Carbon Offset Criteria:

1. Methodology
   Companies must scrutinize the methods employed in carbon offset projects. Whether it’s reforestation/Afforestation, Carbon removal, or methane capture, understanding the methodology is vital in determining the actual impact of the offset. Aligning your organization’s goal and scopes with high quality carbon offsets is critical. For instance, projects utilizing carbon capture and storage (CCS) technologies directly capture emissions from industrial processes and power plants, preventing them from entering the atmosphere. On the other hand, nature-based solutions such as afforestation and reforestation leverage the natural ability of ecosystems to sequester carbon. Understanding these methods helps companies gauge the actual impact of the offset and its contribution to emission reduction.
2. Technology vs Nature-Based Solutions (NBS)
   Evaluate the balance between technological solutions and nature-based solutions. Tech-based projects may include carbon capture technologies (avoided emissions), while nature-based projects involve activities like afforestation and reforestation (sequestration / removal). A strategic mix can provide a more comprehensive approach to carbon mitigation. Striking a balance between these two approaches ensures a comprehensive and sustainable carbon offset strategy.
3. Vintage
   The vintage of carbon offsets refers to the year in which the emission reductions occurred. Companies should consider the vintage to ensure that the offsets align with their current emission levels and goals. This consideration prevents the purchase of outdated offsets that may not contribute effectively to a company’s current sustainability targets. Other target frameworks allow for some flexibility with vintage and act as a good yardstick for procurement.
4. Countries/Location/Market Boundary
   Geographical considerations play a significant role in the effectiveness of carbon offset projects. Companies should assess whether the projects are in regions where emissions reductions are critical and whether they align with global climate goals. To avoid greenwashing, considering market boundaries ensures that the offsets adhere to international standards and contribute meaningfully to the global effort to combat climate change.
5. Price Range
   While cost is a factor, it should not be the sole consideration. Assess the price range of carbon offsets to ensure it aligns with your budget, but also consider the impact and quality of the projects associated with the offsets. the price of carbon offsets varies based on project type, location, and vintage. Cheaper offsets may not always guarantee the same level of emission reduction or removal. Companies should evaluate the cost-effectiveness of offsets by considering the quality and impact of the underlying projects. Some frameworks require third-party audit for verification of the projects.
6. Registry Preference
   Choosing carbon offsets registered with recognized carbon registries is crucial for transparency and credibility. Well-established registries, such as the Verified Carbon Standard (VCS) or the Gold Standard, ensure that emission reductions are accurately measured, reported, and verified. Companies should prioritize offsets that adhere to these standards to build trust in the offset’s environmental integrity. CORCs (Carbon Removal Credits) by Puro Earth registry is another wonderful example of high-quality credits.
7. Quantity
   Accurately assessing the quantity of carbon offsets required involves a detailed understanding of a company’s current emission levels (Scope 1 ,2 and 3 measurement) and reduction goals. This may require collaboration with experts in emissions accounting and carbon offsetting to calculate the precise number of offsets needed to achieve carbon neutrality.
8. Diversity of Projects
   Building a diverse portfolio of carbon offset projects minimizes risks associated with a single project type. Including Afforestation/reforestation, Human induced regeneration (HIR) and methane capture projects, among others, ensures resilience against potential fluctuations in the efficacy or viability of any one project. This diversification enhances the overall impact of a company’s carbon offset strategy.
9. Alignment with Standards (CCP/Oxford/CORSIA)
   Ensure that the chosen carbon offset projects align with reputable standards such as the Carbon Clean Solutions (CCP), Oxford Standard, or CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation). Compliance with these standards enhances the credibility and environmental integrity of the offset.

Purchasing carbon offsets is a strategic step toward mitigating the environmental impact of business operations. By delving into the technical intricacies of each criterion, companies can make informed and strategic decisions when purchasing carbon offsets. Technical expertise and a comprehensive understanding of these considerations will empower businesses to select offsets that not only align with their sustainability goals but also contribute meaningfully to the global fight against climate change.

Northmore Gordon has experience establishing a carbon offset criteria suitable for your business, Procurement of high-quality carbon credits and third-party verification.

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To achieve best practices, align the investment with sustainability goals and remove the risk of any claims of greenwashing, companies need to consider a number of criteria when purchasing.

These criteria include the technology generating the energy, the period (vintage) when it was generated, quantity required, location of generation, alignment with global programs or best practices, and risks associated with the registry (the authority issuing the certificates) or issuing country. The latest advance in RECs now includes timestamping the generation period to match load profiles.

