{"id":2164,"date":"2020-05-07T12:15:36","date_gmt":"2020-05-07T12:15:36","guid":{"rendered":"http:\/\/blogs.sussex.ac.uk\/sussexenergygroup\/?p=2164"},"modified":"2024-02-13T15:37:36","modified_gmt":"2024-02-13T15:37:36","slug":"making-sure-organisations-climate-change-targets-are-not-part-of-a-zero-sum-game","status":"publish","type":"post","link":"https:\/\/blogs.sussex.ac.uk\/sussexenergygroup\/2020\/05\/07\/making-sure-organisations-climate-change-targets-are-not-part-of-a-zero-sum-game\/","title":{"rendered":"Making sure organisations\u2019 climate change targets are not part of a zero-sum game"},"content":{"rendered":"\n

Dr Andrea Smith\u2019s thesis, <\/em>What factors \u2013 external and internal \u2013 influence a firm\u2019s choice of voluntary greenhouse gas mitigation activities?<\/em><\/a>, investigated the role of renewable electricity contractual instruments (green tariffs, renewable electricity certificates, etc) in businesses\u2019 climate change strategies. In this blog, she explains the backstory to her research and discusses her thesis\u2019s findings based on her work with 11 large UK and German firms.<\/em><\/p>\n\n\n\n

The targets set by firms in the corporate Hall of Fame<\/h2>\n\n\n\n

Many of the biggest and the best-known firms across the\nworld have set ambitious targets to tackle climate change \u2013 and this means\ntackling greenhouse gas (GHG) emissions from electricity use which is a\nsignificant contributor to most organisations\u2019 carbon footprint. Many big name\nbrands have joined RE100, an organisation that encourages organisations to pledge\nto using 100% renewable electricity as part of the fight against climate change.\nBank of America, Goldman Sachs, Marks & Spencer, Virgin Media, Zurich: the\n200-plus companies that have joined RE100 reads like a Who\u2019s Who of the\ncorporate world. The Crown Estate is listed among them too: renewable\nelectricity targets are not limited to the business world.[i]<\/a><\/p>\n\n\n\n

The electricity through your socket: you don\u2019t get what you pay for<\/h2>\n\n\n\n
\"Wind<\/figure>\n\n\n\n

Buying renewable electricity (RE) is not as simple as it may\nseem. If an organisation has its own on-site wind turbines or solar panels, it\nis directly consuming RE. If it is taking electricity from the grid, then the origin\nof the electricity coming through its sockets is determined by whichever\nmethods of electricity generation are sending electricity to the grid.[ii]<\/a>\n<\/p>\n\n\n\n

An organisation\u2019s GHG emissions from electricity use can be\ncalculated in two ways[iii]<\/a>:<\/p>\n\n\n\n

It can be calculated by finding out which grids it is\nconnected to and the average emissions per unit of electricity on those grids.\nThis is known as the location method<\/strong> because it is the location of the\norganisation which counts. <\/p>\n\n\n\n

There is a second method of estimating emissions. The\nmarket-based method<\/strong> bases emissions on the contractual arrangements (known\nas instruments) an organisation enters for the provision of electricity. The instrument\ncould be a green tariff with an electricity supplier, or a contract directly\nbetween the RE generator putting electricity onto the grid and the consumer organisation,\nor energy attribute certificates. <\/p>\n\n\n\n

Energy attribute certificates document that 1 MWh of\nelectricity has been produced by a particular electricity generation method\n(usually a renewable method). A common European certificate is the Guarantee\nof Origin<\/a>. This was created by a European directive in 2001.[iv]<\/a>\nThe GO \u2013 or GoO depending on your sense of humour –  had a troubled upbringing. There was a wrangle\nat European level over the best means of public support for RE: a European-wide\nquota system or feed-in tariffs. The quota camp lost but the GO remained in the\ndirective with a vague, residual role as a label of RE[v]<\/a>.\nOrganisations that want to claim they were using RE buy GOs. Sometimes they are\npackaged with electricity or they can be stand-alone purchases. Typically, organisations\nuse them to cover part, or even all of their electricity consumption, and then say\nthey have reduced their emissions from electricity use.<\/p>\n\n\n\n

So, what\u2019s the problem?<\/h2>\n\n\n\n

Prima facie<\/em>, buying GOs is positive course of action.\nFrom conversations with firms, I am convinced that some staff apply neoliberal\naxioms related to supply and demand and genuinely believe that the purchase of\nenergy attribute certificates or green tariffs will incentivise more investment\nin solar, wind farms and other RE generating capacity. Unfortunately, research on\nthe impact of the GO (and European green tariffs which are usually backed by\nGOs) does not support this. Supply has consistently exceeded demand, in a large\npart due to the huge amount of decades-old hydropower. Figure 1 shows how\nhydropower GOs dominate the market.  Norwegian\nhydropower pumps out certificates that are exported all over Europe. Evidence\nsuggests that new RE capacity has been driven by financial incentives from public\npolicy that have significantly outweighed the tiny extra income that RE generators\nmake from certificate sales. [vi]<\/a><\/p>\n\n\n\n

