30 November 2022
The co-signatory organisations wish to raise serious concerns about the new draft “Land Sector and Removals Guidance” under development within the GHG Protocol (GHGP) Standard1. The new draft Guidance prevents corporate users from using market-based instruments to report reduced GHG emissions from biomethane consumption and as a result can hurt the European Union’s efforts to develop 35 bcm of domestic biomethane production by 2030. Specifically, we object to the revision of the GHGP reporting principles from market-based (i.e. emissions determined based on the qualities of the purchased energy product) to location-based (i.e. use of on-site emissions for emissions reporting). To promote the uptake of biomethane, the GHGP must include a market-based approach.
Key elements of the GHGP Standard
The GHG Protocol (GHGP) is a private initiative, jointly created by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), “establishing comprehensive global standardised frameworks to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains and mitigation actions.” The GHGP is arguably the most relevant global framework enabling private and public sectors to transparently measure, monitor and report the GHG emissions of their operations. Any targets and disclosures under the Science Based Target Initiative (SBTi), the Carbon Disclosure Project and the RE100 initiative uses the guidance it sets. There are currently 2,106 large companies in Europe using the SBTi and its GHGP framework.
Greenhouse gases are categorised into three different Scopes2. The GHGP covers the concept of dual reporting, that is location-based emissions (kWh consumed * grid factor for the location of consumption) and market-based (accounting for contractual instruments).
The GHGP Secretariat is currently developing the new “Land-use and Carbon Removals Guidance”, with a draft version under public review until 30 November. According to Annex B of the draft Guidance, companies using the GHGP would not be able to use market-based instruments, such as GOs or other certificates, to report on emissions reductions stemming from the use of biomethane. We ask for the already envisaged development of the new Guidance on market-based accounting to be completed by the GHGP Secretariat as soon as possible.
Implications for the EU energy security and decarbonisation objectives
Although the GHGP is presently considered a voluntary initiative, companies should be able to report against the GHGP by accounting their purchasing decisions (e.g. purchase of biomethane with GOs, or of a PPA coupled with issuance and cancellation of GOs). Otherwise, the new draft Guidance would:
• Go against the EU framework enabling trade and consumption of biomethane using a market-based approach. The market-based approach enables companies and consumers to participate actively in the green energy transition. This demand creates an effective “pull” and enables the transition. Based on EU Directive 2018/2001 (“RED II”), registries of Guarantees of Origin (GO) are being set up in all Member States to ensure reliable disclosure of the renewable origin of the gas consumed to end-customers (Article 19 of RED II). Biomethane is recognised as zero-rated under the ETS according to the Monitoring and Reporting Regulation (Articles 38 and 39), provided that the RED II sustainability and GHG savings criteria are satisfied by certification under a voluntary scheme recognised by the European Commission (Articles 25-30 of RED II). The RED II defines easily worldwide applicable criteria to demonstrate the sustainability of biomethane, which can, through safe traceability mechanisms such as the GOs, ensure an effective contribution to decarbonisation.
• Create a situation where companies cannot achieve their carbon neutrality commitments despite going carbon neutral according to EU regulation. There would indeed be a mismatch with the mandatory location-based reporting of the GHGP when relying on e.g. Guarantees of Origins and/or Proof of Sustainability, therefore removing the incentives for individual companies to purchase renewable energy in pursuit of their decarbonisation objectives. Furthermore, separate tradability of the environmental attributes of biogas/ biomethane will also be hindered. More broadly, if the proposed revision gets extended to Scope 2 emissions, green GO-based products will be negatively impacted across gas and power, because GOs are an indispensable part of a PPA contract, as they are evidence of the renewable attribute of the electricity that has been produced under the contract.
• Hamper private investments needed to boost biomethane production and reach the EU objective of 35 bcm of domestic biomethane production. There is a thriving market for biomethane which is providing significant value to producers and leading to additional production. Income from consumer sales via GO or mass balanced Proof of Sustainability are integral to the financial case for building and operating production facilities. This market is driven by the interest of companies across many sectors (manufacturing, chemicals, transport) who are seeking to lower their Scope 1 emissions and in many cases they are now looking for opportunities to invest in new biomethane production facilities. However, they will only do so if they receive biomethane via the natural gas pipeline network and prove consumption using market-based instruments, such as GOs or Proof of Sustainability certificates. Biomethane potential is geographically spread and on-site production plants or dedicated biomethane pipelines cannot be deployed without generating prohibitive environmental impacts and costs. The barriers being put up by the GHGP will discourage consumers’ investment.
Conclusions
While being a private initiative, the new “Land Sector and Carbon Removals Guidance” under the GHGP would seriously hurt the European Union’s efforts to unlock the biomethane potential and ensure greater security of supply through 35 bcm of domestic biomethane production in 2030. Considering this tremendous risk, we call on the European Commission to be vocal and ask for market-based reporting to be recognised for Scope 1 emissions in the new “Land Sector and Carbon Removals Guidance”. For its GHG accounting and reporting standards to remain relevant, the GHGP must allow the use of market-based instruments which reflect the commercial reality of how grid-based energy products are transacted.
We trust the European Commission, the WRI and the WBCSD will therefore consider this issue seriously and respond as appropriate.
1 Land Sector and Removals Guidance | Greenhouse Gas Protocol.
2 See: Technical Guidence for Calculating Scope 3 Emissions (Version 1.0).
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