The energy you consume ends up in the sky

This article is part of a series of three. Learn more about Scope 1 hither, and about Scope 3 hither.

All human activity produces greenhouse gas emissions, so -to a greater or lesser extent- it generates a climate consequence. This is a difficult truth to accept, but it is important to always keep in mind, especially when it comes to thinking and acting in an environmentally responsible way. There are some emissions that are direct, and others, a little more difficult to perceive, which we call indirect. Direct emissions, also known as Scope 1 emissions, respond to those emissions that come from sources that are owned or controlled by the company that produced them; of the indirect ones, Scope 2 and 3, we will investigate separately later. This article is the second part of a series of three whose objective is to deepen these ranges of greenhouse gas (GHG) emissions: for Scope 1 emissions, we have already talked about their definition, the accounting and reporting framework on which they are based and some other important points such as the challenges of measuring them, but above all, the importance of learning to mitigate these emissions correctly. This story began some time ago by explaining the emissions of Scope 1 and today, halfway through this journey, we will talk about the emissions of Scope 2.

Let's start by defining what they are and what characterizes them: Scope 2 refers to all the emissions generated by the purchase and use of electricity (although it can also be thermal energy) that a company can use. While these emissions occur physically at the sites where electricity is generated (or heat), that is, in an electric/thermal power plant, they are also counted in the reports of the companies that buy and use this energy, such as something as common and necessary as charging a computer, the use of light bulbs in an office or even the essential electric coffee maker.

One of the best practices is to use the most accurate and transparent accounting method that shows our real emissions, as well as those reduced

With all of the above, we may have several questions that we hope to answer later in the text, but let's start with the basic question: Why know the Scope 2 emissions?

Beyond the willingness of some companies to mitigate and reduce their emissions in order to move towards a climate strategy, knowing the emissions of Scope 2 is essential because they often correspond to the main source of emissions, that is, they represent one of the largest sources of GHG a global level. However, it is a reality that no climate strategy is complete without having the comprehensive picture, so to know the carbon footprint of a company it is necessary to add the three types of scopes: Scope 1, Scope 2 and Scope 3.

Measurement as a starting point

Due to the complexity of measuring known as “indirect” emissions, it is pertinent to ask ourselves how do we measure Scope 2 emissions? According to Scope Guide 2 of the GHG Protocol -a standard through which companies can be more clear about good practices when reporting their emissions- these should be made known about Two ways:

An approach location-based, which reflects the intensity of the average emissions of the local or national networks in which energy consumption occurs and an approach market-based, which reflects the emissions from the electricity generation that companies choose, that is, Emissions by choice of purchase which may be different from electricity that was generated locally. According to the Science Based Targets (SBTi) -which are an initiative that allows the voluntary objectives of reducing and mitigating private sector emissions to be aligned with the global objective of the Paris Agreement- both approaches have unique peculiarities. Accounting location-based has the potential drawback that companies can account for grid-level emission reductions that are not related to companies' acquisition and investment practices. Accounting market-based uses contractual instruments that come in a wide range of types: from energy purchase agreements (better known as PPAs) to renewable energy certificates (also called RECs) which allow the company that acquires them to reduce its emissions.

Something is needed: more transparency and more engagement to generate quality climate action

Now, let's resolve a new question that surely arose with what was said above: how do RECs work? Why do they have the ability to reducing Scope 2 emissions? Renewable energy certificates function as a bargaining chip within the renewable energy market. A REC is equivalent to 1 Megawatt-hour (MWh) generated with a renewable energy source and this is discharged to the local or national electricity grid. The latter is essential to understand how buying a certificate helps to reduce your Scope 2 emissions, because renewable energy producers cannot distribute it directly to a company, so the energy is discharged to the general electricity grid. So, would this mean that it's impossible to distinguish between renewable energy and non-renewable energy? Fortunately, it is not impossible: to resolve this situation, with each REC poured into the local or national energy grid, a certificate is generated, so that it is recorded how much energy belongs to which source and, therefore, these can be monetized and counted.

We know that with all the above information, Scope 2 broadcasts could be seen as an incomprehensible nightmare, however, we will now illustrate these concepts in a better way with several examples:

Suppose that a company reports its emissions under the method location-based. These emissions will depend on the emission factor of the local or national electricity system -being a value that is expressed in tons of equivalent carbon dioxide (tCO2e) per MWh- generated by the power plants of the Federal Electricity Commission (CFE) for the case of Mexico. However, if any company decides to buy renewable energy through a PPA or RECs - emissions that are generally lower when they come from a clean source - they would have a “reduction” in their emissions, however, this reduction is not counted in the method location-based (because in the power/thermal power plant the actual emissions generated were different). Now, let's imagine that approximately 0.423 tCO2e/MWh are emitted in Mexico. If your electricity consumption was 100 MWh, your Scope 2 emissions - under the method location-based- are 42.3 tCO2e (it's a simple multiplication). However, if you buy 10 RECs to reduce your emissions, it means that of the 100 MWh, You generated 10 MWh in a clean way So your emissions -under the method market-based- now they would correspond to 90 MWh, a value that if we multiply by 0.423 tCO2e/MWh (which represents the emissions of the power plant from which you receive energy), now results in 38.07 tCO2e, that is, in a slowing. Are there still doubts? Let's look at another example:

Suppose that a company issues 15,000 tons of CO2e by Scope 2 and within its sustainability policy, it has set the goal of acquiring a percentage of energy from a renewable source, such as solar or wind, so it decides to buy a specific quantity of RECs, What do they allow reducing your Scope 2 emissions up to 50%. Viewed from an accounting and reporting perspective of GHG emissions, the company in question would indicate that Scope 2 emissions, under the approach market-based, they would be 7,500 tCO2e (or 50% of their total emissions) unlike the approach location-based where the total amount would be reported, i.e. 15,000 TCO2e. As we can see with both examples, the emission values vary widely, so in this type of situation the best practice will always be to report both approaches, since communicating only one of them can cause misinterpretations and biases that lead to erroneous conclusions.