Figure 1: GOs issued over the period 2010-2015 by generation method. <\/strong><\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Note: The figure is taken from Dagoumas and Koltsaklis\n(2017) and is based on data from the Association of Issuing Bodies.<\/p>\n\n\n\n

There is considerably less research on the US certificate –\nthe Renewable Energy Certificate. However, what there is  shows that the price of RECs has been too low\nto make a difference to investment decisions for new wind power.[vii]<\/a><\/p>\n\n\n\n

These situations create a zero-sum game. Organisations that\nuse RE contractual instruments typically go on to report reduced GHG emissions\nas a result of their use. The emission rate of the electricity used by everyone\nelse increases commensurately as organisations buying GOs and RECs lay claim to\nlow-carbon electricity on the grid for a small fee. While these organisations typically\nreport their RE use and GHG emissions on their websites and in their Corporate Social\nResponsibility reports, the emissions of organisations that do not use RE\ncontractual instruments may go unreported or are reported using the\nlocation-based method, which means organisations use the same emission rate\nirrespective of their RE contractual arrangements. The result is no net change\nin emissions, but the public and politicians are potentially left with the\nimpression that organisations are driving new RE capacity more than they\nactually are.<\/p>\n\n\n\n

Is there a solution?<\/h2>\n\n\n\n

Some organisations try to address the issue of supply\noutstripping demand through only buying certificates from RE generation\nfacilities less that a certain number of years old, thereby trying to create\nscarcity in the market and encourage new supply. Other organisations enter into\npower purchase agreements (PPAs) directly with RE generators, undertaking to\nbuy a certain quantity of electricity at a certain price for a certain number\nof years. I expect it may be easier for RE project developers to find finance for\nnew wind and solar farms and other types of RE if they have a guaranteed income\nfrom a PPA. However, neither tactic has been investigated by academics. <\/p>\n\n\n\n

Would it be better for firms not to use RE contractual instruments?<\/h2>\n\n\n\n

Dr Matthew Brander, Dr Michael Gillenwater and Dr Francisco Ascui have been among the leading voices calling attention to the problems of the market-based approach as outlined above[viii]<\/a>. They have also raised the further question of whether use of RE contractual instruments may actually divert organisations from measures that reduce GHG emissions i.e. electricity efficiency. They argue there could be a reduced incentive to cut electricity consumption if there were no reported emissions from electricity. This question was one of two addressed by my PhD thesis. <\/p>\n\n\n\n

My thesis looked at the factors influencing the GHG\nmitigation strategies of 11 large German and UK firms as they evolved typically\nover more than a decade. I focussed on the interactions between RE contractual instrument\nuse and efficiency improvements in all types of energy use, although the effect\non other mitigation measures is assessed. I found that RE contractual\ninstrument use did not always entail any cost for these firms. Even if\nit did, the cost was small compared to other operating costs. Where there was a\ncost, a re-allocation of funds to internal mitigating activities e.g. energy\nefficiency might have only led to small, on-going emission reductions, although\nif the money had been spent on offsets instead, there would have been substantial, but one-off reductions.<\/p>\n\n\n\n

I also found that\nthe use of emission rates based on RE contractual instruments[ix]<\/a> use had led to a change\nin focus or a potential change in focus on other GHG mitigation activities in\nvery limited instances. I characterised the circumstances in which I\nfound a change or a reduction in focus on energy efficiency\/saving or the\npotential for this. This outcome depended on the intersection of circumstances\n(all three were necessary conditions):<\/p>\n\n\n\n

1. where a\nreputation\/moral motivation was driving RE contractual instrument use[x]<\/a>;<\/p>\n\n\n\n

2. where energy\nefficiency\/saving were not being driven solely or strongly by cost-saving;<\/p>\n\n\n\n

3. where staff\ndid not prevent a reduction or change in focus on energy efficiency\/saving\nactivities.<\/p>\n\n\n\n

I have suggested some\nsimple reporting requirements that could be introduced to prevent this\nchange\/reduction in focus from occurring (see this briefing).[xi]\n<\/a><\/p>\n\n\n\n

Conclusion<\/h2>\n\n\n\n

In summary, the use of RE certificates and green tariffs has\nnot been shown to have a positive effect on RE investment. However, if the firms\nI studied are typical of other organisations, any negative impact on other GHG\nmitigating activities is very limited. I would prefer that organisations spent\nany premium that they pay for RE certificates and green tariffs on good quality\noffsets instead, as they offer more certain benefits. However, offsetting\u2019s\npoor reputation may make organisations wary, and carbon footprinting rules\ndiscourage this course of action.[xii]<\/a>\n<\/p>\n\n\n\n

