Greenhouse Gas Emissions Accounting

Recent proposed revisions to the Greenhouse Gas Protocol (GHGP) Scope 2 Guidance may significantly increase the geographic and temporal granularity required for location-based method (LBM) of scope 2 greenhouse gas (GHG) emissions accounting. While these changes are intended to improve accuracy, transparency, and comparability of corporate inventories, they may also introduce unintended internal consistency challenges when applied across regions with overlapping electricity grid boundaries. This white paper examines how the proposed emission factor (EF) hierarchy, particularly the prioritization of subnational and hourly EFs, can result in the overlapping attribution of grid emissions within a single corporate scope 2 inventory. The analysis demonstrates how mechanically applying the most granular accessible EFs at the facility level can lead to double counting of the same underlying generation resources and concludes by outlining practical approaches reporting entities can use to mitigate these double counting risks.

Corporate greenhouse gas (GHG) emissions accounting seeks to provide an estimate for the GHG emissions attributable to an entity, such as an electric company or combined utility. GHG emissions accounting relies on voluntary guidance designed to enable the development of high-quality emissions inventories. However, when leading guidance documents lack consensus or sufficient specificity, entities may apply differing methods to complete their GHG emissions inventory, raising concerns for inventory quality. This EPRI report aims to illuminate existing challenges faced by electric companies and combined utilities when developing their corporate GHG emissions inventories. By articulating these challenges, electric companies can better identify issues and engage with entities that develop and maintain GHG emissions accounting guidance and other stakeholders to develop solutions that address these challenges.

Corporate greenhouse gas (GHG) emissions accounting is a complex and inexact undertaking. Electric companies and combined electric and natural gas utilities typically rely on guidance provided in protocols developed by non-profit organizations to account and report their corporate GHG emissions voluntarily and as required by federal and state regulations. This report explores the current landscape of GHG emissions reporting guidance, standards, and requirements, including a discussion of commonly used voluntary standards and key requirements of mandatory reporting frameworks.

As a consequence of significant and growing stakeholder and regulatory interest in “climate disclosure” and transparent accounting of corporate scope 1, 2, and 3 emissions, there is a growing need for electric companies and combined electric and natural gas utilities to conduct technically grounded greenhouse gas (GHG) emissions accounting and reporting.

To address this need, EPRI’s program on Energy, Environmental, and Climate Policy Analysis (P201) in 2021 completed a supplemental project focused on transferring in-depth technical knowledge and expertise related to scope 1 and 2 emission accounting and reporting. In 2023, EPRI launched a follow-up project focused on “Scope 3 Greenhouse Gas Emissions Accounting for Electric Companies and Combined Utilities” to provide technical insight into accounting and reporting for the 15 scope 3 emissions accounting categories. During the course of completing these two projects, EPRI identified a variety of key issues and special topics associated with GHG accounting for electric companies and combined utilities that require deeper understanding and investigation.

To address these topics more directly, EPRI launched a follow-up supplemental project in 2024 on Special Topics in Greenhouse Gas Emissions Accounting for Electric Companies and Combined Utilities. This report is a compendium of briefing papers and Frequently Asked Questions (FAQ) developed to support a series of webcasts EPRI hosted in 2024 and 2025 as part of this supplemental project. This technical transfer project focused specifically on improving participants’ understanding of (i) accounting and reporting for electricity and natural gas transmission and distribution related emissions in scope 1, 2, and/or 3; (ii) location- and market-based approaches to GHG accounting for scope 2 indirect emissions; (iii) GHG inventory base year recalculation methods and approaches; and (iv) scope 3 insetting.

How can electricity market operators accommodate state and federal greenhouse gas reduction policies in their market design and operation?

This Quick Insight summarizes a new EPRI technical report published in August 2024 that describes how accounting for and valuing carbon dioxide (CO2) emissions — and more broadly greenhouse gas emissions (GHGs) — has been implemented in wholesale power markets in the United States and the European Union (EU). The power markets discussed include the CAISO, CAISO’s WEIM, NYISO, SPP’s Markets+ in the U.S. and the wholesale power market in the EU. It explores how these markets have tried to address the technical challenges associated with implementing carbon pricing, particularly when the footprint of a wholesale power market overlaps with different carbon polices across the footprint. This report also describes the challenges associated with accounting for GHG emissions in the context of wholesale power markets in which electricity is centrally dispatched to end-use customers.

This EPRI report describes how accounting for and valuing carbon dioxide (CO2) emissions — and more broadly greenhouse gases (GHGs) emissions — has been implemented in wholesale power markets in the United States and the European Union. This includes programs such as the GHG emissions "cap-and-trade" regulatory programs operating today in California, Washington, and the 11 states in the northeast United States that comprise the Regional Greenhouse Gas Initiative. It also includes the EU Emissions Trading Scheme. This report explores how these carbon markets and the related wholesale electricity markets have tried to address the technical challenges associated with implementing carbon pricing, particularly in situations in which the footprint of a wholesale power market overlaps with different carbon polices across the footprint. This report also describes the challenges associated with accounting for GHG emissions in the context of wholesale power markets in which electricity is centrally dispatched to end-use customers.

