Navigating Environmental Certificates: A Roadmap to ESG Compliance and Transparent Reporting

Navigating Environmental Certificates: A Roadmap to ESG Compliance and Transparent Reporting - Northmore Gordon

An important aspect of Environmental Certificates involves the appropriate treatment of the certificates under programs and reporting guidelines. Certificates and their markets serve as valuable economic tools to incentivise businesses to embrace decarbonisation and environmental responsibility. Understanding how Environmental Attribute Certificate (EAC) market’s function and operate will help businesses design a EAC and Energy Procurement strategy that aligns with the national decarbonisation goals as well as their own corporate sustainability objectives. 

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). 
  1. Australian Carbon Credit Units (ACCUs) must be surrendered to validate emission reductions from specific projects (see 5 for the exception). 
  1. Small-scale Technology Certificates (STCs) provide an immediate discount on solar systems cost and the business will be able report lower grid-based emissions.   
  1. 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. 
  1. 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. 
  1. 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.  

  1. 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.  

  1. 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 

  1. 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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