?
|EAC sales generate revenues for EAC suppliers and create a revenue stream for CFE resource owners/operators. These revenues can be used to expand their CFE business, make and attract investments in new CFE resources, etc. The value of the EAC follows supply/demand dynamics: as demand for a particular type of CFE in a given market rises, the price of the EAC in that market increases—increasing revenues that then help attract more investments to meet demand.
|What is the value of EACs for CFE procurement-related claims and audits?
|EACs represent fact-based, ex-post information that underpins all legitimate CFE procurement-related claims. EACs are the standard instrument that customers use to verify CFE procurement credentials. Without holding an EAC, there is no standardized way to verify CFE procurement credentials or related claims.
|How do customers use EACs in carbon accounting?
|Customers typically use EACs to reduce their emissions from their electricity use (“Scope 2” emissions). Some customers are also starting to apply EACs to reduce emissions from electricity use across their value chains (“Scope 3”). Customers typically report EACs through the market-based accounting method outlined in the Greenhouse Gas Protocol’s Corporate Standard to reflect how the EACs they bought give them the property right over the zero or near-zero emission attributes over MWh in the grid. As a result, customers that achieve 100 percent CFE and have the EACs to prove it can report they have zero Scope 2 emissions. Over time, as the grid mix changes due to CFE capacity additions that replace emitting resources, this reduces the emissions reported through the location-based accounting method under the Corporate Standard. In other words, market-based accounting is the way most customers can take action and document progress toward their own emission reduction goals, whereas location-based accounting provides a pulse check around progress in decarbonizing the grid as a whole, yet does not provide avenues beyond policy change for a customer to change the emissions profile of the grid mix they use.
|Can voluntary markets function (i.e., can customers buy CFE) without EACs?
|No: There are no straightforward, standardized, transparent options that provide an alternative to EACs either for customers to procure CFE and verify CFE procurement-related claims without EACs or to create EAC-like revenue streams that help increase investments. Without EACs, we would not have seen the tremendous growth in customer driven CFE deployment.
|Can customers decarbonize their electricity use without the use of EACs in voluntary markets?
|Yes and no: Without the use of EACs in voluntary markets and the ability to make decisions about the type of resource they procure, customers can only rely on lobbying governments, regulators, and utilities to get lower-carbon generation. However, relying solely on slow-moving policy change and implementation greatly diminishes the chances of decarbonizing the electricity system to 90 percent by 2030. Voluntary markets allow energy customers to drive decarbonization faster by making decisions that send important market signals today, while also working with governments, regulators, and utilities to increase CFE generation. In addition, an evolution in existing EAC systems whereby EACs capture more attributes will enable customers to send more targeted market signals for systemic grid decarbonization.
|How can we direct voluntary markets to support (i.e., send market signals) for systemic grid decarbonization through next generation procurement?
|There are five main new types of attributes—1) tags, or new EAC types, for all CFE resources, 2) tags for storage resources, 3) granular (hourly or sub-hourly) timestamps, 4) a snapshot of grid carbon intensity, and 5) social/community credentials—that EAC issuing bodies and registries can add to EACs to broaden the suite of CFE procurement options and enable customers to send stronger market signals for CFE resource investments advancing systemic grid decarbonization. By capturing these attributes in EACs, EAC issuing bodies and registries will enable solution providers to offer next generation solutions that empower customers to send more targeted market signals for systemic decarbonization through CFE procurement.
|How does CFE procurement fit within customers’ overall decarbonization strategies?
|Customers typically first implement energy performance measures across their operations to reduce their energy use and associated emissions. Then, they will procure CFE: when and where possible, a customer may be able to enroll in a CFE utility program or change their electricity supplier, where they will still need an EAC (or similar documentation) to substantiate their claims. In most cases, customers will engage in voluntary markets by procuring CFE and receiving EACs—typically starting with unbundled EAC products before moving toward more complex and/or risky bundled products—to cover their more energy-efficient operations with verified CFE, which conveys zero or near-zero emissions factor for each MWh covered by an EAC. In addition, customers can engage with policymakers, regulators, and utilities to advance more ambitious decarbonization goals for the grid.
In support of the NextGen Initiative, the Clean Energy Buyers Institute (CEBI) is launching a new research endeavor to clarify and better communicate the central role of EACs in voluntary CFE markets for current and next generation procurement. This research will result in the delivery of straightforward, audience-specific educational content that informs diverse stakeholders about the central role of EACs for voluntary CFE markets. This research will also inform broader guidance CEBI is developing for the NextGen Initiative about the updates needed to the current voluntary CFE procurement market system—from new attributes, and underlying data, for EACs to new customer leadership recognition programs and greenhouse gas accounting frameworks—to activate a broader suite of CFE procurement options for customers to play their proven important role in advancing systemic grid decarbonization.