Electric companies emit greenhouse gases (GHG) from a wide range of activities. These emissions often are characterized for accounting and reporting purposes as direct or indirect emissions. Direct emissions, referred to as “scope 1,” result from company activities that physically release (or remove) GHGs to (or from) the atmosphere, such as burning natural gas to generate electric power. Indirect emissions can be either scope 2 or scope 3, and result from other indirect activities that are essential to a company’s operations, such as fuel transport to a power generation facility. The World Resources Institute (WRI) Corporate Value Chain (Scope 3) Accounting and Reporting Standard defines 15 categories of reporting scope 3 emissions, separated into upstream and downstream designations. In the standard, upstream refers to the GHG emissions from purchased or acquired goods and services and downstream refers to the GHG emissions from the sale of goods and services by reporting entity.

This report is a compendium of briefing papers and Frequently Asked Questions (FAQ) developed to support a series of webcasts EPRI hosted in 2023 and 2024 as part of an EPRI supplemental project on Scope 3 Greenhouse Gas Emissions Accounting for Electric Companies and Combined Utilities. This technical information transfer project was designed to improve participants’ understanding of how to account and report scope 3 indirect GHG emissions; determine relevant scope 3 categories and methods to calculate them; familiarize participants with existing GHG accounting protocols and scopes; and help company staff and managers learn to communicate more clearly and effectively about their company’s GHG emissions.

Electric companies and combined electric and natural gas utilities emit greenhouse gases (GHG) from a wide range of activities. A myriad of voluntary and mandatory GHG accounting frameworks exist in the United States and internationally that a company may use to account for and report their GHG emissions. These frameworks use different GHG accounting methods, estimation techniques, and reporting guidelines and are often ambiguous. The major existing GHG accounting frameworks and guidance are intentionally generic and non-sector-specific, resulting in technical gaps for specific economic sectors. One of the areas lacking technical guidance in the energy sector relates to accounting for GHG emissions associated with “common carrier” energy infrastructure, such as natural gas pipeline and electric system transmission and distribution infrastructure.

This EPRI technical update report summarizes existing GHG accounting guidance from the perspective of entities that own common carrier energy infrastructure, both for voluntary and mandatory GHG accounting and reporting purposes. The report provides an overview of GHG accounting, emission sources associated with common carrier energy infrastructure, the setting of emissions reporting boundaries, and explores the different interpretations of existing voluntary GHG emissions accounting guidance relevant to reporting GHG emissions from common carrier natural gas and electricity infrastructure.

EPRI has been engaged in greenhouse gas (GHG) emissions accounting for more than 20 years. During this time, EPRI has assisted member electric companies to develop and report comprehensive corporate GHG emissions inventories and taken part in expert working groups focused on improving GHG accounting and reporting for electric companies and combined utilities.

This Technology Innovation (TI) program Quick Insight (QI) explores how large commercial and industrial (C&I) electricity consumers account for and report the greenhouse gas (GHG) emissions embedded in the electricity they buy to operate their businesses, and existing and emerging approaches that companies can use to reduce these emissions. It is intended to provide a quick overview and point to additional technical resources for senior executives and managers responsible for GHG emissions accounting, sustainability reporting, and corporate decarbonization strategy. To address the challenges described in this QI, EPRI plans to expand our current GHG emissions accounting research activities in 2024 and beyond to assist EPRI members with navigating this complex and rapidly evolving area.

This Technology Innovation (TI) program Quick Insight (QI) highlights key elements and challenges associated with voluntary corporate greenhouse gas (GHG) emissions accounting and reporting by electric companies and combined utilities in the United States.[1] It is intended to provide a quick overview and point to additional technical resources for senior executives and managers of electric companies responsible for GHG emissions accounting, sustainability reporting, and corporate decarbonization strategy.

[1] For more information about GHG accounting concepts and methods, see Greenhouse Gas Emissions Accounting for Electric Companies: A Compendium of Technical Briefing Papers and Frequently Asked Questions. EPRI, Palo Alto, CA: 2021. 3002022366.

Companies are considering greenhouse gas (GHG) reduction goals and there is significant stakeholder enthusiasm. However, there is a general unfamiliarity with the relevant science, lack of technical resources and guidance, and more scientific knowledge than what is currently being considered. What is a cost-effective GHG emissions goal for an individual electric power company? What are important considerations for a company in setting a GHG goal? These are important questions. This study derives technical insights relevant to company GHG goal setting based on assessment of the relevant science and new modeling analysis analyzing cost-effective targets for illustrative electric power companies. From these analyses, we derive scientific insights and principles for company GHG goal setting. For instance, we find that companies will have different practical GHG goals, and the same goal for all companies is not cost-effective for society. Furthermore, we find that policy design and non-policy uncertainties matter when setting and evaluating goals, and goals will have risks that need to be assessed and managed, including uncertain costs. We also apply our technical insights and principles to a prominent third-party GHG goal setting methodology, the Science Based Targets Initiative (SBTi) methodology. We find that the SBTi methodology’s scientific basis is very limited, and the methodology is not designed to identify a cost-effective target for each company, facilitate overall cost-effective decarbonization, or help a company evaluate and manage its low-carbon transition risk. Finally, we note that the technical insights and principles from our study represent the foundation for a well-grounded company GHG goal validation alternative to SBTi.