RECs globally go by several different names:

• International RECs (IRECs)
• New Zealand (NZECs – Energy Certificates)
• Australia (LGCs – Large Generations Certificates, and in future Guarantee of Origin – GO)
• Tradable Instrument for Global Renewables (TIGR) a Registry for RECs

RECs Criteria:

1. Technology
   The technology employed in renewable energy projects significantly impacts the overall environmental benefits. Whether it’s solar, wind, hydro, or other clean energy sources, understanding the technology behind the generation process helps companies assess the long-term sustainability and effectiveness of the RECs they are purchasing. For example, Under RE100 Hydrogen is not recognized because hydrogen is not an energy resource. Rather, it is an energy carrier that is manufactured and has an underlying energy resource as an input. Hydrogen is therefore only renewable if the energy resource used in its manufacture is renewable, Hence it is critical to be aware of the technical criteria of the framework your business is committed to or adhering to GHG Protocol Corporate Standard is considered an excellent benchmark.
   
2. Vintage
   The vintage of RECs is a crucial factor, indicating the year in which the associated renewable energy was generated. Companies should consider aligning the vintage of RECs with their reporting year to ensure accurate representation of their commitment to renewable energy in specific timeframes. For instance, recent years have seen significant improvements in the efficiency of solar panels and wind turbines, leading to increased energy output. As technology advances, procuring recent vintages helps businesses make sure their procurement adheres to the latest regulatory changes and demonstrates commitment. For example, RE100 now only recognizes Starting January 1, 2024, RE100 members will need to secure renewable electricity or GOs specifically from power plants constructed or recommissioned within the last 15 years. However, there’s a provision: an exemption applies to 15% of a company’s overall electricity usage.
   
3. Quantity
   Assessing the quantity of RECs needed involves understanding a company’s energy consumption and sustainability goals. Careful calculations of your scopes will help determine the number of RECs required to offset a specific percentage of the company’s energy usage or achieve a certain level of renewable energy consumption. Tailoring to energy consumption patterns helps businesses match the right type of RECs. For example, a manufacturing facility with intensive production processes may have distinct energy needs compared to a technology company with extensive data centre operations running 24/7. In this case, the data centre may benefit from procuring new time-stamped RECs or ‘24/7 RECs’ as defined by RE100 Guidelines to match their constant usage.
   
4. Location
   The geographical location of renewable energy projects is significant in determining the impact of RECs. Supporting projects in regions with abundant renewable resources not only enhances the environmental impact but may also contribute to local economic development. Companies should consider aligning their RECs with regions that complement their sustainability objectives. Market boundaries are often defined by the framework you are adhering to or as a rule of thumb it is an advisable practice to procure RECs within the country where the emissions took place.
   
5. RE100 Alignment
   For companies committed to 100% renewable energy consumption (RE100), ensuring that purchased RECs align with this goal is paramount. RE100-aligned RECs contribute directly to a company’s renewable energy targets, demonstrating a clear commitment to transitioning away from conventional energy sources. Here RE100 Members have another option to procure green power directly from the supplier supported by retirement of EACs corresponding to it.
   
6. Registry Preference
   Selecting RECs from reputable registries adds credibility to a company’s commitment to renewable energy. Registries like the Green-e Energy Certification or the International REC Standard ensure that the purchased RECs meet stringent environmental and social standards, providing transparency and accountability in the renewable energy market. Some examples of registries are Evident(I-RECs) , TIGR , Certified energy New Zealand , Clean energy regulator , M-RETS etc.
   
7. Sovereign Risk
   Companies operating internationally should consider the sovereign risk associated with the countries where their chosen renewable energy projects are located. Assessing political stability, regulatory frameworks, and potential risks related to changes in government policies can mitigate potential challenges and uncertainties in the long-term viability of RECs. For example, Under recent changes in RE100 guidelines 8 countries have been excluded from the single-market boundary of Europe supporting the Guarantee of Origins RECs.
   
8. Major Operational Changes in the Past Year
   Companies should investigate whether there have been any significant operational changes in the renewable energy projects associated with the RECs over the past year. Changes in ownership, technology upgrades, or expansions can impact the overall effectiveness and reliability of the certificates. For example, Unbundled EACs cannot be used to decarbonize electricity from a non-renewable project. (e.g., a CHP system) under RE100 Framework when the project is owned by the company (therefore, the emissions from it are in scope 1), or when the project is on-site or when there is a direct line to the project (therefore, the electricity is not sourced from the grid).

