Emissions related to electricity consumption in a carbon footprint

In considering an enterprise's emissions, accounting for electricity consumption is a crucial factor, especially for businesses with high electrical consumption.

However, calculating emissions related to electricity consumption is somewhat complex due to the existence of two different approaches in carbon accounting: the location-based approach and the market-based approach.

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What are the differences between these two approaches? How does this affect the calculation of upstream energy emissions in Scope 3? How are Power Purchase Agreements (PPAs) accounted for? How is Sami working to improve the precision of measuring emissions related to electricity consumption?

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Let's dive into these questions!

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1. Electricity: Emissions in Scopes 2 and 3

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In carbon accounting terms, emissions related to a company's electricity consumption fall into two different scopes.

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• Scope 2

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Scope 2 includes indirect emissions related to energy, particularly those related to electricity.

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The emissions accounted for here are indirect emissions, meaning emissions induced by the production of electricity subsequently used within the company.

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Two different approaches exist to account for these emissions: the location-based approach and the market-based approach, which we'll discuss in detail shortly.

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• Scope 3

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Other emissions related to electricity consumption can be found in Scope 3, specifically in the Fuel and Energy Related Emissions category in the GHG Protocol methodology.

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These emissions encompass all other indirect emissions related to electricity, such as the construction of production methods (e.g., nuclear power plants, solar panels, or wind turbines), electricity distribution, network losses, and the extraction and transportation of fossil fuels required for electricity production.

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2. Location-Based or Market-Based Approach?

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Regarding the accounting of Scope 2 emissions related to electricity consumption, two different approaches exist: location-based and market-based.

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2.1 What Are the Differences?

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• Location-Based Approach

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In this approach, emissions are calculated based on the average carbon intensity of the electrical grid where the electricity was consumed.

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For example, for a French company, the average French electricity mix would be considered, while for a German company, the average German electricity mix would be used.

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In this approach, the production method of the supplier or contract (e.g., green electricity offer with a guarantee of origin) is not taken into account. Consequently, the company cannot valorize it in Scope 2 emissions.

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• Market-Based Approach

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In this approach, the emissions considered are linked to the carbon intensity of the production methods chosen by the company in its electricity supplier or contract. If the origin of the electricity cannot be traced, the residual mix is used.

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For example, in the case of a contract with electricity from wind energy, the associated emission factor would be 0 gCO2e/kWh. However, this does not mean that the total indirect emissions related to electricity consumption are zero. In this specific example, they are zero for Scope 2 emissions, but they will not be zero for the indirect emissions of Scope 3, as we will see later.

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In the market-based approach, different instruments and contract types (certificates, guarantees of origin, PPAs, etc.) must meet a certain number of criteria (defined by the GHG Protocol as Scope 2 Quality Criteria), summarized in the following table.

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Among the criteria to be respected, there are criteria of uniqueness of the tradable instrument for the consumer (a Guarantee of Origin or a PPA can only be valued for one consumer), spatiality (alignment between the market from which the instrument originates and the market where consumption takes place), and temporality (even if for the moment, the GHG Protocol only specifies to maximize granularity as much as possible, without imposing a minimum time step, monthly or hourly).

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2.2 Which approach to choose?

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The choice between these two approaches for accounting for electricity consumption should be made based on the methodological or regulatory framework in which the company's GHG emissions assessment is conducted. Here is a summary of the approach to be taken according to the framework:

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These are indeed obligations and not just recommendations: the Bilan Carbone® and the mandatory BEGES impose the Location-based approach. The CSRD, having chosen the GHG Protocol methodology for GHG emissions reporting, companies will have to evaluate their scope 2 with both location and market-based approaches.

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2.3 Summary and example

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Here is an example of accounting for electricity consumption according to the two approaches:

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Thus, the choice of the accounting approach also has an impact on the consideration of scope 3 emissions.

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In the case of a Market-based approach, if the origin of the consumed electricity is renewable (wind energy, for example), the associated emissions for scope 2 are zero because the production of wind energy does not actually result in emissions. However, the emissions related to the upstream energy are not zero because it was necessary to build these wind turbines, connect the park to the grid, transport this energy, include losses, etc. In this case, the associated emission factor is 13gCO2e/kWh. 

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3. The special case of PPAs (Power Purchase Agreement)

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Power Purchase Agreements, or PPAs, are private contracts usually entered into between a renewable energy producer and a consumer, which set a price over a determined period. The PPA market is booming in France, especially since the beginning of the energy crisis and the surge in prices, as it is a way for consumers (companies or local authorities) to commit to a renewable energy supply without suffering from price volatility and thus have visibility on this subject. For producers, this provides an additional source of financing.

