29 Jun 2021

Accounting for energy certificates

Posted in: Measure and Report Emissions

Accounting for New Zealand Energy Certificates (NZ-ECs) in your emissions profile

Over the past few months, we have been discussing with our accreditor, JAS-ANZ, the pros and cons of energy certificate schemes in reducing greenhouse gas emissions. Specifically, we wanted to assess whether and how we should account for them when auditing an organisation’s carbon footprint.

Our position, which JAS-ANZ supports, is that energy certificates can help with emissions reduction. Where they meet certain criteria (more on that shortly), organisations should be able to use them to reduce their carbon profile.

Energy certificate schemes have been in place internationally for decades – often Government-mandated. The New Zealand Energy Certificate Scheme (NZECS), run by Certified Energy, is a recent addition to the landscape and operates as a voluntary market. Through participation in the NZECS, energy users in New Zealand can purchase NZ-ECs from renewable generators to redeem against their own consumption.

Energy certificate schemes

For those who might be unfamiliar with such schemes, it is worth offering up a quick explainer of what energy certificate schemes are and how they work. In New Zealand almost all of our generated electricity is sent to the grid. There is no way to distinguish between generation sources for any particular consumer to claim that the electricity they consume is ‘clean’.

Through an energy certificate scheme, generators of electricity can issue a 'certificate' for every unit of power they produce – typically a megawatt hour. This certificate shows how and when the energy was generated, and from where, characteristics referred to as 'generation attributes'.

By purchasing certificates from a renewable energy source, such as hydro, wind or solar, consumers reserve those attributes as their own, and under international standards can report their Scope 2 emissions as being zero carbon. Over time, as more certificates are purchased, the attributes of remaining supply become less and less renewable. This is intended to incentivise investment in more renewable generation to match demand from organisations seeking to reduce their emissions profile.

Pros and cons

There has been some concern about how certificate purchases are being reported in New Zealand and whether they can make a difference to our emissions. Questions raised include whether:

  • Being able to report electricity emissions as zero or low discourages energy efficiency measures
  • It is potentially misleading for an organisation to report zero emissions when the actual energy mix they consume is the same for everyone on the grid at any given time
  • High uptake of certificates would be needed to trigger incentives to build new renewable generation, given renewables already dominate the market here
  • Some renewable energy projects selling certificates into the voluntary market would have been built regardless or pre-dated the development of the scheme, so the revenue they get from the sale of certificates helps them financially, without directly funding additional renewable generation.

However, benefits of the NZECS include:

  • Providing additional support for development of renewable energy and decarbonisation activities,
  • Enabling organisations to commit to supporting renewable energy and reduce their reported emissions,
  • With increased uptake over time, the certificates may become scarce, driving increased renewable power generation in the medium to long term,
  • Full coverage of emissions from the grid for companies that choose not to purchase certificates is accounted for by applying the residual supply mix, and
  • It provides an additional option for companies assessing how to source renewable electricity in the most cost and resource efficient way.

The GHG Protocol Scope 2 Guidance outlines the key considerations relating to reporting energy certificate purchases. We analysed the NZECS and have found that it is in line with this guidance.

Toitū's policy

Given this, we have chosen to allow reporting of electricity emissions associated with purchased certificates, alongside location-based reporting (using the grid average emission factor), in our own scheme where they meet set criteria.

We will only accept certificates where the funds from the purchase can be shown to reduce demand for fossil-fuel-generated electricity. For an organisation to be able to use purchased certificates to report against reduction targets and reduce its offset requirements, the certificates have to meet one or more of the following criteria:

  1. Funds from the purchase can be shown to be ring-fenced for construction of new renewable generation,
  2. The generation facility linked to the certificate has been constructed since the NZ NDC baseline year of 2005 (or other date decided by the Toitū Programme from time to time),
  3. The funds from the purchase can be shown to be used in another purpose that reduces the load on fossil fuel generation facilities, such as funding projects that reduce electricity load at peak times (demand side management)); or
  4. Funds from the purchase can be shown to be used for projects that result in reductions in GHG emissions, such as boiler conversion projects, provided that it can be shown that no double claiming of emissions reductions is occurring.

When you are looking to purchase energy certificates, we would encourage you to ask about what the revenue is being used for, and how old the generation facility is. Some generators have told us that they have committed to ring-fencing all revenue for construction of new renewable generation facilities, and under our requirements we would need to see evidence of this. We will be working with Certified Energy to see if this information can be transparently provided to purchasers.

We understand that Certified Energy is supporting generators to demonstrate how revenue from certificates can be reinvested for impact.

If you have any questions about energy certificates or our treatment of them, please do not hesitate to get in touch. Put to the right use, they have the potential to play a part in reducing carbon emissions nationally and help you to improve your own footprint.