As companies strive to integrate sustainability into their operations, the careful selection of Renewable Energy Certificates becomes imperative. This strategic approach not only enhances a company’s environmental credentials but also supports the global transition to a cleaner and more sustainable energy future. Although PPAs (Power Purchase Agreements) and VPPAs are feasible alternatives, most organizations prefer EACs due to their inherent flexibility and accessibility when navigating the intricate world of renewable energy procurement.

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The executive summary of the treatment of registered certificates: 

Businesses wishing to claim renewable energy or emissions reductions from project-generating certificates need to adhere to the following rules. If the business does not make the claims they are free to sell the certificates or use them in other ways.

1. Renewable Energy Certificates (LGCs) must be surrendered to validate that a business is using renewable energy (see 5 for the exception). 

2. Australian Carbon Credit Units (ACCUs) must be surrendered to validate emission reductions from specific projects (see 5 for the exception). 

3. Small-scale Technology Certificates (STCs) provide an immediate discount on solar systems cost and the business will be able report lower grid-based emissions.   

4. Victorian Energy Efficiency Certificates (VEECs) and Energy Saving Certificates (ESCs) lead to immediate energy savings and reduced Scope 2 emissions.  Selling VEECs or ESCs has no impact on the emissions reductions. 

5. There are arbitrage opportunities to sell LGCs or ACCUs and buy other recognized Environmental Certificates or Carbon Credits to surrender, which can be financially advantageous. 

6. Businesses can sell VEECs and leverage the proceeds to buy and surrender LGCs or ACCUs, resulting in greater emissions reductions than just the original VEEC project. 

The Northmore Gordon carbon advisory team has extensive knowledge in navigating the treatment of domestic and international certificates within programs such as NGERs, Climate Active, Science-Based Target Initiative (SBTi), Corporate Emissions Reduction Transparent (CERT) report, RE100, and others. It equally applies to companies with decarbonisation targets or voluntary targets conforming to Greenhouse Gas (GHG) Protocol.  This understanding allows us to maximise the monetary value whilst still meeting emissions reduction targets. 

 
Environmental Certificates assist in different ways

I have a corporate target for renewable energy purchases 

1. Can I use VEECs to demonstrate renewable energy purchases? 

VEECs are not a Renewable Energy Certificate, instead they represent the energy savings. 

VEECs are calculated on energy savings, and then converted to a tonne of CO₂e using factors set by the Victorian Government. For some processes (methods) under the VEEC scheme, a user can claim VEECs from energy savings that are forward created for the next 10 years with a discount factor and based on assumptions about the greenhouse gas intensity of the future grid. Hence it is difficult to demonstrate compliance with international GHG reporting standards that VEECs can be retired and used directly against a renewable energy purchase target.  

2. Buying LGCs in Australia using money from sale of VEECs  

For those companies aiming to achieve renewable electricity targets that comply with GHG Protocol Scope 2 guidance for emissions reductions, retiring LGCs or IRECs would be required. 

A company may sell VEECs, and this would help to fund the purchase of Renewable Energy Certificates.  It is recommended to begin the purchase and retirement of RECs in advance of any corporate target dates (e.g. 6 months) to ensure that any claims can be supported by the publicly available register. 

Due to price differences, the total quantity of RECs purchased won’t be the same as the number of VEECs sold.  

3. Buying RECs from the global market using money from sale of VEECs 

Whilst LGCs are solely acknowledged in Australia, companies with international operations, may purchase international RECs. These can be more cost effective than buying LGCs, increasing your renewable energy percentage in your global footprint. 

RECs are a globally recognised mechanism to demonstrate renewable energy purchases. They empower a company to demonstrate its utilization of 100% renewable energy, decarbonize its supply chain, fulfill certification criteria for products, buildings, or companies, and enhance climate-related disclosure standards. There are many different REC types and registries, and knowing which ones to buy and how much to pay can be challenging.  

International RECs are currently trading at both higher and lower prices compared to LGCs, depending on the country. Having a strategy in place helps you to optimise the amount of renewable energy per dollar spent. 

I have a corporate target for carbon and need carbon offsets 

4. Buying Carbon Offsets  

Purchasing carbon offsets can mitigate emissions that can’t be avoided by other means. They may also be needed for compliance – for example to meet the Safeguard Mechanism in Australia, to ensure you maintain Climate Active Accreditation, or to reduce the cost of a Carbon Tax (e.g. in Singapore). Alternatively, they could be voluntarily retired such as for Scope 3 emissions from employee travel.  

