This past winter, while reforming its carbon accounting standards used by more than 90 percent of fortune 500 companies to report their carbon emissions, the Greenhouse Gas Protocol launched a sub-working group on consequential emissions assessment in the electricity sector. This working group, which we both participate in, provides an opportunity to develop and standardize a tool for assessing the carbon impact of different actions — what is called consequential assessment — to more directly and credibly connect emissions reporting to climate impact. When applied specifically to Scope 2 emissions from purchased or acquired electricity, consequential assessment, if designed and updated appropriately, could help guide corporate strategies that more quickly and effectively mitigate electricity sector emissions worldwide.

How consequential assessment differs from current emissions reporting practices

Most companies that report their emissions use attributional (or inventory-based) accounting, which answers questions and supports claims that are distinct from those addressed by consequential assessment. Attributional accounting involves dividing total emissions within some boundary — an electricity system for example — into shares that are then attributed to individual consumers according to some apportionment rule. In the electricity sector, Scope 2 attributional accounting systems generally aim to help companies assess and report the emissions present in their electricity supply, and are commonly used to support claims of matching consumption with carbon-free power.

While attributional systems are designed to effectively allocate the responsibility for emissions between different parties, they do not directly measure the impact of actions. A change to a company’s attributional reporting therefore does not quantify or necessarily correspond with real GHG abatement. There are proposed changes to attributional accounting that could improve the allocation of emissions (e.g., matching the purchased electricity more closely to time and location of consumption) and a field of research studying the extent to which those changes could better correlate GHG inventory reductions with real-world change. However, even the most accurate attributional accounting system is fundamentally not a measure of real climate impact. As an example, attributional accounting can recognize that signing a solar power purchase agreement (PPA) reduces a company’s reliance on other grid resources, but it cannot examine the extent to which the signing of the PPA actually changed the grid mix.

This disconnect between current attributional accounting approaches and true climate impact means that:

• Some of the various approaches a company could take to reduce its reported emissions inventory may have more or less real world impact than an inventory might imply; and
• Some actions that companies should take (e.g., investments in stand-alone grid storage, or investment in geographies outside of the company’s operations) are not reflected as a reduction in current attributional inventories at all.

In contrast, consequential accounting directly explores the question of how a company’s actions directly and indirectly change total GHG emissions. In other words, this approach focuses on estimating how emissions would have been different in a world where the action being assessed had not occurred. In the energy sector, the action being assessed could be anything related to electricity generation or consumption, such as signing a new solar PPA or building a new data center. These actions can go beyond capacity additions, such as battery storage operations and demand response programs. These are not sufficiently valued in the current reporting paradigm and could be better quantified with consequential assessment alongside updates to attributional accounting.

One additional way in which consequential assessment is distinct from attributional accounting is that it can be used as a forward-looking risk assessment tool as well as a backward-looking measurement of impact. Using modeling or empirical observations, one can estimate the operating and structural impacts of a past action or a potential future one on the grid over various timescales.

So while an attributional inventory remains a critical tool for companies to account for emissions, consequential assessment can help them take the next step in developing strategies to directly mitigate emissions and evaluate the impacts of their actions.

How and why a company would use consequential assessment

Consequential assessment could fill a complementary purpose from attributional accounting, used to evaluate the impact of possible corporate actions that are being considered, and more accurately represent what real-world impact actions have.

Here’s an example of how consequential assessment could be used to choose more effective strategies to drive emissions impact.

Take a fictional manufacturing company with a facility in Pennsylvania, let’s call it Purple Production Co. Purple Production Co. is considering signing one of two options for a 15-year solar PPA. The two solar farm options are both located in Pennsylvania and are identical in size and cost. One solar farm is located in the more coal-heavy southwest corner of the state, just down the street from an active coal plant. The second option for a solar farm is in the more gas-rich northeast corner of the state just down the street from a gas plant.

Under attributional accounting, using the state of Pennsylvania as the system boundary, both PPAs would supply the same number of energy attribute certificates (EACs). This would satisfy Purple Production Co’s goal to purchase enough EACs to match its consumption of purchased electricity (1 EAC per MWh). So both projects would be treated as the same under current Scope 2 guidance, and Purple Production Co. would be able to claim that its facility’s power use was matched by carbon-free energy. Considering a proposed change to attributional accounting, if an hourly attributional system was being used, Purple Production Co. could only make those claims in hours where the solar plant was producing power.

