Insights

When Companies Use Renewable Energy,
Do Greenhouse Gas Emissions Really Fall?

ㅣTaehan Kim, COO of KoSIFㅣ

Many global companies, including Apple and Google, say they have achieved 100% renewable energy use. Several Korean companies have also reported that their overseas operations have already transitioned to 100% renewable electricity. But does a company’s use of renewable energy actually reduce greenhouse gas emissions?

Some argue that corporate renewable energy use makes a major contribution to emissions reduction. Others criticize corporate renewable energy purchases as little more than an accounting exercise.

Still others say the impact depends on how the renewable electricity is procured. For example, some argue that Korea’s Green Premium scheme, which is widely used by Korean companies, has little real impact on emissions, while power purchase agreements, or PPAs, commonly used by companies overseas—particularly in the United States—deliver stronger emissions reductions.

So who is right?

The answer is that all of these views are partly right and partly wrong. The reason is that there has so far been no clear definition of the “emissions reduction effect” or “impact” of renewable energy procurement.

     What Does “Reduction” Mean?

The same word can carry different meanings in everyday conversation and in a technical field. In greenhouse gas accounting, “reduction” is one such term.

Suppose a company emitted 100 tonnes of greenhouse gases last year and 80 tonnes this year. In everyday language, people would commonly say, “The company reduced its emissions by 20 tonnes,” or simply, “Its emissions fell by 20 tonnes.”

In greenhouse gas accounting, however, “not emitting” and “reducing emissions” have distinct meanings.

It may not be practical to distinguish between these concepts in every everyday conversation. But understanding the difference is essential to determining whether a company can genuinely claim to have reduced emissions by using renewable energy.

     Emissions Accounting and the Right—or Responsibility—to Claim Zero Emissions

Measuring corporate greenhouse gas emissions has now become essential. The key point, however, is that companies calculate their “emissions,” not their “emissions reductions.”

The concept of reduction does not inherently exist in emissions accounting. It asks only whether emissions occurred or did not occur.

Most companies worldwide use the GHG Protocol Corporate Standard to calculate greenhouse gas emissions. The GHG Protocol describes this approach as “attributional accounting.”

Under the GHG Protocol, companies calculate and report:

• - direct emissions from facilities they own or control as Scope 1;
• - emissions generated in producing purchased electricity, heat, or steam used at facilities they own or control as Scope 2; and
• - emissions generated across their value chains, including suppliers and customers, as Scope 3.

Within the activities defined under each scope, companies calculate the share of emissions for which they are responsible.

For example, suppose Power Company A burns 40 tonnes of coal to generate 100 MWh of electricity, producing 80 tonnes of greenhouse gas emissions. Company B then purchases and consumes all of that electricity. The emissions attributed to each company would be calculated as follows:

• 
  
• • Power Company A:
• 80 tCO₂e of Scope 1 emissions
  = 40 tonnes of coal consumed × 2 tCO₂e per tonne of coal
• • Company B:
  80 tCO₂e of Scope 2 emissions
  = 100 MWh of electricity consumed × 0.8 tCO₂e per MWh

By purchasing and consuming coal-fired electricity, Company B assumes responsibility for 0.8 tCO₂e of Scope 2 emissions for every MWh of electricity it uses.

The same method applies when a company generates or purchases renewable electricity that produces no greenhouse gas emissions during generation. The only difference is that renewable electricity has an emissions factor of zero. No matter how much is generated under Scope 1 or purchased and consumed under Scope 2, the attributed emissions remain zero, because any number multiplied by zero is zero.

The “zero-emissions responsibility” associated with renewable electricity is more commonly understood as a right to claim zero emissions rather than as a responsibility.

     Emissions Reduction and Additionality

The GHG Protocol Corporate Standard and Scope 2 Guidance do not consider how much a company’s renewable electricity procurement contributes to reducing society-wide greenhouse gas emissions when the company claims the associated zero-emissions responsibility or right.

Scope 2 accounting is a process of identifying the emissions generated in producing purchased electricity and ensuring that the associated responsibility or right is tracked without double counting within the same scope.

“Emissions reduction,” however, is an entirely different concept.

It applies a strict standard known as additionality to determine whether an activity made a consequential or causal contribution to reducing greenhouse gas emissions. This approach is used in project accounting for the issuance of carbon credits and is referred to by the GHG Protocol as consequential accounting.

Representative examples include the Article 6.4 mechanism under the Paris Agreement, formerly associated with the Clean Development Mechanism, and Korea’s external reduction projects under the emissions trading scheme.

Additionality is the process of demonstrating, against a baseline scenario, that the reduction in greenhouse gas emissions would not have occurred without the activity. Legal and economic factors are among the main considerations.

The following are examples of renewable electricity purchases that may be considered to have little or insufficient additionality:

• - purchasing renewable electricity from an old hydropower plant;
• - entering into a PPA with a new solar power plant built with subsidies; and
• - entering into a PPA with a new wind or solar power plant whose generation cost is already lower than that of coal-fired power.

In all of these cases, no greenhouse gases are emitted during the generation of the electricity purchased by the company. The company can therefore claim zero Scope 2 emissions for that electricity.

At the same time, however, these projects may have very low additionality because the power plants had already been built or would likely have been built even without the company’s contract.

If a project is legally guaranteed sufficient economic returns or is already commercially viable on its own, it would likely have been developed for profit regardless of who purchased the electricity.

     Revision of the GHG Protocol Scope 2 Guidance

Additionality was originally a concept used to calculate project-level emissions reductions, not corporate emissions.

It was therefore not included in the GHG Protocol Scope 2 Guidance, which was developed as supplementary guidance on how companies should account for renewable electricity procurement in their Scope 2 emissions.

A company may make little or no contribution to reducing society-wide emissions, yet still apply a zero-emissions factor in its inventory because it purchased renewable electricity. It is understandable that some may view this as greenwashing.

The accounting treatment may be technically valid, but it does not necessarily align with the expectations of the general public.

As corporate renewable energy procurement has expanded, this confusion has also intensified.

The GHG Protocol has recently proposed allowing companies to report additional, renewable energy-related emissions reductions separately from their Scope 2 emissions.

A public consultation is being held from October 20 to December 19. Active participation by Korean stakeholders will be important, not least to address the continuing controversy over greenwashing in corporate renewable energy procurement.