That said, we must say that RECs aren't all perfection. They recently received criticism in a study published in Nature which states that these types of instruments (allowed both by the GHG Protocol and SBTi) are leading companies to Overestimate their cuts or reductions in Scope 2 GHG emissions. Let's see what this study says:

“The widespread use of RECs has led to an inflated estimate of the effectiveness of mitigation efforts. The analysis based on emissions reports from 115 companies showed that recent emission trajectories (data from 2015 to 2019) did not align with the Paris Agreement objective of 1.5°C even though they appeared to do so. Companies reported a 31% reduction in emissions related to purchased energy, but two-thirds of that reduction is based on RECs, so it's unlikely to be a real reduction in emissions.” (Bjorn et al., 2022)

Nearly 40% of global greenhouse gas emissions can be attributed to power generation

This results in an alarming criticism, since it indicates that some practices to reduce Scope 2 emissions - which in many companies may represent a Tall contribution to their total carbon footprint - such as RECs, they may not be additional, that is, they do not lead to additional renewable generation capacity or real emissions reductions. This also goes hand in hand with the reality of many corporations that choose not to generate root change in order to comply with their climate strategy.

Transparency as the best climate ally

Because of the real possibility of overestimating reduction targets, what are the best practices that reflect a true commitment to reducing Scope 2 emissions? The first will always be to use the most accurate and transparent accounting method that shows our real emissions, as well as the reduced ones, therefore report both approaches it's the best practice we can do.

However, even reporting both approaches, there are other good practices for reducing Scope 2 emissions that companies can choose in an additional way and that allow a greater understanding of how much and how they are reducing their emissions:

1. Energy Purchase Agreements (PPAs): This is a contract that occurs between any buyer - usually a company - and the developer of a renewable energy project. PPAs allow a corporation to achieve Scope 2 renewable energy use objectives and emission reductions on a large scale and over a long period of time.
2. Renewable energy generation on site: this is one of the most common measures, which consists of the use of renewable sources (such as photovoltaic solar) to generate electricity at the point of consumption.
3. Energy efficiency: involves using less energy to perform the same task or produce the same result. This can be just as important a measure as the previous ones. An example of this is the automatic on/off control of motors, luminaires or any other device with high electrical consumption.

Intersectoriality as an end

The energy sector in Mexico is characterized by being mostly made up of non-renewable energy sources on a human scale, such as mineral coal and hydrocarbons. From the beginning of the extraction of geological deposits to the arrival of electricity to your office, the planet suffocates on more and more greenhouse gases. Although both governmental and private sector efforts to address pollution and the climate crisis are to be applauded and increasingly renewable energies have managed to position themselves in our country, in the world and in our accounting and reporting frameworks for emissions, this is not enough. Something is needed: more transparency and more engagement to generate quality climate action.

We use electricity for a wide range of tasks: from purely domestic situations such as charging a cell phone or operating a blender, to high-consumption processes such as keeping the engine of an oil or agricultural company's device running. We opened this text by saying that all human activity has a climate consequence, however, not all of them impact in the same way. Nearly 40% of global greenhouse gas emissions can be attributed to power generation (Sotos, 2021), where half of this energy is used by industrial entities, so no: a blender doesn't impact the same as an extraction hood, which doesn't impact like a cooling system. We know that both the original cause and the tangible and real solution lie in the private and business sectors, as well as the pressure that civil society may demand from decision makers, so from our work in Toroto, we feel fully committed to generating change - and one that is palpable and, above all, breathable.

Whatever the optimal measure to reduce Scope 2 emissions a company chooses, at Toroto we adhere to the best practices for accounting and reporting of GHG emissions, as well as the design of plans that seek true reduction and allow companies to achieve their climate objectives. A climate strategy is not just buying renewable energy certification instruments; a climate strategy involves awareness and commitment to generating root change, involving different actors and learning from their different ways of dealing with this problem.

About the authors:

Juan Carlos is a Carbon Management Analyst in Toroto. He is a renewable energy engineer. Enjoy the sea, sports and discover new museums.

María is a Carbon Management Analyst in Toroto. She is a physical engineer at IBERO. He is fascinated by archeology, Mexico, the arts and laughing. He believes that together we can do everything.

References

• Bjørn, A. et al. (2022). Renewable energy certificates threaten the integrity of corporate science-based targets. Nat. Clim. Chang. 12, 539-546. https://doi.org/10.1038/s41558-022-01379-5
• Sotos, M. (2021). GHG Protocol Scope 2 Guidance. Greenhouse Gas Protocol. https://ghgprotocol.org/sites/default/files/standards/Scope%202%20Guidance_Final_Sept26.pdf