Your company has announced with great fanfare 50% emissions reductions by 2030.  Everyone’s very excited!!! Except you, you’re the Sustainability and Environment Manager, they just told you and it’s your job – how are you going to make it happen?…   

One of the big pieces of the puzzle is Environmental Certificates and accounting for these under the various Carbon accounting regimes. We take a look at everything you need to know so you are prepared for what’s to come. 

The Journey to Net Zero 

The journey to carbon emission reductions (and eventually neutrality) involves several key steps: 

• Establish a baseline – audits & emissions accounting for different boundaries – Scope 1,2,3 emissions  
• Engage stakeholders and set targets  
• Identify risks and opportunities and the business cases 
• Build the roadmap and program for energy and carbon performance, which includes: 
  – Energy efficiency, heat recovery and direct emissions reductions projects
  – Onsite renewables and grid purchased renewables
  – And lastly use offsets (environmental certificates) for hardest reductions 

• Implement and Iterative  

To learn more about the steps see our “Net-Zero Webinar: Decoding the Buzzwords and Practical Sector-Specific Advice”.  For any terms in this article, you may want to reference Northmore Gordon’s Glossary 

Emissions Offsetting using Environmental Certificates 

Offsetting means taking steps to offset existing emissions from the business with abatement (emissions reductions from another source), one way to do this is by purchasing and surrendering Environmental Certificates. There are several distinct types of certificates, and not all can be used for offsetting.  

Environment Certificates 

Renewable Energy        CO₂ Emissions Reductions            Electricity & Gas Efficiency 

Put simply Environmental Certificates are a mechanism to measure the quantity and then decouple the environmental component (value) from a project or resource.  The environmental value can then be traded and used to generate income or to meet other objectives such as offsetting emissions. 

For example, a biogas boiler that generates 500 MWh of renewable electricity could register approximately 500 Renewable Energy Certificates (LGCs). The owner can sell the 500 MWh of electricity (via the grid) and separately sell the 500 LGCs (the renewable component) to receive additional income. 

The three main types of certificates for Energy and Carbon are as follows: 

• Renewable Energy Certificates (1 MWh Renewable Energy Generated) – RECs –  

• LGCs (large generation) are registered after measuring the generation that has occurred. 

• STCs (small technology) are deemed (calculated) for the expected generation through to 2030 based on the postcode of the installation and system size. 
• International Certificates TGRs, RECs, are either deemed or measured 

• Carbon Credits (1 Tonne CO2-e abated) – e.g. Australian Carbon Credit Units (ACCUs), Verified Emissions Reductions (VER), Certified Emissions Reductions (CER) 
• Energy Savings Certificates (typically 1 MWh electricity or gas energy saved), aka White Certificates, these are sometimes converted to tonnes of CO2-e through conversion factors.  NSW Energy Saving Certificates, VIC Energy Efficiency Certificates 

Putting it all together. Environmental Certificates and Offsets 

It’s important to understand that by selling the certificate, then the environmental component (renewable energy, carbon abatement, or energy efficiency) can no longer be claimed by the consumer of the physical resource or implementer of the project. 

The flipside of this is that an existing project that consumes grid energy or generates emissions can “made” renewable or carbon neutral by purchasing (and surrendering) the equal number of certificates as the amount of energy consumed or the amount of carbon emitted. 

Looking at the Accounting for each of the Australian certificate types: 

• RECs – Large-scale Generation Certificates (LGCs) can be purchased and used to offset grid-based energy used by a business for their sites.  This is done by surrendering that quantity of certificates in the REC registry, this takes the certificates out of circulation.  For example, a business that consumes 500 MWh from the grid and does not have the space to install Solar PV can simply buy 500 LGCs each year and surrender them and can now claim to be using renewable energy. 
• RECs – Small-scale Technology Certificates (STCs), unlike LGCs, under the Climate Active Standard, STCs can now be sold to assist with the system cost and the energy consumer can still claim the renewable energy.  STCs cannot be used for offsetting energy bought from the grid. 