A growing number of electric companies and large corporations in the United States and internationally have adopted aggressive goals to reduce their corporate greenhouse gas (GHG) emissions by 2030 and beyond. To assess progress towards achieving these goals, electric companies, their end-use customers, regulators and external stakeholders have a growing interest in accounting for companies' GHG emissions and tracking them over time.

This Technical Brief describes two different approaches that may be used to account for and present corporate GHG emissions data ? source-based and load-based accounting. The information presented here has been drawn from past EPRI research. Source-based accounting is focused on answering the question, How much CO2 (or GHG) does a specific facility or entity emit? Load-based accounting tries to answer the question, How much CO2 (or GHG) emissions are embedded in the electricity delivered to end-use consumers (i.e., the company's load)? This Technical Brief also identifies and describes five approaches electric companies can use to account for and report the GHG emissions associated with the electric power they deliver to their retail end-use customers.

The topic of greenhouse gas (GHG) emissions accounting for battery energy storage systems (BESS) is relatively new and so has not yet been thoroughly addressed by existing organization-level GHG emissions reporting guidance. This EPRI Technical Brief provides an overview of beneficial applications for integrating BESS into the electric power grid, the life-cycle GHG emissions of BESS, and how these emissions may be accounted for in electric company GHG emissions inventories.

Corporate greenhouse gas (GHG) emissions accounting is a complex and inexact undertaking. Today, electric companies operating in the United States are required to report the “direct” GHG emissions from electric power generating facilities to federal and state regulatory agencies including the US EPA. Many companies also report their direct emissions and “indirect” emissions to a variety of external stakeholder organizations and entities interested in enhanced disclosure of corporate GHG emissions. In addition, many electric companies have adopted voluntary commitments to reduce their GHG emissions. To develop accurate emissions inventories and to track progress toward achieving these goals, companies need to understand both their direct and indirect GHG emissions and how to account for them, and how future activities may impact their corporate GHG emissions accounting.

This report is a compendium of briefing papers and Frequently Asked Questions (FAQ) developed to support a series of webcasts EPRI hosted in 2020 and 2021 as part of a project on Greenhouse Gas Emissions Accounting for Electric Power Companies. This project was designed to improve participants’ understanding of voluntary corporate GHG emissions accounting as it applies to electric companies and combined utilities, and to expand electric companies’ knowledge about key technical issues related to accounting for “scope 2” and “scope 3” indirect emissions.

This compendium explores a variety of key technical issues and nuances related to GHG emissions reporting and important technical considerations electric companies may want to address when developing their own GHG emissions inventories.

This report examines the greenhouse gas (GHG) accounting methods in use by various GHG reporting programs and jurisdictions in the United States and internationally to account for electric company GHG emissions, with a focus on the accounting for indirect CO2 emissions associated with wholesale power transactions for delivery to retail end-use customers. It describes different GHG accounting options available to account for the GHG emissions associated with electric power sold to end-use consumers.

Stakeholders are increasingly requesting that companies analyze the potential risks to company investments and operations of policy efforts to manage climate change and greenhouse gas (GHG) emissions (such as limiting global warming to 2° Celsius [C]). Similarly, companies are receiving requests to set GHG emissions reduction targets. Analyses related to both types of requests are technically challenging for companies to undertake and for stakeholders and the public to evaluate.

EPRI has embarked on this study to develop a public technical resource that can serve as a scientific foundation for informed dialogue and decision-making on company climate policy scenario analysis and emissions goals. A sound scientific understanding is a requisite first step for companies and stakeholders, as well as for developing methodologies and defensible decisions. In this study, we analyze and characterize current scientific understanding, identifying technical issues confronting companies and others, and developing observations from the scientific literature relevant to company planning. Based on these observations, we derive insights for company analysis, evaluate proposed methodologies, and provide steps for implementing our insights. Most of our insights are relevant to companies and stakeholders of any kind, but some are more relevant to electric power companies.

This study is part of a broader EPRI project to inform dialogue and decisions on company climate scenarios and GHG targets with analyses and a collaborative forum for understanding perspectives, issues, technical needs, and for communicating insights. This study represents the first of two phases designed to take stock of current knowledge. The results from this study can be used as a foundation from which new analyses can be undertaken to further inform company approaches, address scientific gaps, and continue the development of the scientific grounding necessary for informed decisions.

In recent years, many electric companies, combined electric and natural gas utilities, and other companies have adopted aggressive corporate decarbonization and “net-zero” goals. However, in the current fractured regulatory landscape of voluntary and regulatory carbon markets and the ongoing, rapid evolution of existing greenhouse gas (GHG) emissions accounting and disclosure rules, it is not clear how electric companies can report, track and “take credit” for actions they may take that reduce their GHG emissions.

This EPRI report explores three interrelated research questions: (i) What types of actions can electric companies and combined electric and natural gas utilities take to reduce their scope 1, 2 and 3 greenhouse gas emissions? (ii) How can electric companies and combined utilities measure the impact of actions and activities they may take to reduce their greenhouse gas emissions? (iii) How can electric companies and combined utilities report and “take credit” for GHG emissions reductions they may have achieved?