Estimating the emissions impact of each of the projects using consequential assessment can reveal important differences in the impacts of signing one PPA or the other. Existing guidance in the Greenhouse Gas Protocol and more recent research agree that determining the impacts of these projects can be broken down into two components:

1. How the operations of the grid change as a result of this action (e.g., When building a new data center, power plants would need to operate at a higher capacity factor to supply the new load, increasing emissions based on the grid mix).
2. How the overall structure of the grid changes as a result of this action (e.g., When building a new solar plant, the additional energy capacity hastens the retirement of an existing fossil asset that becomes too expensive to operate at a lower capacity factor).

Assuming all other important factors such as cost and additionality are identical, building and operating a solar farm in a more coal-heavy and emissions-intensive region in the southwest of the state would likely have a greater carbon impact. If when the sun is shining, the solar plant displaces generation from the nearer power station more consistently than it does generation from the farther one, more emissions would be displaced by locating a project next to a coal plant than next to a gas plant.

While this example is fairly straightforward, more complex consequential assessments that consider how interventions affect the structure and operations of the grid could be applied to estimate the emissions impacts of a whole range of potential energy procurement, siting, and dispatch decisions.

Consequential assessment could also be used as a forward-looking risk assessment tool. Using modeling, a company could estimate the impacts of siting new load in one location or another, or compare different renewable energy resources it is considering investing in, to minimize impact on the electricity grid from its consumption while maximizing the impact of the renewable energy it contracts. Through the life of the project, the company could observe how the project performs against the modeled estimate, and judge whether the estimated impact has in fact happened.

So while consequential assessment may involve greater uncertainty, it can reveal important insights into the relative emissions impacts of corporate actions that can help companies develop and evaluate strategies to maximize the future emissions impacts of the actions they take.

Getting consequential assessments up to speed

To reach its potential, the practice of consequential accounting in the energy sector needs further development and standardization. The 2005 document from the Greenhouse Gas Protocol detailing consequential methods for the electricity sector offered a variety of calculation methods and did not require use in any reporting case. As a result, consequential assessment has been largely overlooked in energy sector emissions reporting frameworks like CDP surveys or in the setting of science-based targets.

Use of consequential assessment carries a fundamentally different risk profile than attributional accounting. Whereas attributional inventories are directly calculated using real-time observations of generation and emissions, the consequential impact of an action can only be estimated by comparing real-world outcomes to estimated or modeled emissions in a counterfactual world where the action did not take place and which cannot be directly observed. Multiple legitimate methods and assumptions may be employed that lead to different estimates of impact for the same action.

While we can develop more robust and credible approaches to consequential impact assessment informed by models and real-world observations, use of these methods must be balanced with recognition of the uncertainties at play. For example, forward-looking consequential assessments must make assumptions about the future evolution of electricity systems that may not come to pass. Companies could handle this uncertainty in the same way they approach financial risk assessment — by making projections that are then adjusted periodically as new information becomes available. Even backward-looking consequential assessments could be continually refined or have their uncertainties better quantified as new best practices are developed and datasets are made available.

For consequential assessment to be a practical tool for electricity sector decision-making and emissions reporting, several challenges must be resolved:

• Consequential methods for the electricity sector must be modernized, and practical datasets and calculation guidance developed that allow for credible, affordable, timely, and robust corporate reporting.
• Consensus must be reached on how qualitative or quantitative claims of impact based on consequential assessment should be presented to the public, and how these claims can be connected to inventory reporting and company-level emissions reductions claims.
• Demonstration of the feasibility of these methods and a willingness for practitioners to engage with this type of assessment will be essential to any argument that these methods could or should be used at scale in electricity sector accounting or other sectors.

Addressing these challenges can help ensure that consequential accounting systems do not credit actions that have little or no actual climate impact — and can help focus corporate action on meaningful interventions that drive rapid cost-effective grid decarbonization

Supporting the future of a consequential metric

Both of us are also members of ZEROgrid’s Impact Advisory Initiative, a global community of practice engaging researchers and practitioners working to decarbonize the electricity sector and advance consequential assessment methods. Over the next year, ZEROgrid will publish consensus pieces between leading researchers, propose and pilot new consequential assessment methods with corporate practitioners, and participate in ongoing standard revision processes within the Greenhouse Gas Protocol, CDP, and SBTi.

As grids reach higher levels of renewable penetration, a wider range of actions and technologies will be required to decarbonize. The research community should continue to support the development of consequential assessment, and companies that want to connect their actions more closely to emissions impact should work to test these methods.

Overcoming these challenges and developing robust consequential assessment tools that are integrated with globally recognized accounting and reporting standards could help us better quantify, prioritize, and more swiftly deploy meaningful corporate actions on grid decarbonization and drive the best outcome for our planet.