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How are these PPAs taken into account in the carbon footprint?

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3.1 The case of a Physical PPA

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A physical PPA is defined by the fact that the electricity from the production plant (usually renewable electricity) is purchased (via a third party, supplier or balance responsible) by the consumer to satisfy its consumption.

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There are on-site PPAs (direct connection between the production method and the consumer, this is self-consumption) and off-site PPAs (no direct connection between production and consumption).
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On-site PPAs are valuable in both market and location-based approaches.

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Off-site PPAs can only be valued in the scope 2 of electricity consumers in the case of a market-based accounting approach.

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Note the primacy of a Guarantee of Origin (GO) over the PPA: the PPA is valuable in the scope 2 of a consumer only in the following two cases:

• if it is associated with the Guarantee of Origin attributed to the renewable production method (GO bundled with electricity), or
• only if there is no Guarantee of Origin or certificate generated and attributed to another consumer (Contracts that convey attributes to the entity consuming the power where certificates do not exist, or Contracts for power that are silent on attributes, but where attributes are not otherwise tracked or claimed).

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However, in the case of a location-based approach, off-site PPAs generally cannot be valued in the scope 2 of electricity consumers.

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3.2 The case of a Financial PPA

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A financial PPA is defined by the fact that the electricity from the production plant (usually renewable electricity) is purchased and then resold by the consumer (via a third party, supplier or balance responsible), and therefore does not satisfy the consumer's own consumption.

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In this case, the financial PPA cannot be valued in the company's scope 2, whether through the market or location-based approach, but can instead be valued as avoided emissions (if additionality can be demonstrated, which is a priori the case for so-called greenfield PPAs - associated with the construction of new renewable energy plants, but not necessarily for so-called brownfield PPAs - associated with existing plants, for example, at the end of the purchase obligation).

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As a reminder, avoided emissions are the indicator that makes it possible to calculate the company's contribution (through its activities, products, or services) to the reduction of GHG emissions outside its scope of activity. These avoided emissions are evaluated by comparing the scenario with the deployed low-carbon solution and a reference scenario without a low-carbon solution.

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Avoided emissions are not integrated into the carbon footprint and cannot be subtracted from the total GHG emissions of the organization studied. However, they can be calculated separately to allow the company to have figures on its impact in terms of decarbonization outside its scope.

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Avoided emissions correspond to pillar B of the Net Zero Initiative (NZI) launched by Carbone 4.

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Here is a summary of how the different PPAs are integrated according to the approaches:

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4. How Sami works to refine the calculation of emissions related to electricity consumption

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As seen above, in the so-called Location-based approach (and even with the Market-based approach when the origin of the electricity cannot be traced), emissions related to electricity consumption are estimated using the average electricity mix of the country of consumption. For France, annual emission factors are available for this purpose.

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However, it should be noted that this emission factor is an average FE that uses production and consumption data from the last four years in France.

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For companies whose electrical consumption weighs little in total emissions, this estimation provided from the FE of the average French electricity mix does not pose a problem. On the other hand, for an industrial client with high electricity consumption, knowing with much greater precision the emissions associated with it becomes an important issue.

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To achieve this, we perform a calculation based on two data sources:

• the client's hourly electricity consumption throughout the year, collected (after the company's agreement) from Enedis.
• the hourly emission factor of the French electricity mix throughout the year. Data recovered thanks to our partner Electricity Maps.

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This allows us to match, for each hour, the company's electricity consumption with the observed electricity mix.

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Indeed, the emissions associated with the electricity mix vary significantly depending on the mode of energy production, imports/exports with neighboring countries, and therefore vary according to the time of day, weather, or even the time of year.

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These new data allow us to:

• significantly gain precision in measuring emissions associated with the company's electricity consumption
• establish a much more precise action plan: erasing consumption at certain hours, shifting consumption or self-consumption of renewable energies at the most carbon-intensive hours, distributing consumption according to the seasons...
• perform avoided emissions calculations. For example, in the context of electricity production with solar panels, the carbon intensity (in kgCO2e/kWh) of the electricity produced on the grid can be made to coincide, at each hour of the day, with that of solar energy. This allows for obtaining avoided emissions in CO2e. This can be done in a self-consumption context but also in the case of a contract with a supplier or a PPA in order to estimate the avoided emissions allowed by this renewable energy supply.

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