Carbon offsets are created from both avoided emissions and removals and are available from the Australian and international markets. in Australia, Australian Carbon Credit Units (ACCUs) represent a tonne of CO2-e that can be traded on the wholesale market, voluntarily surrendered to offset emissions, or sold against government contracts through auctions. Internationally, there are several registries and rating systems that are used to create high quality offsets such as Verra, Gold Standard, and Puro. Earth.  

Price and Quality are key considerations when purchasing carbon offsets. The following factors are some that should be considered: 

• Additionality 
• Over-crediting 
• Vintage (year of creation) 
• Leakage 
• Non-permanence 
• Avoided vs Removal 
• Stakeholder perception 
• Developer profile 
• Community impacts

How do EACs fit into an integrated Strategy? 

For any business, there are four typical ‘Carbon Reduction Levers’ available to decarbonise its operations. The availability of these levers differs from site to site, company to company. No one-size-fits-all.  

An integrated strategy will draw on all these levers. However, what is common for every single site is the ability to create, monetise, and purchase Environmental Attribute Certificates.  

At Northmore Gordon we believe that high-integrity environmental markets are critical for businesses to transition to clean energy. This will support businesses to adopt a nature-positive model, and strategically position them for enduring success.  

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This guide covers the different certificate types and their treatment under carbon and renewable energy reporting programs and accreditations, including the international Science Based Targets Initiative (SBTi), Renewable Energy 100% (RE100), Greenhouse Gas (GHG) Protocol, and the Australian Government Climate Active Carbon Neutral as well as the Corporate Emissions Reduction Transparency (CERT) Reporting programs. 

Executive Summary 

The guiding principles of for carbon and renewable energy accounting under the SBTi, RE100, GHG Standard, Climate Active, CERT) include transparency, accuracy, consistency, avoidance of double counting, and third-party verification.  Under these principals if a business sells the RECs (LGCs, I-RECs) from a renewable energy project, they have transferred the environmental attribute to the buyer, and can no longer claim the renewable energy aspect of that project (they are effectively using grid-based energy) and must add those MWh back into their Scope 2 emissions. Hence, businesses with behind-the-meter solar that sell internationally recognised RECs (IRECs, LGCs) from that system can no longer claim renewable energy (from that system).  Likewise, if a business sells the carbon credits (ACCUs, VCUs, VERs) from a project, they must add the tonnes of emissions reductions from that project back into their Scope 1 footprint. 

Energy saving certificates (ESCs, VEECs) as well as Australian small-scale technology certificates (STCs) are treated differently. The Australian Government Climate Active Carbon Neutral program, and Federal Government Corporate Emissions Reduction Transparency (CERT) Reporting do not require businesses to increase their Scope 2 emissions by the MWhs represented by the energy saving certificates sold, nor the MWh of generation represent by the  STCs .   

• VEECs, ESCs, & STCs cannot be purchased and surrendered to offset energy consumption and  
• VEECs, ESCs & STCs are intended as upfront incentives overcome the barriers of energy efficiency and renewable energy and to reduce business’ energy bills.  
• VEECs and ESCs are closed-loop legislated obligations on the energy retailers to drive energy efficiency. Retailers cannot use them to claim renewable energy or emissions reductions, nor can corporations buy these to reduce emissions; they are only used to meet their legislated obligation to incentivise energy efficiency projects under the state-based schemes

International programs don’t include energy-saving certificates as they don’t represent renewable or carbon attributes.  As such, the registration or sale of energy savings certificates (VEECs & ESCs), and STCs do not factor into carbon footprint or renewable energy claims.  

Northmore Gordon recommends: 

• that in line with the guiding principles of transparency & accuracy that businesses should disclose the list of projects that have received funding from the sale of STCs, VEECs, and ESCs as well as the quantity of certificates for each project, but there is no need to account for the registration and sale of VEECs, these in carbon or renewable energy and;  
• businesses should disclose the project sources and quantities of ACCUs, LGCs, I-RECs, ACCUs or Carbon Credits they have surrendered to offset their emissions when making carbon reduction claims and; 
• renewable energy or emissions represented by LGCs, i-RECs and Carbon Credits sold (rather than surrendered) must be added back into the businesses carbon footprint. 

Guiding Principles when making Decarbonisation and Renewable Energy Claims

The guiding principles for making decarbonization or renewable energy claims under programs such as RE100, SBTi, Climate Active, and the Carbon Neutral Protocol can be summarised as: 

• Transparency: Be transparent in report emissions, energy usage, and progress towards decarbonization or renewable energy goals, including methodologies and data sources. 
• Accuracy: Ensure the data used for calculating emissions, energy usage, and progress towards goals is accurate, reliable, and verifiable. 