As electric companies and combined electric and natural gas utilities develop strategies and make plans to reduce their future greenhouse gas (GHG) emissions, some are considering the role that GHG emissions offsets may play in assisting them to meet their short, mid, and long-term decarbonization and “net zero” goals. In some cases, these companies may be considering developing GHG emissions offsets projects themselves, and/or buying approved GHG emissions offset credits generated by third-party developers. Incorporating GHG emission offsets into a company’s decarbonization strategy is a complex undertaking, requiring a breadth of knowledge about GHG emission offset project development, market structures, and the various ways in which offsets can be used to complement broader decarbonization goals.

This report is a compendium of briefing papers and Frequently Asked Questions (FAQ) developed to support a series of webcasts EPRI hosted in 2022 as part of an EPRI supplemental project on Exploring the Role of Greenhouse Gas Emissions Offsets to Achieve Corporate Decarbonization Goals. This technical transfer project was designed to improve participants’ understanding of the technical aspects of GHG emissions offsets, including key characteristics of offsets and existing and evolving offsets crediting programs and markets and explore strategies to communicate more clearly and effectively about companies’ use of GHG emissions offsets; and provide a technical forum, guided by EPRI experts, for participants to discuss opportunities and challenges related to using offsets in company decarbonization strategies.

California enacted Assembly Bill 32 (AB 32) to address climate change in 2006. It required the California Air Resources Board (ARB) to develop a plan to reduce the State’s greenhouse gas (GHG) emissions to 1990 levels by 2020. ARB developed a plan (i.e., the “Scoping Plan”) made up of a GHG emissions cap-and-trade program and regulatory measures known as “complementary policies” (CPs) to achieve the 2020 target. The CPs, which were designed to achieve climate policy and other important policy objectives, targeted emissions from sectors covered by the GHG cap-and-trade program and those not covered by the program. ARB estimated that the CPs would achieve approximately 80% of the emissions reductions required to achieve the 2020 emissions target. Other jurisdictions, including the European Union, Australia, and the states that make up the Regional Greenhouse Gas Initiative, have developed a similar hybrid policy approach to achieve climate policy objectives.

Although this approach has been widely used to address climate change, little analysis has been undertaken on the interactions between CPs and GHG cap-and-trade programs and their impacts on program costs and covered entities. The report concludes that the performance of CPs in achieving emission reductions will have a significant impact on the level of abatement that covered sources will need to achieve to meet the fixed emissions cap in the GHG cap-and-trade program and on expected GHG emission allowance prices. In addition, the potential variance in the performance of CPs and other variables, and recent regulatory decisions that have been made regarding program implementation, will complicate the efforts of electric companies to develop an effective risk management strategy to comply with the program. Conclusions regarding the directional impacts of varying levels of CP performance on emission reduction requirements and allowance prices in California’s cap-and-trade program likely will be applicable to other jurisdictions employing the same policy model to address climate change.

This report provides an initial assessment of potential new approaches to reducing greenhouse gas (GHG) emissions that might be capable of generating large-scale GHG emissions offsets at relatively low cost compared to other GHG mitigation options. The nine potential blue sky approaches assessed in this report include biochar, destruction of ozone depleting substances, control of natural fugitive methane seeps from coal seams, control of fugitive natural gas emissions associated with hydraulic fracturing and shale-gas extraction, "blue" carbon, enhanced soil carbon sequestration associated with dedicated energy crops, improved management of small ruminant animals, geo-mitigation opportunities such as control of volcanic emissions and avoiding permafrost melting, and geo-engineering techniques such as ocean carbon fertilization. These blue sky technologies might be able to reduce GHG emissions domestically and internationally; in some cases, they could potentially be used to create GHG emissions offsets. These offsets could potentially be used by electric power companies and others to comply with existing and evolving GHG emission reduction programs, such as cap-and-trade programs. Our initial assessment of these approaches indicates that biochar, ozone depleting substance destruction, blue carbon, and ocean iron fertilization have the greatest potential to achieve large-scale, low-cost (GHG) mitigation. Biochar and blue carbon appear to have significant potential to qualify as new offsets types that could potentially benefit from further research by the Electric Power Research Institute (EPRI). Ozone depleting substance offsets are already in the marketplace and, therefore, are not likely to benefit significantly from additional research. Ocean iron fertilization must achieve greater levels of scientific and public acceptance before this category can become a potential source of GHG offsets.

