Scope 2 Emissions Can Vary Dramatically Based on Accounting Method
December 29, 2022 – Posted by Marek Zhang
In March 2022, the Security and Exchange Commission (SEC) proposed new rules for corporate climate-related disclosures that would require businesses to disclose their direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased energy (Scope 2).
Scope 2 emissions are currently calculated by applying an average yearly emission factor for a specific region to the total annual electrical usage within that region. In the United States, it is typical to define this region as a Balancing Authority. A Balancing Authority is the entity that is responsible for ensuring that energy demand and supply are matched at all times. The Environmental Protection Agency publishes yearly emission averages for each Balancing Authority as part of the Emissions & Generation Resource Integrated Database (eGRID).
However, the aggregate Scope 2 emission accounting method using a yearly average ignores the variation in a business’ electricity consumption and grid emission factors throughout the day. Empirically, emission factors for the Balancing Authorities in CAISO market can vary as much 3 times in a 24-hour period, and load profiles can change dramatically from business to business. What is the discrepancy in Scope 2 emissions between the aggregate and hourly accounting methods? This article compares the preliminary results and discusses the findings.
To compare the two methods, the Scope 2 Location-Based emissions are calculated using the aggregate and hourly accounting methods across all Balancing Authorities using a business’ actual hourly load profile for the 2020 calendar year.
For the aggregate accounting method, the Scope 2 emissions are calculated by aggregating the hourly consumption from the entire year and multiplying the total by the average emission factor from eGRID. Using the same load profile, the hourly Scope 2 emissions are calculated by multiplying the hourly energy consumption with the hourly emission factor for that hour and then summing the products. We sourced the hourly emission factors from Singularity’s Open Gird Emission Initiative (OGEI).
Lastly, we repeat the aggregate and hourly Scope 2 emission calculations for all Balancing Authorities in the US by assuming that the business is hypothetically located within the Balancing Authorities.
Although using a limited dataset, preliminary results show the Scope 2 Location-based emissions as calculated using the aggregate and hourly accounting methods can vary significantly depending on the Balancing Authorities. While minor for most Balancing Authorities, the discrepancies are significant for others, ranging from -90% to +50% (see Figure 1).
Figure 1: The distribution of discrepancies in Scope 2 emissions as calculated between the aggregate and hourly accounting methods. The X-axis indicates the discrepancies between the two methods. The Y-axis shows the number of Balancing Authorities. While they are within +/- 10% for 33 out of 48 Balancing Authorities, the discrepancies can be as much as – 90% to +50% for 4 Balancing Authorities.
The distribution of the discrepancies can also be visualized by the location of the Balancing Authorities (see Figure 2). The discrepancies for the Western region are the largest, while those of the Midwest and the Eastern appear to have less.
Figure 2: The distribution of discrepancies of Scope 2 emissions between the aggregate and hourly accounting methods displayed on the map of Balancing Authorities. The color indicates the magnitude of discrepancies.
The results indicate that a business calculating its Scope 2 emissions using the eGRID annual average emission factors may be under-reporting its Scope 2 emissions by as much as 90% and over-reporting for as much as 50%, depending on the Balancing Authority. More comprehensive studies are warranted to understand the impacts of different load profiles on the level of discrepancy. Furthermore, multiple hourly emission factors are available in the market. Additional studies utilizing other hourly emission factors are needed to compare the variation between the aggregate and hourly Scope 2 accounting methods.
Lastly, this article is only focused on Scope 2 Location-based emissions. With the growth of corporate renewable energy procurements, many enterprises are procuring Carbon Free Energy to reduce their Scope 2 emissions. Given that the Market-based Scope 2 emissions include the contracted renewable energy supplies, which are intermittent, the aggregate and hourly Market-based emissions may vary even more significantly. The renewable energy supplies’ intermittency can introduce additional time variability and hence the discrepancies between the two accounting methods.
All of these factors contribute to the under and over-reporting of Scope 2 emissions and must be considered as businesses start reporting Scope 2 emissions under the new SEC reporting rules.