• Australian Carbon Credit Units (ACCUs) and other international credits (recognized under different standards) can be purchased and surrendered to offset emissions.  e.g. If the business emits 500 tonnes of CO2-e p.a. they could purchase 500 ACCUs per year and surrender them to claim to be carbon neutral (e.g. for Scope 1 emissions) 
• Energy Saving Certificates (ESCs, VEECS) are neither renewable energy nor carbon credits, hence they cannot be used to offset energy consumed from the grid nor emissions from operations. The upside of this is that buy selling energy saving certificates and generating income towards the cost of the project does NOT currently undermine the emissions reductions which are a side benefit of the energy efficiency project.   Some Accreditation agencies are reviewing this at present. 
  

Voluntarily surrendering a certificate from a company’s account in a government registry means that the certificate has been taken out of circulation and this is done to claim the environmental value and hence reduce emissions by offsetting. 

Energy Saving Certificates (White Certificates)?

Energy efficiency projects that generate energy saving certificates, these certificates are treated as a financial incentive for typically awarding 10 years of savings to help overcome CAPEX barriers and to reduce demands from the network. This is particularly beneficially for VEECs generated in Victorian by energy savings activities from the grid reductions of renewable energy generation. EG Solar VEECs, and VEECS from Biomass, Biogas, and Cogeneration.  In all these cases the business has reduced their energy consumed and can sell the environmental certificates and sell them whilst still achieving the carbon reduction or renewable energy benefits.  Some agencies are reviewing this space, so make sure you contact Northmore Gordon to learn the latest. 

Standards for Carbon Neutrality 

To legitimately claim to achieve a certain level of carbon reductions, a business needs to be certified against one of the recognized standards. In Australia these include: 

Climate Active Carbon Neutral Standard (formerly the National Carbon Offset Standard, NCOS). Climate Active is an ongoing partnership between the Australian Government and Australian businesses to drive voluntary climate action. The brand represents Australia’s collective effort to measure, reduce, and offset carbon emissions to lessen our negative impact on the environment  

Science Based Targets Initiative (SBTi) Is an international initiative that drives ambitious climate action in the private sector by enabling companies to set science-based emissions reduction targets.  SBTi’s Corporate Net-Zero Standard is the world’s first framework for corporate net-zero target setting in line with climate science. SBTi is different from Climate Active in the that it does not allow offsetting in the same way.

Corporate Emissions Reduction Transparency (CERT) In February 2021 the Australian Clean Energy Regulator (CER) announced the CERT initiative which is underpinned by the National Greenhouse and Energy Reporting (NGER) scheme and available for large companies to demonstrate their action on climate change. Going live in January 2022 this new scheme is in a pilot phase and provides a supplementary reporting scheme to allow NGER reporting companies to voluntarily disclose their purchases of offset units and supplies of renewable energy.  The CERT guidelines specify which Environmental Certificates are eligible units for reducing Scope 1 and 2 emissions and in what circumstances.  NG can help navigate this new opportunity. 

Talk to Northmore Gordon today about your journey to carbon neutrality. 

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When it comes to goods and services, this exciting level of connectivity blurs lines between nation borders. Although this comes with advantages, it also makes solving issues such as climate change and supply-chain emissions a global problem — therefore, measuring greenhouse gas (GHG) emissions requires an international, standardized system so that governments, industries, and corporations can take a uniform approach to emissions measurement and reduction.

The Greenhouse Gas Protocol outlines a comprehensive method for measuring and reporting GHG emissions throughout an agency’s entire supply-chain. Emissions are divided into three broad categories: Scope 1, Scope 2, and Scope 3 emissions.

Scope 1 Emissions — Direct Emissions

Scope 1 emissions are produced directly within the boundary of your company facilities either from operations done on-site or using company-owned equipment. This can include activity from on-site fuel-burning, emissions from company vehicles, or emission leakages from operating a refrigeration system. Any emissions produced from resources owned or controlled by your company contribute to Scope 1 emissions.