This report provides an initial assessment of potential new approaches to reducing greenhouse gas (GHG) emissions that might be capable of generating large-scale GHG emissions offsets at relatively low cost compared to other GHG mitigation options. The nine potential blue sky approaches assessed in this report include biochar, destruction of ozone depleting substances, control of natural fugitive methane seeps from coal seams, control of fugitive natural gas emissions associated with hydraulic fracturing and shale-gas extraction, "blue" carbon, enhanced soil carbon sequestration associated with dedicated energy crops, improved management of small ruminant animals, geo-mitigation opportunities such as control of volcanic emissions and avoiding permafrost melting, and geo-engineering techniques such as ocean carbon fertilization. These blue sky technologies might be able to reduce GHG emissions domestically and internationally; in some cases, they could potentially be used to create GHG emissions offsets. These offsets could potentially be used by electric power companies and others to comply with existing and evolving GHG emission reduction programs, such as cap-and-trade programs. Our initial assessment of these approaches indicates that biochar, ozone depleting substance destruction, blue carbon, and ocean iron fertilization have the greatest potential to achieve large-scale, low-cost (GHG) mitigation. Biochar and blue carbon appear to have significant potential to qualify as new offsets types that could potentially benefit from further research by the Electric Power Research Institute (EPRI). Ozone depleting substance offsets are already in the marketplace and, therefore, are not likely to benefit significantly from additional research. Ocean iron fertilization must achieve greater levels of scientific and public acceptance before this category can become a potential source of GHG offsets.

If the United States decides to take broader action in the future to mitigate climate change, policy discussions may once again focus on development of a greenhouse gas (GHG) cap-and-trade program combined with development of a large-scale GHG emissions offsets program. The compliance flexibility offered by these programs, and the economic incentives they create to identify and implement low-cost compliance options, have the potential to reduce significantly the costs to achieve significant emissions limitations. Realizing this potential, however, is not guaranteed. The overall design and key elements of an offset program will have a significant impact on whether a future offsets program can achieve the objective of stimulating investment in activities that create low-cost GHG reductions. Fortunately, the design of a U.S. program can benefit from experience to date with existing offset programs. In particular, U.S. policymakers can draw lessons from the experience of the first large-scale offset program in the world—the Kyoto Protocol's Clean Development Mechanism (CDM). By the end of 2012, the CDM is expected to issue offset credits for approximately one billion tons of CO2-equivalent (CO2e) emission reductions. This paper evaluates the CDM and other key existing offset programs, and draws lessons from these programs that can help to inform development of a potential future U.S. national or regional offsets program.

This report is designed to develop and disseminate to members of the Electric Power Research Institute (EPRI), the public at large, and participants in the world's evolving carbon markets a set of lessons learned about the aggregation of individual greenhouse gas (GHG) emissions offset projects into larger, organized configurations that can yield large-scale GHG emissions offsets. Aggregation puts together geographically and/or temporally dispersed activities that reduce emissions in a similar manner to streamline the process of qualifying and quantifying emissions offsets.

This report examines approaches used by existing and evolving offset programs to facilitate offset project aggregation. It focuses on major existing offsets standards and aggregation approaches, including the United Nations' Clean Development Mechanism's Programme of Activities, the Verified Carbon Standard's grouped projects, the Climate Action Reserve's forestry protocol aggregation guidelines, the American Carbon Registry's aggregation guidelines for forestry projects, the Chicago Climate Exchange's soil conservation protocol, and the Alberta Offset System's tillage systems protocol.

In addition, the report examines business models that offset project developers have employed to replicate one project type in order to streamline the process of generating offsets without the need to rely on a specific methodology for aggregation. The report also discusses options for sectoral crediting, an approach that seeks to reward specific economic sectors in specific regions if they exceed sectoral GHG emissions targets. Finally, key lessons learned are summarized, including:

1. Reduce Risk: Aggregation can help reduce financial and other risks to offset project participants and can help aggregators finance the capital costs of offset activities. Aggregators can incentivize large-scale participation in their programs by reducing the project performance risk faced by landowners by paying them to implement specific practices that reduce GHG emissions at standard practice-based rates.- Consider Aggregation Upfront: Aggregation can fundamentally change the approaches used to qualify and quantify an offset project. Aggregation may enable "proportional additionality" assessments and modeling approaches to quantifying offsets that cannot be used for stand-alone projects. Offset programs may want to consider integrating aggregation guidelines more closely into new offset protocols at the time they are initially developed, rather than simply adding on aggregation guidelines as an addendum to new or existing protocols.- Simplify Protocols: Simplified, standardized offset accounting and verification protocols can enable aggregation. Performance standards, practice-based offset crediting rates, regional data, and simplified approaches to address permanence and leakage can reduce carbon market risks for all participants and speed up the development of large quantities of offsets.

For U.S. industries with operations that emit greenhouse gases (GHGs), climate policy is no longer a distant possibility — it is being planned and, in some cases, implemented today. While debate on a federal GHG trade program continues in Congress, CO2 emission reduction requirements have been put in effect in Northeastern States (i.e., the Regional Greenhouse Gas Initiative — RGGI), are being developed in California (to implement the state's "Global Warming Solutions Act" — AB32), and are being designed in the western states as part of the Western Climate Initiative — WCI).

This issue paper considers the specific GHG emission reduction requirements that sectors covered under a U.S. cap-and-trade bill — including the electricity sector — may face, and the role that offsets could play in helping to meet these requirements cost-effectively.

In 2008, EPRI launched the EPRI Greenhouse Gas (GHG) Emissions Offset Policy Dialogue project. The goals of this project are 1) to inform key constituencies involved in the development of U.S. climate mitigation strategies and policies about GHG emissions offset–related policies and design issues and 2) to provide a forum in which representatives of key sectors of the U.S. economy and communities involved in the ongoing development and debate on climate change policies can discuss these issues.