• Consistency: Use consistent methodologies and assumptions each year to ensure comparability of their reported progress and claims. 
• Third-party verification by accredited third-party organizations to ensure credibility and compliance with the program’s requirements. 
• When using offsets or credits (environmental certificates) 
• Additionality:  Certificates should come from projects that would not have occurred (additional) without the funding from creating credits  
• Non-reversable cannot be easily reversed.  

• Avoidance of double counting: Ensure that claims when a project sells the certificates, they do not still claim the emissions reductions or renewable energy for their own reporting. 
• Measured and verified: is better than calculated (deemed) methods. 
• Removals beats Avoided:  Carbon removal (sequestration) is perceived by the market as better than avoided emissions.  

Environmental Attribute Certificates 

Environmental Certificates quantify and decouple the environmental attribute from the project (or source) and allow it to be tradable on markets.   

Globally, there are three main types:  

•  Renewable Energy Certificates (RECs) = 1MWh of renewable energy,  

• Carbon Credits or Offsets = 1 tonne-equivalent of CO2 not emitted, and  
• Energy Efficiency (White) Certificates = 1 MWh of energy saved. 

In Australia, the demand for certificates come from four sources. 

• Energy Retailer obligations under legislated programs 
• Federal Emissions Reduction Fund (for ACCUs) 
• Businesses voluntarily or mandatory requirements to reduce emission, 
• Traders aiming to profit from arbitrage or anticipated changes in legislation. 

Further Information on Environmental Certificates 

Renewable Energy Certificates (RECs, iRECs, LGCs, STCs) 

In Australia, the Renewable Energy Target (RET) is the main mechanism for incentivising renewable energy, and it creates two types of RECs; Large-scale Generation Certificates (LGCs) that are registered in arrears of measured generation, and Small-scale Technology Certificates (STCs) for systems less than 100kW that are calculated and registered once off for the expected generation through to 2030.  The Energy Retailers have obligations to purchase a percentage of their energy sales from renewable energy by purchasing STCs, and LGCs. 

The International REC (I-REC) Standard is a widely accepted system for tracking and trading renewable energy certificates across borders.  Australian LGCs are also accepted internationally. I-RECs & LGCs provide a reliable, transparent mechanism for businesses to claim renewable energy and reduce their Scope 2 emissions in accordance with the Greenhouse Gas (GHG) Protocol  

Carbon Offsets, Carbon Credits (ACCUs, VCS, VCU, VER) 

The Australian Government’s Emissions Reduction Fund (ERF) is an example of a carbon offset program, which helps businesses meet their emissions reduction targets by providing financial incentives for emissions reduction projects. The ERF is underpinned by the (Carbon Farming Initiative) Act 2011 and its methodologies (1) and the Australian Carbon Credits Unit (ACCU).  ACCUs are either purchased through auctions under the ERF or by businesses doing wanting voluntary offsets for Climate Active Carbon Neutral Standard, or other voluntary programs. 

Globally, the Verified Carbon Standard (VCS) and the Gold Standard are widely recognized carbon offset standards that ensure projects meet stringent criteria for emissions reductions and sustainable development. Both VCS and the Gold Standard provide a registry system to track and retire carbon credits, ensuring transparency and avoiding double counting of emissions reductions. 

Energy Efficiency (White) Certificates (VEECs and ESCs) 

Energy Efficiency Certificates are tradable instruments issued by governments for verified energy savings achieved through energy efficiency projects. In Australia, the Energy Savings Scheme (ESS) in New South Wales and the Victorian Energy Upgrades (VEU) program in Victoria are the two White Certificate programs.  In both states the Energy Retailers have an obligation to purchase energy efficiency certificates proportional to gas and electricity sales. 

Globally, the European Union’s Energy Efficiency Directive (EED) encourages member countries to implement energy efficiency obligation schemes or equivalent policy measures, which often include the use of White Certificates. 

Certifications and Accounting Treatment for Environmental Certificates  

When registering certificates from a project it is important to understand the treatment of those certificates under different programs and whether they must be surrendered or when they can be sold. 

