It's Time to Raise the Bar for Corporate Clean Energy Buying

Walking the walk on “100% clean powered”

By Seaver Wang

For approximately the past decade, companies have proudly marketed claims that they are powered by 100% clean electricity or are aiming to be by a target date. It is of course physically impossible for an electricity user to choose which electrons they consume from their local power grid, but common corporate standards for climate-related claims have allowed companies to sign contracts to buy wind and solar electricity credits and attribute the corresponding amount of their electricity usage as clean.

Observers have been warning for almost a decade that overly lenient standards for corporate green energy claims could distort private sector incentives surrounding clean power purchasing, but corporate standard keepers felt content to procrastinate such concerns until the clean energy sector had progressed past its tentative early steps. Today, it is clear that solar, wind, and batteries are increasingly mature, mass-market technologies—a development that is putting powerful companies increasingly at odds over whether corporate clean energy purchasing should remain easy or become more rigorous.

This debate is coming to a head as a grand coalition of industry representatives and energy experts move towards updating the methodology and rules for the ubiquitously-used Greenhouse Gas Protocol Scope 2 standard (GHGP2). Major tech firms like Amazon and Meta and renewable energy trade associations have signaled a preference towards continuing to allow cheap clean energy certificates from far-flung regions, potentially even from other continents. Meanwhile, an opposing bloc of organizations and companies that include Google, Microsoft, and groups like Clean Air Task Force support robust reforms that would require clean power to be bought in the same region and hour that it is consumed in order to claim credit. At the moment, the GHGP2 technical working group’s draft proposals align more towards the latter position, pushing for a higher standard. As a recent working group blog post puts it: “if a company uses electricity at night in one region, it cannot plausibly be using solar power generated during the day in another, unconnected region.”

This movement towards greater rigor is welcome. At the end of the day, the greatest value to society from companies pledging various climate targets isn’t their narrow emissions goals but rather the larger innovation and commercialization for clean energy technologies that they stimulate. Regional and hourly clean electricity accounting will help better direct such sustainability-minded investment precisely towards a cleaner grid’s greatest needs.

Indeed, today’s challenge is integrating increasing shares of variable renewable energy onto the grid while introducing a range of newer technologies like batteries, geothermal, and nuclear power needed to support them. Large corporations committed to being deep decarbonization leaders need to trailblaze the way towards delivering completely zero-carbon electricity to directly power their operations, instead of relying on symbolic offsets and easy accounting. The focus must shift from putting the first clean electrons on grids, to figuring out how to supply clean electrons at varied hours of the day and year.

For a time, easy sleight-of-hand corporate clean electricity accounting was, if not substantively defensible, arguably forgivable. During the earlier years of clean energy buildout in Europe and North America, corporate power purchasing agreements helped give financial backing to wind and solar projects just beginning to break into many markets.

But the slow march of clean energy efforts has shifted to a new stage that demands more rigor if companies want to continue advertising their green commitments with credibility. Since the Regional Greenhouse Gas Initiative commenced tracking and trading state-level CO2 emissions in 2009, clean energy crediting has consistently moved towards higher-resolution accounting. Companies themselves supported such finer accounting in order to be able to claim renewable energy credits that they could not access under state-level frameworks. To oppose more detailed and accurate counting now that it is inconvenient indicates that certain corporations are prioritizing the appearance of clean energy purchasing over a real commitment to decarbonization.

The portfolio of capabilities needed to ensure round-the-clock clean electricity supply to a city, a university, or a steel recycling plant indeed comes at a higher all-in price. Thus, current practices allowing companies to buy low-priced clean electricity certificates to satisfy their green commitments are taking the easy way out by symbolically checking the box on an electricity supply problem that would actually cost a good deal more for them to solve. Such permissive accounting is already creating highly distorted claims. Norway, for example, now exports several times the volume of clean electricity certificates than the volume of electricity the country actually transmits overseas.

Clean electricity is not actually cheap at all times of the day and all times of the year, yet. Pretending otherwise only makes getting there harder. It is better that green claims should reflect the actual operational and techno-economic characteristics of the power procured. Companies claiming clean power should pay the proper price for it.