On May 13, 2009, EPRI hosted its 5th GHG Emissions Offsets Workshop in Washington, D.C., as part of this project. This workshop focused on the potential opportunities and key challenges associated with developing large-scale GHG emissions offsets from projects and activities designed to reduce GHG emissions from tropical deforestation and forest degradation.

Objective

This report is intended primarily for senior managers and environmental staff of U.S. electric companies. The information should provide a comprehensive understanding of the potentially important role that GHG emissions offsets derived from REDD-based activities may play in helping to mitigate global climate change and reducing the costs of complying with future requirements to reduce GHG emissions that contribute to global climate change.

To date, international climate agreements have focused primarily on achieving reductions in developed country CO2 emissions from fossil fuel combustion. However, because GHG emissions associated with land use, land use change, and forestry (LULUCF) account for roughly one-fifth of total annual global GHG emissions, policy makers now recognize that LULUCF emissions need to be placed on an equal footing with sectors such as the electric power sector.

Approximately 80% of anthropogenic CO2 emissions during the 1990s resulted from fossil fuel burning, with roughly 20% from land use change (primarily deforestation). Average annual fossil fuel CO2 emissions during 2000–2005 were 26.4 GtCO2, of which approximately 30% can be attributed to electric power generation. Average annual LULUCF emissions, estimated at 5.8 GtCO2, are equivalent to nearly 20% of annual fossil fuel CO2 emissions. Within the LULUCF category, deforestation is the main contributor to global CO2 emissions.

Approach

This EPRI project has used a lessons-learned approach to identify, describe, and assess the impacts of design elements incorporated in existing and proposed offset systems and that significantly impact their ability to achieve environmental and economic objectives. To achieve the project’s goals and explore the myriad of design issues related to the development of offset programs, EPRI hosted a series of interactive offset workshops in 2008 and 2009. Earlier this year, EPRI hosted its 5th GHG Offsets Workshop on REDD in Washington, D.C. The background materials developed for that workshop provided the foundation for this EPRI technical update report.

Results

This technical update report highlights background materials developed by EPRI and Natsource in 2009 to support the 5th EPRI GHG Emissions Offsets Workshop on Reducing Emissions from Deforestation and Degradation (REDD).

Application, Value and Use

Although debate continues regionally, nationally, and internationally about how to respond to global climate change, it is becoming increasingly clear that U.S. electric companies may face future requirements to substantially reduce and/or offset their GHG emissions. The extent to which domestic and international offsets may be used to comply with emissions reduction requirements that may be incorporated in evolving U.S. domestic GHG cap-and-trade programs has become increasingly controversial in the United States as policy makers seek to design climate change policies.

Policy discussions to date in the United States have focused on potential development of "economy-wide" GHG emission caps, which implies that there will be relatively few opportunities to reduce emissions domestically in "uncovered" economic sectors to generate GHG emissions offsets. Given this, there is increased interest in better understanding the potential role that international offsets may play in evolving U.S. climate policy. The largest potential source of offsets globally is projects that reduce emissions from deforestation and degradation.

EPRI Perspective

EPRI-member companies have significant interest in the potential role that GHG emissions offsets may play in climate change policy. Over the past decade, EPRI members have supported fundamental research and development activities related to evaluating and implementing GHG offsets such as forest carbon sequestration and nitrous oxide (N2O) emissions reductions associated with altered agriculture crop production practices. As climate policy continues to evolve at the U.S. state, regional, and federal levels, electric companies will have a key role in helping to define evolving offsets policy as well as the role that offsets will play in climate policy. This report is designed to provide EPRI members and others with a comprehensive understanding of the potential role and key challenges associated with developing and using GHG emissions offsets from REDD-based activities and programs. EPRI is hopeful that an improved understanding of REDD-based offsets and their potential role in climate mitigation will lead to more thoughtful and productive public policy deliberations regarding these important issues.

This EPRI Technical Update provides senior managers and environmental staff of U.S. electric companies with a comprehensive understanding of the role that greenhouse gas (GHG) emissions offsets can play in their own company's future carbon emissions compliance strategy and how offsets offer a key contribution to meet global GHG emissions reduction targets faster and at comparatively low cost. So-called “project-based mechanisms” use the power of markets to supply cost-efficient GHG emission reductions to entities that need to reduce their emissions.

The report describes emission-trading systems in the European Union and in New South Wales (Australia) conducted under the Kyoto Protocol (KP). It also discusses project-based mechanisms in the United States, in particular in the Northeast Regional Greenhouse Gas Initiative (RGGI), and growing voluntary markets for GHG emissions reductions. The report then details rules and regulations for projects; analyzes volumes, prices, and trends; and outlines the main price drivers and risks of the market.

Two factors are especially critical to the successful development of markets for GHG offsets: first, guaranteeing the environmental integrity and credibility of the credits generated by GHG reduction projects and, second, ensuring that markets are linked globally, thereby enabling reductions to take place where it is most cost-efficient. The markets are currently nascent and fragmented, but they have the potential of growing into a single large commodity market in the next decade.

