The evolution of Scope 2 standards: between intentions and unexpected consequences

Recently, the International Organization for Standardization (ISO) and the Greenhouse Gas Protocol (GHG Protocol) announced a strategic collaboration to harmonize their existing portfolios of standards and co-develop new ones for emissions measurement and reporting. This marks a crucial moment for global emissions reporting ¹.

The goal of harmonizing standards and creating a common language is, without a doubt, commendable. We fully support every effort to improve the transparency and accuracy of environmental reporting. However, some of the proposals from the Scope 2 technical working group, particularly those concerning the debate between the market-based method and the location-based method and the introduction of mandatory hourly granularity (24/7 matching), warrant in-depth discussion.

Our analysis, based on Nvalue’s extensive experience in environmental markets, suggests that a rigid application of these concepts could have unintended negative consequences, risking a slowdown of the energy transition rather than its acceleration.

The deceptive simplicity of the location-based method

The location-based method presents itself as the simplest and most immediate solution. It is based on calculating the average CO2 from the electricity grid in a specific geographical area. It is, in a sense, the method for those who are unwilling or unable to actively source clean energy. This is precisely where the problem lies: its simplicity is deceptive because it completely ignores companies‘ proactive choices and investments in decarbonization.

If this approach were to prevail, it would create a deep competitive inequality within the European Union. Consider two companies with the same commitment to sustainability, but located in different countries:

• A company in Poland, where electricity generated in 2023 had the highest carbon intensity in Europe, would be penalized by a high emission factor (594 gCO2e/kWh in 2023 ²), regardless of its efforts to purchase Guarantees of Origin (GOs) or Power Purchase Agreements (PPAs). The market-based method is the only tool that allows it to become virtuous and compete in the global sustainability market.
• A company in France, with an already low-emission energy mix (thanks to hydro and nuclear, with a carbon intensity of 48 gCO2e/kWh in 2023 ³), would see its efforts to invest in new renewable energy sources disincentivized. Why purchase certificates if your impact is already considered low?

In this way, the location-based method rewards merely „being in the right place“ rather than actively supporting renewables, removing the incentive to proactively finance the energy transition.

In summary, we believe both methods should be mandated for a complete picture. But if a choice must be made, the market-based approach is the clear leader. It is a more valuable and honest reflection of a company’s commitment to decarbonization, directly linking their active choices to supporting renewable energy instead of passively relying on the existing grid mix. This makes it the most effective method for driving future investment and change.

The dangerous complications of mandatory hourly matching

Beyond the debate over the calculation basis for electricity carbon intensity, the proposal for a mandatory hourly match between renewable energy consumption and production (24/7 matching) raises further concerns.

The premise that electricity must be consumed at the exact moment and location where it is produced is, in the context of an interconnected grid, a flawed interpretation of how the electricity market works. Once an electron enters the grid, it is no longer traceable. The current book-and-claim system doesn’t track the electron; it certifies a company’s conscious choice against a balance sheet that must, by definition, be in equilibrium.

Imposing mandatory hourly granularity would lead to unexpected consequences:

1. Volatility and Scarcity: The demand for renewable energy certificates during specific hours (e.g., central hours of the day) would create extreme price spikes, rewarding speculation and not genuine investment in new production capacity.

2. Complexity and Costs: Many companies lack the technological tools to manage hourly reporting. This would require significant investment in expensive IT systems and external consultants, creating a barrier to entry for small and medium-sized enterprises.

3. Negative Consequences: If renewable energy becomes too complex or costly to report, companies might be pushed towards more stable but less „clean“ sources like gas or nuclear, undermining the very goals of the energy transition.

The path to a concrete solution

We are convinced that the goal of transparency can be achieved without imposing rules that harm the market and competitiveness. Instead of insisting on a model based on „laziness“ and geography, we propose an approach that values merit and commitment.

We believe a far more practical and effective step is the introduction of a mandatory annual matching obligation, consistent across European regulations and GHGP standards. This would ensure clear and uniform rules of the game, encouraging annual accountability for energy procurement without creating the damaging market dynamics and infrastructural barriers of mandatory hourly granularity.

Currently, matching is not guaranteed by existing European regulations (RED II), which allows the use of Guarantees of Origin for Fuel Mix Disclosure as long as the GO is valid (i.e., within 12 months of its issuance). Some countries (including Italy) have adopted this rule, allowing distributors to use GOs from year n-1 to certify renewable electricity supplies in year n.

The requirement to use GOs issued during year n to certify consumption in year n would be enough to consolidate the credibility of the book-and-claim system, leaving greater granularity (like monthly matching, already used in France) to individual companies‘ virtuous choices.

If European regulations mandated annual matching, it would guarantee clear rules for all operators, reward companies‘ conscious choices, and send a strong signal for decarbonization, without sacrificing the flexibility and equity needed for genuine progress.