Climate Active Carbon Neutral 

The Australian Government’s Climate Active initiative provides guidelines for businesses to achieve Carbon Neutral Certification. To claim carbon neutrality, businesses must measure their emissions, set emission reduction goals, and offset any remaining emissions using eligible carbon offset units (9). The use of Australian Carbon Credit Units (ACCUs) from the ERF or other internationally recognized carbon offset standards, such as VCS and Gold Standard, is permissible for offsetting emissions under the Climate Active initiative Climate Active is transitioning to an increasing percentage of offsets from ACCUs. 

• Scope 1 emissions are reduced through energy efficiency and emissions reduction projects.   
• Scope 2 emissions can be reduced through energy efficiency projects including those funded through the state-based energy savings programs (selling VEECs or ESCs does not impact the reduce Scope 2 emissions).  Scope 2 emissions can be further reduced by buying LGCs (RECs), or commissioning renewable energy projects.    
• The remaining Scope 1 emissions and relevant Scope 3 emissions are offset by buying and surrendering ACCUs and some international carbon credits. 

 
Science-Based Targets Initiative (SBTi) 

The SBTi is a collaboration between CDP, the United Nations Global Compact, World Resources Institute (WRI), and the World Wide Fund for Nature (WWF). The initiative helps businesses set science-based targets to reduce their GHG emissions in line with the Paris Agreement’s goals. SBTi does not promote the use of environmental certificates, it encourages businesses to prioritize emission reduction actions and supports companies in setting ambitious renewable energy procurement targets to reduce their Scope 2 emissions.  SBTi does not permit carbon offsets to reduce Scope 1 and Scope 3 emissions. 

Renewable Energy 100% (RE100) 

RE100 is a global initiative led by the Climate Group and CDP that brings together influential businesses committed to using 100% renewable electricity. Companies that join RE100 must have a public commitment to sourcing 100% renewable electricity by a specific target year. Businesses can surrender (retire) environmental certificates such as RECs, LGCs, Guarantees of Origin (GOs), or I-RECs to support their claims, as these certificates ensure the renewable attributes of the electricity procured by the businesses (12).  Australian STCs cannot be used. 

Carbon Neutral Protocol  

The Carbon Neutral Protocol, developed by Natural Capital Partners, is an international framework that provides clear guidelines for businesses to achieve and demonstrate carbon neutrality. The protocol requires businesses to measure their emissions, set reduction targets, and offset remaining emissions using verified carbon offsets from projects that adhere to recognized standards, such as VCS, Gold Standard, or American Carbon Registry (ACR). 

Green-e

Green-e is a voluntary certification program for renewable energy and carbon offset products in North America. The program sets consumer protection and environmental standards for businesses to support their renewable energy or carbon offset claims. Green-e certifies both Renewable Energy Certificates (RECs) and carbon offsets that meet their strict criteria, ensuring that businesses purchasing these certificates can legitimately claim to use renewable energy or offset their emissions (13). 

Australian Safeguard Mechanism

The Safeguard Mechanism is part of the Australian Government’s Emissions Reduction Fund (ERF), which aims to help Australia meet its emissions reduction targets under the Paris Agreement. The Safeguard Mechanism came into effect on July 1, 2016, and is administered by the Clean Energy Regulator (1). 

The Safeguard Mechanism’s primary goal is to ensure that emissions reductions achieved under the ERF are not offset by significant increases in emissions elsewhere in the economy. It sets emissions baselines for facilities that emit large amounts of greenhouse gases (more than 100 kt CO2-e per year) (1). 

Facilities covered by the Safeguard Mechanism are required to keep their net emissions below their assigned baselines. If a facility’s net emissions exceed the baseline, the responsible entity must take steps to offset those excess emissions by either surrendering Australian Carbon Credit Units (ACCUs) or applying to the Clean Energy Regulator for a multi-year monitoring period (1). 

The Federal Corporate Emissions Reduction Transparency (CERT) Reporting 

CERT reporting was announced by the Australian Government in May 2021 as a new measure to improve transparency around large businesses’ emissions reduction activities (2). The CERT reporting aims to provide a clear and consistent framework for disclosing companies’ emissions reduction strategies, targets, and progress, making it easier for investors and consumers to assess businesses’ climate risk and performance. 

The Australian Government will consult with industry and other stakeholders to develop the detailed design of the CERT reporting framework. The framework is expected to be finalized and implemented by the end of 2022 (2). The CERT reporting will apply to large businesses (with more than $100 million in annual revenue) that are already reporting under the National Greenhouse and Energy Reporting (NGER) scheme (2). The introduction of the CERT reporting framework will help align Australia’s corporate emissions disclosure requirements with global best practices and support businesses in their transition to a low-carbon economy. 