Objective

A thorough understanding of the GHG emissions offset market will help the U.S. electric sector be in a stronger and more informed position to participate in and inform development of climate-change legislation and regulation and help companies to make strategic decisions to cost effectively acquire and use GHG offset to reduce their future carbon-related financial and operational liabilities. This report provides high-quality, updated financial and technical data on carbon offsets and highlights GHG abatement project types and countries with a high potential. This report also explains the risks of the market and the best strategies for various market actors. Large utilities will benefit from an in-depth introduction to the global market and a discussion of the role global carbon credits could play in a compliance market in the United States. Utilities wishing to invest locally will find useful guidelines and will be able to learn and build upon the experience of projects and actors worldwide.

Approach

The goal of the report is to provide up-to-date, detailed intelligence about project-based mechanisms around the world. The project team relied on information from public and private databases and published research.

Results

Readers will acquire a deeper understanding of the following key issues:

• What GHG offsets or credits actually represent and how they are created- How GHG offsets can be used to reduce potential climate change-related compliance cost while satisfying strict requirements to ensure environmental integrity- How the carbon markets are organized and which options are available to U. S. electric companies and others in GHG abatement project development or GHG offset trading- What financial and operational risks are associated with GHG offset investments and how specific risks relate to the expected acquisition cost of offsets

    #### Application, Value and Use
  
    Global carbon markets continue to evolve at a fast pace and climate policy continues to entail significant implications for the future business strategies of the electric sector. Leading companies need to stay updated on key developments to inform policy evolution and quickly adapt business strategies to changing market conditions. An offset strategy is likely to be a key component of the long-term strategic plan of any electric power company and, as such, complement fundamental business decisions on new generation investments and asset replacement.
  
    #### EPRI Perspective
  
    EPRI member companies have long had an interest in the use of offsets as a cost effective way of mitigating GHG emissions. Over the past decade EPRI members have supported fundamental research and development activities related to evaluating and implementing GHG offsets such as forest carbon sequestration and nitrous oxide (N2O) emissions reductions associated with altered crop production practices in agriculture. As climate policy continues to evolve at the state, regional and federal levels in the United States, electric companies will be key participants in defining evolving GHG offsets policy. This report is designed to provide EPRI members and others with a comprehensive understanding of the part that GHG emissions offsets may play in reducing global GHG emissions. EPRI hopes this improved understanding will lead to more thoughtful and productive public policy deliberations about the future of climate policy in the United States.
  

This Technical Update covers the first year of a three-year-long EPRI research project entitled Developing Greenhouse Gas Emissions Offsets by Reducing Nitrous Oxide (N2O) Emissions in Agricultural Crop Production. The report provides a project overview and explains the preliminary results yielded from the first year of on-farm research.

Objective

In fall of 2006, EPRI launched a three-year-long project to investigate the potential to reduce nitrogen fertilizer use in agricultural production. This EPRI project is expected to be completed by 2009. The project has five primary objectives:

1. to determine the technical potential and economic cost to offset greenhouse gas (GHG) emissions by reducing N2O emissions in agricultural crop production across representative soil and crop types in the United States;

2. to confirm, through field testing, that rate of movement of N2O from soil to atmosphere (N2O flux) that can be reduced substantially by decreasing the amount of nitrogen fertilizer applied to cropland with little or no loss in crop productivity;

3. to refine existing computer simulation models so they can be used to predict the relationship between N2O flux and crop yields;

4. to identify, describe, and analyze socio-economic factors that may encourage or inhibit farmers from participating in N2O emissions reduction projects and identify approaches to overcome potential farmer reluctance to participate; and

5. to identify incentives that may be needed to encourage farmers to change cropping practices to achieve N2O reductions.

Approach

The project team summarized results for the first year of field testing and research conducted as part of this three-year-long EPRI study. Preliminary results appear to support the underlying hypothesis that N2O emissions can be reduced substantially by changing fertilizer management in agricultural crop production with little concomitant loss in annual crop yields.

Results

In the project's first year, progress has been made towards achieving all project-related tasks, including

• assembling geospatial databases needed for regional modeling work and linking these databases to the SOCRATES-N2O model;

• establishing N2O test plots fertilized at different rates on commercial growers’ fields and measuring N2O fluxes from these plots;

• installing at the Michigan State University (MSU) Kellogg Biological Station (KBS) a near-continuous N2O measurement system on a set of field crops fertilized at different rates; and

• initiating farmer focus group activities.

Application, Value and Use

The tools and information developed in this project will broaden GHG emissions offset options available to electric companies and others and can serve as a mechanism to develop and strengthen partnerships between electric companies and agricultural communities they serve.

EPRI Perspective

This EPRI-sponsored project is investigating an innovative approach to developing large-scale and potentially cost-effective GHG emissions offsets that could be implemented across broad geographic areas of the United States and internationally. By demonstrating an innovative approach to creating cost-effective, widespread, and large-scale GHG emissions offsets, this project is designed to increase the breadth of options available to electric companies to offset their GHG emissions in response to potential future carbon constraints.