A more promising course of action is to steer organisations\ntowards ensuring that their use of RE contractual instruments draws on new\ninvestment. PPAs look like the contractual instruments most likely to achieve\nthis as they offer RE generators a guaranteed income usually over several\nyears. This may be especially useful in the era of Covid-19 where public\nfinancial support for RE may be diverted to other purposes. However, this needs\nto be checked by research on the efficacy of PPAs in incentivising extra\ninvestment[xiii]<\/a>.\nOrganisations need to know what characterises an effective PPA or any other RE\ncontractual instrument. We do not have time in the battle against climate\nchange to go down any dead-ends.
<\/p>\n\n\n\n

\n\n\n\n

[i]<\/a> Alarcon, C., and M. Reynolds. 2019. \u2018Going 100%\nRenewable: How Committed Companies Are Demanding a Faster Market Response\u2019.\nRE100 Annual Report Progress and Insights.\nhttp:\/\/media.virbcdn.com\/files\/5c\/aa8193f038934840-Dec2019RE100ProgressandInsightsAnnualReport.pdf.<\/p>\n\n\n\n

[ii]<\/a> Monyei, C.G., and K.E.H. Jenkins. 2018. \u2018Electrons\nHave No Identity: Setting Right Misrepresentations in Google and Apple\u2019s Clean\nEnergy Purchasing\u2019. Energy Research & Social Science 46 (December): 48\u201351.\nhttps:\/\/doi.org\/10.1016\/j.erss.2018.06.015.<\/p>\n\n\n\n

[iii]<\/a> Sotos, M. 2015. \u2018GHG Protocol Scope 2 Guidance – An\nAmendment to the GHG Protocol Corporate Standard\u2019. World Resources Institute,\nWashington D.C., USA.\nhttps:\/\/wriorg.s3.amazonaws.com\/s3fs-public\/Scope_2_Guidance_Final.pdf.<\/p>\n\n\n\n

[iv]<\/a> European Parliament and European Council. 2001.\nDirective 2001\/77\/EC. http:\/\/europa.eu\/legislation_summaries\/energy\/renewable_energy\/l27035_en.htm.<\/p>\n\n\n\n

[v]<\/a> Lauber, V., and E. Schenner. 2011. \u2018The Struggle over\nSupport Schemes for Renewable Electricity in the European Union: A Discursive\nInstitutionalist Analysis\u2019. Environmental Politics 20 (4): 508\u201327., Nilsson,\nM., L. J. Nilsson, and K. Ericsson. 2009. \u2018The Rise and Fall of GO Trading in\nEuropean Renewable Energy Policy: The Role of Advocacy and Policy Framing\u2019.\nEnergy Policy 37 (11): 4454\u201362. https:\/\/doi.org\/10.1016\/j.enpol.2009.05.065.<\/p>\n\n\n\n

[vi]<\/a> W\u00fcstenhagen, R., and M. Bilharz. 2006. \u2018Green Energy\nMarket Development in Germany: Effective Public Policy and Emerging Customer\nDemand\u2019. Energy Policy 34 (13): 1681\u201396. https:\/\/doi.org\/10.1016\/j.enpol.2004.07.013<\/a>.<\/p>\n\n\n\n

Markard, J., and B. Truffer. 2006. \u2018The Promotional\nImpacts of Green Power Products on Renewable<\/p>\n\n\n\n

Energy Sources: Direct and Indirect Eco-Effects\u2019.\nRenewable Energy Policies in the European<\/p>\n\n\n\n

Union 34 (3): 306\u201321. https:\/\/doi.org\/10.1016\/j.enpol.2004.08.005<\/a>.<\/p>\n\n\n\n

Raadal, H. L., E. Dotzauer, O. J. Hanssen, and H. P.\nKildal. 2012. \u2018The Interaction between Electricity<\/p>\n\n\n\n

Disclosure and Tradable Green Certificates\u2019. Energy\nPolicy 42 (March): 419\u201328.<\/p>\n\n\n\n

https:\/\/doi.org\/10.1016\/j.enpol.2011.12.006.<\/a><\/p>\n\n\n\n

Hast, A., S. Syri, J. Jokiniemi, M. Huuskonen, and S.\nCross. 2015. \u2018Review of Green Electricity Products in the United Kingdom,\nGermany and Finland\u2019. Renewable and Sustainable Energy Reviews 42:<\/p>\n\n\n\n

1370\u201384.<\/p>\n\n\n\n

Hufen, J.A.M. 2017. \u2018Cheat Electricity? The Political\nEconomy of Green Electricity Delivery on the Dutch<\/p>\n\n\n\n

