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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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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