Summary 

The impact of buying or selling environmental certificates on businesses’ compliance claims depends on the specific standards or programs they adhere to. Purchasing eligible certificates, such as verified carbon offsets, RECs, or White Certificates, from high-quality projects under strong regulations, allows businesses to credibly claim carbon neutrality, reduced. 

Best Practices for Businesses Pursuing Decarbonization and Renewable Energy Goals 

To successfully navigate the various voluntary and mandatory carbon and renewable energy certifications, businesses should follow these best practices: 

• Establish a clear sustainability strategy: Develop a comprehensive sustainability strategy that outlines your business’s emissions reduction targets, renewable energy goals, and other environmental objectives. This strategy should align with international agreements, such as the Paris Agreement, and be supported by science-based targets. 
• Track and report emissions and energy consumption: Regularly monitor and report your business’s emissions and energy consumption, ensuring data accuracy and transparency. Use internationally recognized reporting frameworks like the GHG Protocol for a consistent approach. 

• Engage with stakeholders: Engage with various stakeholders, including employees, investors, customers, and suppliers, to ensure support for your sustainability initiatives and foster collaboration. 
• Invest in energy efficiency and renewable energy: Implement energy efficiency measures and invest in renewable energy sources to reduce your business’s carbon footprint and dependence on fossil fuels. 
• Utilize environmental certificates responsibly: If purchasing or selling environmental certificates, ensure that the associated environmental attributes are accounted for correctly, avoiding double counting and adhering to the principles and requirements of the relevant certifications and programs. 
• Seek third-party verification: To enhance credibility, obtain third-party verification of your emissions data, reduction strategies, and renewable energy claims. This step can increase stakeholder trust and provide assurance that your business is meeting the requirements of various certifications and programs. 

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Whether it be recognising status or declaring ownership, certificates acknowledge value. For the broad class of products known as Environmentally Attributed Certificates, the value comes from ascribing some environmental benefit to a traded commodity.

Environmentally Attributed Certificates most commonly apply energy or carbon attributes to a generation or offsetting activity, yet they can be used to track any type of environmental value, such as distinguishing between different carbon intensities of hydrogen or managing nitrate concentration in water outflows. In essence, Environmentally Attributed Certificates serve as an accounting layer that sits atop a product or commodity to track its environmental credentials.

Certificates and their markets serve as valuable economic tools to incentivise businesses to embrace decarbonisation and environmental responsibility. Understanding how the Environmentally Attributed Certificate markets function and operate will help businesses design a procurement strategy that aligns with the national decarbonisation goals as well as their own corporate objectives.

What are the Different Energy Certificates?

In the energy space, there is a spectrum of certificates to distinguish between various decarbonisation efforts and activities:

• Green Certificates (Energy Attributed Certificates)
• White Certificates
• Carbon Offsets or Carbon Credits

Green Certificate

A Green Certificate, also known as a Renewable Energy Certificate (REC), represents 1MWh of renewable energy generation. Popular energy sources for these certificates include PV solar, wind, hydro, geothermal, and biofuels. Nuclear is not typically credited because uranium is not a renewable fuel, despite having zero carbon intensity.

To take things a step further, there are Time-based Energy Attributed Certificates being trialled that match the renewable energy generation with the electricity demand on an hourly basis throughout the day.

White Certificate

White Certificates are used to track reductions in energy use and are measured in either MWhs of energy saved or in Tonnes of CO2-e abated. Certified activities are typically those that improve energy efficiency, such as replacing traditional lighting with LEDs, installing more energy-efficient equipment, or adjusting business practises to increase energy productivity. There is an emerging market for demand response certificates that aim to drive reductions in peak energy use times at the height of summer. 

Carbon Offsets (or Carbon Credits)

Carbon Offsets represent a reduction of one metric tonne of CO2-e from either removal or avoidance activities. Emissions removal involves activities that will extract carbon from the atmosphere. This includes planting new forests, making certain changes to agricultural practices, or implementing direct air capture and sequestration technologies. On the other hand, emissions avoidance activities stop emissions that would have otherwise occurred. Energy efficiency measures, fuel switches to low-carbon sources, and forest conservation practices are examples of emissions avoidance activities.

What are the Principles of an Environmental Certificate Program?

Certificates must pass through a regulatory framework to become approved and registered for trading. This involves registering a project, monitoring the activity or performance of the project, collecting data and evidence to support the environmental claims, undergoing external verification, and being accepted by the program regulator.

Once projects and their associated certificates are approved, the certificate programs have underlying principles that promote the existence and maintenance of certificate markets. These fundamental principles include additionality, persistence, and traceability.

