Tech giants clash over how to measure their carbon footprint

GHG Protocol, a nonprofit affiliated with the World Resources Institute, produces guidelines for corporate emissions accounting that are widely regarded as the industry gold standard. Although voluntary, the rules are used by 97% of S&P 500 companies, and cited by emissions regulations in California and the European Union.

For Scope 2 emissions — which, for sectors like tech that use a lot of electricity, constitute the largest part of companies’ total carbon footprints — GHGP has for the last decade permitted “market-based” accounting, in which a company can purchase credits from a clean energy installation anywhere in the world and count them as if they were the electrons the company’s facilities actually used. This method allows companies more, and often less expensive, options for sourcing clean power than if they were limited to what is really in their backyard. And it’s a powerful driver of capital for clean energy projects; according to an association of large power buyers, such contracts are responsible for 41% of the renewable energy added to the US grid in the last decade.

The problem, according to some in the world of emissions accounting, is that this practice doesn’t accurately describe a company’s real carbon footprint, and is instead a paper-shuffling exercise with dubious environmental benefits. The current rules allow a company, for example, to build a new factory or data center, build a gas-fired power plant to run it, then buy dirt-cheap credits from an existing wind farm in Texas and claim the whole project as being zero-carbon. GHGP is weighing a plan that would limit the use of “market-based” accounting to only the geographic vicinity of the facility, and to the specific hours of the day that power is being consumed. GHGP is currently soliciting public comments on the proposal, which will close in January.

That’s where the split for tech companies comes in: Some, including Amazon and Meta, argue the market-based system is in fact the best way to drive down economy-wide emissions; others, including Google, say it misses the fundamental point of the exercise.

It’s easy to see why this seemingly obscure debate would matter so much to Silicon Valley: All of the tech giants have ambitious decarbonization goals that are increasingly in tension with their AI agendas. To cut their carbon footprints and oversee a massive buildout of data infrastructure will require a creative patchwork of solutions and will already be hard enough without taking some options off the table. It’s a touchy subject for them. Most of the energy and tech companies I spoke to would say very little on the record; some with a clear stake in the outcome, like the enormous renewable energy developer NextEra Energy, declined to comment at all.

Partly the split comes down to philosophy: What is the purpose of accounting? For hardliners, Scope 2 should be exactly what it says on the label, nothing more. A separate proposal under consideration at GHGP would create a new metric for emissions reductions associated with a company’s global power contract portfolio, so that even if a strict Scope 2 account looks less green, a firm can still take public credit for emissions-reducing projects it has helped to finance.

But there are more substantive technical disagreements beneath the surface that reveal how, in a rapidly evolving energy system, even the most qualified experts aren’t really sure what will happen next.

Renewable energy can be lopsided: Sunny and windy places naturally draw projects. That leads to an oversupply of clean power in certain areas and deficits in others. Location- and time-matched Scope 2 reporting could push companies to invest in parts of the grid they might otherwise overlook, and improve the economics of other low-carbon energy sources like nuclear that run around the clock. Unsurprisingly, Constellation, the biggest US operator of nuclear power plants, backs the change:

“Our argument is that you need to drive decarbonization in all hours that the grid operates,” said Katie Ott, Constellation’s vice president for sustainability and climate strategy. “That’s how we ensure clean energy is available when and where it’s needed.”

Conversely, proponents of the market-based approach argue that since individual electrons can’t be traced through the grid, the whole concept of location and time matching is at best a kind of useful fiction. Why not leverage the fungibility of the grid to push investment where it will have the most impact in reducing existing fossil fuel consumption? And without market-based accounting, what should an operator of a large data center in a cloudy, windless place do? What about a much smaller company whose power demands are below the normal threshold for a reasonably priced renewable energy deal? Both would face a choice between higher bills or higher reported emissions. And as much as companies might want to stick to their climate goals, it’s likely the cost and logistical hurdles of signing clean power contracts under the new rules could lead to fewer deals being signed, said Aaron Bergman, a fellow at the think tank Resources for the Future, “and that would hurt the deployment of clean energy, which would be bad for emissions.”

Schneider Electric, an engineering firm which also provides consulting on power deals, concurs. “If the rules become too prescriptive, such as requiring every clean megawatt to be matched hourly in the same region, we risk discouraging companies from investing in renewables and slowing decarbonization at a critical moment,” said John Powers, the company’s vice president for global renewables and clean technology.