The earth’s climate is warming and the majority of scientists believe that human-caused emissions of greenhouse gases (GHGs) are contributing significantly to the warming of our atmosphere. Mandatory limits of GHG emissions now exist in most industrialized nations and are being developed in individual states and regions within the United States. It appears increasingly likely that a national mandatory program to limit GHG emissions could be implemented in the U.S. sometime in the next few years.

Forest carbon sequestration can provide electric companies and other entities that emit GHGs with desirable opportunities for GHG emissions mitigation for a variety of reasons. These include:

(i) GHG offsets derived from forest carbon sequestration (FCS) projects can be achieved for a relatively low financial cost per ton of carbon dioxide equivalent(CO2e) as compared to many other GHG abatement options available to electric companies and other industrial entities;

(ii) FCS projects can generate GHG emission offsets without development of new technology;

(iii) FCS projects offer geographic flexibility in where mitigation can be achieved;

(iv) FCS projects can help to improve a company’s public image as the public generally has positive perceptions about forests and forest restoration;

(v) FCS projects can provide a way for companies to diversify their asset portfolio and hedge financial risk; and

(vi) FCS projects, in some cases, may complement other company goals.

Electric companies may use a variety of different organizational approaches to create or acquire GHG emission offsets derived from forest carbon sequestration, including:

• Implementing FCS projects on company-owned lands;

• Joining a consortium of entities that jointly implement FCS projects to create GHG offsets;

• Engaging a third-party contractor to develop an FCS project on behalf of the company; and

• Purchasing FCS-based GHG offsets in the marketplace. Companies that are considering creating or purchasing FCS-based GHG offsets should try to anticipate how they intend to use the resulting GHG offsets and try to ensure that the GHG offsets are likely to eligible to be used for compliance purposes in whatever mandatory or voluntary GHG emissions mitigation scheme they are involved in. Financial analysis of proposed offset projects should explicitly account for the time value of money and risks. Promising methods for creating GHG emission offsets using forest carbon sequestration include afforestation or reforestation, joint creation of wood products and GHG emissions offsets, and FCS projects that use very fast growing tree species. Preserving forests to avoid future GHG emissions is often a very expensive way to generate FCS-based GHG offsets. Finally, this report provides economic analyses of a variety of FCS projects that could be implemented to create GHG emission offsets.

Although companies are increasingly pledging to reduce or eliminate their carbon emissions, technical and economic challenges remain, particularly for emissions tied to factors beyond a company’s control such as interconnection queues, permitting, inflation, growing load, and supply chain delays. Given these uncertainties, there are questions about the role that voluntary carbon markets could play in helping to meet electric sector decarbonization and corporate emissions reductions goals affordably and reliably. This analysis uses EPRI's U.S. Regional Economy, Greenhouse Gas, and Energy (REGEN) model—linking detailed electric sector capacity planning and fuels supply with representations of demand in buildings, transport, and industry—to explore how the value of voluntary carbon markets may change under different regional, technology, and policy conditions. Model results suggest that carbon markets can lower power sector decarbonization costs by displacing high-cost direct mitigation, including emerging technologies with uncertainty about their cost and availability such as carbon capture, advanced nuclear, long-duration energy storage, and hydrogen. In this context, voluntary carbon markets could function as hedges against technological uncertainty, especially in the deployment of nascent technologies. The value of carbon markets is shown to be higher in contexts where technological costs are high, portfolios are limited, and deeper economy-wide decarbonization is targeted. Results also illustrate how regional differences in decarbonization strategies are significant, which lead to variation in abatement costs, value of carbon credits, and value of regional flexibility. Overall, these scenarios indicate that net-zero targets with flexibility about the use of sectoral, regional, and technological emissions reductions can help to minimize costs while increasing the likelihood that targets are achieved.

This EPRI white paper describes the evolution and growing interest of large electricity customers, electric companies, and others in procuring and supplying “carbon-free” energy 24 hours a day, seven days per week (24/7 CFE), and the opportunities and challenges facing electric companies considering developing products and services to meet this emerging need. Further, it explores the potential role of 24/7 CFE in future electric company and electric customer decarbonization activities, the current market status of 24/7 CFE products, services and suppliers, and provides information about existing commercial activities and recent 24/7 CFE agreements. This paper also addresses important related issues, including GHG emissions accounting related to procurement of 24/7 CFE, and the growing and controversial practice of procuring renewable energy (RE) and renewable energy credits (RECs) to achieve corporate carbon emission reduction goals. Development of this paper was supported by EPRI’s Technology Innovation (TI) program.

This research shows how a carbon price impacts electricity price formation by reconfiguring the economic trade-offs between technologies, and then demonstrates how relative fuel price impacts from a carbon policy can influence end-use capital investment decisions to incentivize (or disincentivize) electrification. The results show that a carbon price impacts electricity prices less, proportionally, than it impacts prices for natural gas and gasoline, implying that an economy-wide carbon price would act as an incentive for electrification, and an electric-sector only carbon price would act as a disincentive for electrification. These concepts are illustrated in a scenario analysis featuring a high-level representation of the Carbon Leadership Council’s “Baker-Schultz” carbon tax proposal of 2019, implemented in EPRI’s U.S. Regional Economy, Greenhouse Gas, and Energy (US-REGEN) Model.