Additionality asserts that having an existing certificate market promotes the development of activities that would otherwise not have developed under business-as-usual scenarios. For instance, without the existence of REC markets, there would not be an economic incentive for developers to build renewable energy plants. Therefore, the certificates stimulate additional activity to drive climate, energy, and other environmental improvements. As such, owners of environmental certificates can take ownership of driving this progress.

Persistence refers to the certified activity having a lasting impact. In some situations, this persistence may mark that savings are intact for an allotted period of time. For other certificate activities, it assures permanence, where the carbon offset or sequestration activity represents emissions reductions that are permanently maintained and not re-released into the atmosphere.

Traceability enables certificates to be traced back to their source and for them to be tracked in a registry. This promotes transparency of activity and also inhibits certificates from being used by multiple parties.

These programs can be administered by government regulators or by third-party administrators. Certificate programs give shape to market-based funding programs, voluntary markets, and direct obligation schemes.

What are the Types of Certificate Markets?

There are two types of markets for certificates: compliance and voluntary. While demand is generated differently between these distinct market types, they both share the same underlying objective of accelerating environmental goals through an additional source of funding. This funding makes it feasible to develop renewable energy plants, implement energy savings strategies, and build carbon-reduction projects.

In regulatory compliance markets, there is an obligation on liable entities to surrender a certain number of certificates each year. Government bodies are the typical regulator for this market type, placing requirements on certain entities – such as electricity providers or large energy users – to surrender back to the government a certain number of certificates each year. Often there is a penalty price in compliance markets if an obligated entity fails to surrender the required number of certificates. Regulatory markets are the primary market for most certificates, yet there are certificates that are gaining popularity within voluntary markets.

In contrast to the compliance market, voluntary markets generate demand through businesses and consumers who want to buy certificates for their environmental credentials. These credentials bring businesses closer to achieving goals focused on net-zero pathways, decarbonisation, resource conservation, community development, and environmental stewardship. Although participation in voluntary markets is optional, third-party recognition can stimulate demand for specific certificates within the market. For example, Climate Active, the Australian government’s carbon-neutral standard, only recognises certain certification types as eligible carbon offsets, which makes them more coveted than other certificates in the market.

There is a greater diversity of certificates within voluntary markets than in compliance markets. This causes voluntary markets to exhibit certificate price differential that is unseen in compliance markets where all certificates are treated as equal. Price disparity can be caused by the type of certificate, such as whether it represents carbon avoidance or carbon removal. In addition, some certificates in the voluntary market may cost a premium due to their associated co-benefits that align with the United Nations Sustainable Development Goals.

Not all certificate types have both compliance and voluntary markets – some certificate products are entirely voluntary, and some certificates with a compliance market have no voluntary demand from buyers. Where both a compliance market and a voluntary market exist for the same certificate, the prices are linked as demand in the voluntary market reduces the supply for the compliance market and vice versa.

How Does an Environmental Certificate Provide Value?

Holding an environmental certificate enables the owner to take claim to the environmental benefit it offers. For instance, when clean electricity from a PV solar farm enters the grid, it becomes indistinguishable from the rest of the grid electricity that is generated from other power sources. This makes it difficult to determine who the end-user of that clean electricity is. Therefore, a facility must purchase a REC to make the claim that they are indeed using the clean electricity generated from that solar farm. Without the certificate, the facility is unable to make the claim and is therefore unable to take advantage of the other significant business benefits that stem from transitioning to a clean energy profile.

Making the clean energy transition is becoming increasingly important, as people, governments, corporations, and investors want stability now and security for the future. Climate change is no longer an abstract scientific conversation. It is wrapped into all pressing matters of the day, from fuel price hikes and supply chain bottlenecks to rising concerns around sweeping fires, intense storms, and dying coral reefs. Our climate and environment must be prioritised, and businesses that adapt to and embrace a nature-positive model are positioning themselves for long-term success.

Although there are immeasurable societal and environmental benefits in transitioning away from fossil fuels and protecting the environment, there also must be sound economic motives to really incentivise businesses to embrace decarbonisation. This is where certificate markets, and Northmore Gordon, come into play.

Northmore Gordon specializes in the nuances, policies, and procedures of the energy certificate marketplace. We help businesses find and source energy solutions that promote the well-being of their own business as well as that of the community and environment. To incorporate a more nature-positive strategy and stay ahead of the changing energy landscape, reach out to us and see just how empowering our partnership can be.

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