Market for Households and Small Business\u2019.\nSustainability (Switzerland) 9 (16).<\/p>\n\n\n\n

doi:10.3390\/su9010016<\/p>\n\n\n\n

Mulder, M., and S.P.E. Zomer. 2016. \u2018Contribution of\nGreen Labels in Electricity Retail Markets to<\/p>\n\n\n\n

Fostering Renewable Energy\u2019. Energy Policy 99\n(December): 100\u2013109.<\/p>\n\n\n\n

https:\/\/doi.org\/10.1016\/j.enpol.2016.09.040.<\/a><\/p>\n\n\n\n

Dagoumas, A.S., and N.E. Koltsaklis. 2017. \u2018Price\nSignal of Tradable Guarantees of Origin for Hedging Risk of Renewable Energy\nSources Investments\u2019. International Journal of Energy Economics and Policy 7\n(4): 59\u201367.<\/p>\n\n\n\n

Hamburger, A., and G. Harangoz. 2018. \u2018Factors\nAffecting the Evolution of Renewable Electricity Generating Capacities: A Panel\nData Analysis of European Countries\u2019. International Journal of Energy Economics\nand Policy 8 (5): 161\u201372.<\/p>\n\n\n\n

Hamburger, \u00c1. 2019. \u2018Is Guarantee of Origin Really an\nEffective Energy Policy Tool in Europe? A Critical Approach\u2019. Society and\nEconomy 41 (4): 487\u2013507. https:\/\/doi.org\/10.1556\/204.2019.41.4.6.<\/p>\n\n\n\n

Jansen, J. 2017. \u2018Does the EU Renewable Energy Sector\nStill Need a Guarantees of Origin Market?\u2019 No<\/p>\n\n\n\n

2017-27. CEPS Policy Insights. CEPS – Energy Climate\nHouse.<\/p>\n\n\n\n

https:\/\/www.ceps.eu\/publications\/does-eu-renewable-energy-sector-still-need-guarantees-originmarket<\/a><\/p>\n\n\n\n

\u2014\u2014\u2014. 2018. \u2018Should All Producers of Renewable Energy\nAutomatically Receive GOs?\u2019 Centre for<\/p>\n\n\n\n

European Policy Studies. 12 March 2018. https:\/\/www.ceps.eu\/publications\/should-all-producersrenewable-energy-automatically-receive-gos.<\/p>\n\n\n\n

[vii]<\/a>Gillenwater. 2013 \u2018Probabilistic decision model of\nwind power investment and influence of green power  market\u2019, Energy Policy, 63, pp. 1111\u20131125.\ndoi: 10.1016\/j.enpol.2013.09.049.<\/p>\n\n\n\n

Gillenwater, M., X. Lu, and M. Fischlein. 2014\n\u2018Additionality of wind energy investments in the U.S. voluntary green power\nmarket\u2019, Renewable Energy, 63, pp. 452\u2013457. doi: 0.1016\/j.renene.2013.10.003.<\/p>\n\n\n\n

[viii]<\/a> Brander, M., M. Gillenwater, and F. Ascui. 2018.\n\u2018Creative Accounting: A Critical Perspective on the Market-Based Method for\nReporting Purchased Electricity (Scope 2) Emissions\u2019. Energy Policy 112\n(January): 29\u201333. https:\/\/doi.org\/10.1016\/j.enpol.2017.09.051.<\/p>\n\n\n\n

[ix]<\/a> I\nalso investigated low-carbon\nelectricity contractual instruments, specifically GO certificating the\nproduction of electricity from high-efficiency Combined Heat and Power plants.<\/p>\n\n\n\n

[x]<\/a> What businesses said about their motivation was taken\nat face value as to assess these statements was beyond the scope of this\nresearch.<\/p>\n\n\n\n

[xi]<\/a> See also section 12.3.1 (page 439) of my thesis.<\/p>\n\n\n\n

[xii]<\/a> Sotos, M. 2015. \u2018GHG Protocol Scope 2 Guidance – An\nAmendment to the GHG Protocol Corporate Standard\u2019. World Resources Institute,\nWashington D.C., USA.\nhttps:\/\/wriorg.s3.amazonaws.com\/s3fs-public\/Scope_2_Guidance_Final.pdf.<\/p>\n\n\n\n

[xiii]<\/a> See also concerns raised by Monyei and Jenkins (2018)\nabout the wider implications of PPAs.<\/p>\nFollow Sussex Energy Group \"Facebook\"<\/a>\"twitter\"<\/a>\"linkedin\"<\/a><\/span>","protected":false},"excerpt":{"rendered":"

Dr Andrea Smith\u2019s thesis, What factors \u2013 external and internal \u2013 influence a firm\u2019s choice of voluntary greenhouse gas mitigation activities?, investigated the role of renewable electricity contractual instruments (green tariffs, renewable electricity certificates, etc) in businesses\u2019 climate change strategies.…<\/span><\/p>\n

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