For corporate clean energy programs to actually support the innovation and growth of the clean energy sector, a few clear principles stand out as particularly important.

First, companies should embrace clean energy purchasing as opposed to narrowly renewable energy purchasing. Low-carbon but non-renewable technologies like nuclear power and carbon capture can fill important niches in long-term power and industrial sector decarbonization, and there is no reasonable justification for corporate actors to exclude the idea of procuring such resources on a technicality.

Second, the frameworks by which companies’ grand claims about buying clean electricity are vetted should include guardrails to establish that they are procuring clean power generated in the same hour and geographical region that it is consumed in. Protocols must reflect the fact that the societal scale of the climate challenge is such that individual companies’ commitments to emissions mitigation are far less valuable than the clean technology innovation catalyzed by those procurement dollars. Today, the marginal innovation value of procuring clean electricity that can be generated on demand at 9PM or 4AM is many times greater than the negligible innovation value of buying another few gigawatt-hours of lumpy, variable electricity from a new wind farm in Nebraska.

To be clear, there is always a certain fiction with clean energy certificates no matter how stringent they are. Even a company buying hourly and regionally-matched clean electricity might still be responsible for some grid emissions in reality if it is using electricity on a cold winter morning in Virginia that requires Dominion Energy to fire up a combustion turbine gas plant to meet the total demand of that moment.

Nevertheless, if a company is buying its proper share of early morning winter electricity from a regional clean power plant that is actually capable of supplying low-carbon energy in those difficult hours of the day in a difficult time of the year, then the fiction is not only acceptable but commendable. Such an hourly-matched, regionally-deliverable purchase strategy helps support the kind of clean power generation that the grand project of decarbonization needs the most right now.

In opposition to stricter rules, defenders of loose clean energy certificate criteria argue that the renewables sector already faces new headwinds, meaning that stringent criteria for clean energy certificates would only further disincentivize companies from buying renewable power. The Clean Energy Buyer’s Association, for example, complains in a dissenting statement that “Buyers are already experiencing procurement challenges in many markets.” The American Council on Renewable Energy warns that the stream of corporate renewable energy buying might slow to a trickle.

Some might cite more unfavorable federal and state policies towards renewable energy projects in the U.S. or trends like successive occupation of the best renewable sites and increasing saturation of renewable generation in regions like Europe or Texas. Other opponents of hourly and regional matching quibble over edge cases of suboptimal emissions impacts from more rigorous accounting while advocating for purely emissions impact focused crediting.

But if sustainability-minded companies are actually committed to driving decarbonization, they must incentivize clean electricity where and when it is most needed—in other words, at the times of day when its marginal value is highest and in the regions where the new demand actually resides. Indeed, CEBA members should take to heart the challenge implied in their own dissenting post: “catalyzing, not limiting, corporate climate action to accelerate grid decarbonization.” A California data center billing itself as carbon-free by buying the output of solar farms in Wyoming that reduce some daytime coal plant use is not catalyzing anything new. Deploying solar to provide midday power is at this point a solved problem—the lowest-hanging fruit.

Symbolic accounting metrics with no geographical or temporal guardrails would only encourage companies to procure easy initial quantities of solar and wind around the world without tackling anything deeper. When such strategies inevitably confront diminishing returns, the failure to establish more robust early market demand for more versatile clean energy sources will come roaring back with a vengeance. Contrary to shortsighted and self-interested “impact-first” metrics, society is not optimizing for bulk gigawatts of wind and solar deployed, nor bulk gigawatt-hours of wind and solar generation shoved onto the grid, nor even for short-run emissions mitigation over the next five to ten years. Rather, corporate commitments should be channeled to properly align clean energy developers’ incentives with the energy transition’s outstanding, unsolved, long-term challenges.

Such alignment will push developers and technologists to pursue new generation locations, characteristics, and capabilities that fill the current gaps in our clean energy system problem-solving. As opposed to merely reinforcing existing success by encouraging companies to pile on more solar generation at peak noon, matching climate pledges with problem-solving will produce far greater benefits for the clean energy sector’s future.