Scope 1 emissions fall into four categories:

1. stationary combustion — emissions released from equipment that burns carbon-based fuels to generate heat. This includes emissions from equipment such as boilers, furnaces, ovens, and dryers.

2. mobile combustion — emissions from driving traditional internal combustion engine vehicles owned by the company.

3. fugitive emissions — emissions that unintentionally escape or leak from pressurized equipment, such as pipes, storage tanks, or compressors.

4. process emissions — emissions produced as a result or byproduct of chemical processes, such as CO2 emissions from steel smelting or cement manufacturing.

Since Scope 1 emissions are under your direct control, they can be effectively reduced by implementing energy-efficiency measures such as smart lighting and thermostats, heat recovery systems, or other energy-conservation techniques. Under the National Greenhouse and Energy Reporting (NGER) Act of 2007, companies are required to report their Scope 1 emissions.

Scope 2 Emissions — Emissions From Purchased Energy

Scope 2 emissions are indirect GHG emissions produced during the production of purchased energy. The energy can be used to provide electricity, deliver process steam, or heat and cool your facility. The power you use at your facility — whether it be to turn on the lights or control indoor temperature — is generated from somewhere else. When this power is purchased from a third party generator, such as a utility, then the emissions from that power generation contribute to your Scope 2 emissions.

For instance, the emissions produced at a natural gas plant when providing electricity to your business would count as your Scope 2 emissions. Of course, your Scope 2 emissions would be that natural gas plant’s Scope 1 emissions.

To lower Scope 2 emissions, consider alternative options that generate power from clean energy sources. In addition, examine ways to improve your own company’s energy efficiency. Doing so will lower your energy demand and consequently reduce the amount of power you need to pull from outside sources.

Similar to Scope 1, Scope 2 emissions must be reported under the NGER scheme.

Scope 3 Emissions — Emissions Along Wider Supply Chain

Scope 3 emissions are GHG emissions generated throughout your company’s supply chain but that come from sources that are not controlled or owned by your company. Scope 3 emissions look at the wider impact of upstream and downstream activity as it relates to the products and services your company provides. This may include emissions from extraction and production of raw materials, the end uses of products produced, the end-of-life product processing, or even the fuel emissions from employee commuting.

Because they come from a wider economy perspective, Scope 3 emissions can be the most difficult to control and can also be the greatest contributor to overall GHG emissions. For example, when Kraft Foods measured emissions across its entire supply chain, it found that 90% of total GHG emissions came from Scope 3 emissions.

The Greenhouse Gas Protocol describes 15 different activity types that make up Scope 3 emissions. Addressing these emissions requires transparent communication between constituents along the supply chain as well as a holistic understanding of the full product life-cycle of produced goods. Solutions may include incorporating more recycled material into your products, using less material in packaging, or even incentivizing employees to commute or travel less for work.

Scope 3 emissions are not reported under the NGER scheme, yet understanding them is a critical way to measure and create an effective plan to mitigate your company’s emissions across the wider economy. Understanding your scope 3 emissions also enables you to better understand your exposure to risks in a de-carbonising world

Measure your GHG Emissions now

Climate change impacts all of us. And it’s going to take all of us to drive solutions that steer us towards a healthier, more sustainable economy. To lower your emissions, establish effective programs, and implement the most impactful technologies, it is critical to measure and understand your GHG emissions. Identifying Scope 1, 2, & 3 emissions under the GHG Protocol will paint a comprehensive assessment of your company’s emissions. From there, we can develop a plan to lower emissions in a way that benefits the environment and your business’ bottom line.

We all have a role to play in decarbonizing Australia and creating a thriving economy. At Northmore Gordon, we are deeply involved in energy and carbon management, and we are here to help you assess your emissions and navigate a plan that works well for the longevity of your business and our community. We provide the support you need so that you can make the impact our state deserves.

Reach out today to measure your GHG emissions and get started on a practical mitigation plan.

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