“Poorly comprised regulation is often just a gift to overcapitalized and over-lawyered people with a large PR budget.”<\/p>\n
And this isn’t even “real” regulation, which will truly bring out the best and brightest.<\/p>\n
Companies say they\u2019ve made climate progress. But the science says otherwise. Here\u2019s how creative math has fueled corporate claims.<\/p>\n
ByBen Elgin and Sinduja Rangarajan
\nOctober 31, 2022 at 5:00 PM PDT<\/p>\n
(Bloomberg) Many of the world\u2019s largest companies are declaring breakneck progress in the fight against climate change. While their environmental handiwork shows up on paper, these gains often fail to materialize in the atmosphere.<\/p>\n
Procter & Gamble Co. vowed to cut its heat-trapping emissions in half by 2030, before announcing it had surpassed its target a decade early. Cisco Systems Inc. recently said it had exceeded a goal to reduce its climate pollution by 60% over 15 years. Continental AG, the German tire and auto parts juggernaut, claimed it had slashed greenhouse gases by an astounding 70% in 2020.
\nThese appear to be exactly the kind of giant leaps needed to forestall the most destructive impacts of climate change. But a substantially different picture emerges when using a different accounting method that more accurately measures the pollution from a company\u2019s operations. Procter & Gamble more realistically cut its emissions by 12%, Continental\u2019s pollution fell a more pedestrian 8%, and Cisco\u2019s actually climbed 22%.<\/p>\n
In the cases of each of these companies\u2014along with similar claims made by hundreds of others\u2014they\u2019re relying on a common, but controversial, form of climate bookkeeping known as \u201cmarket- based accounting.\u201d This allows businesses to buy credits from clean energy providers to say they\u2019re running on green power when they actually aren\u2019t, wiping from their ledgers vast quantities of pollution caused by the electricity powering their offices, data centers, and factories.<\/p>\n
In the broadest investigation yet into how companies are using this accounting technique to dramatically exaggerate their emissions reductions, Bloomberg Green analyzed almost 6,000 climate reports filed by corporations last year. The reports were submitted voluntarily to CDP, a nonprofit that runs a global environmental disclosure system. At least 1,318 companies employed market-based accounting to erase a combined 112 million metric tons of emissions from their records. That\u2019s equivalent to the annual pollution from 24 million cars.<\/p>\n
Some of the climate gains are real. But many of these supercharged emission-reduction claims fail to benefit the atmosphere. That\u2019s because hundreds of companies, including Procter & Gamble, Cisco, and Continental, rely heavily on certificates, known as renewable energy credits (RECs) or guarantees of origin (GOs), to achieve their climate goals. RECs and GOs have long been targeted by critics who contend they do very little to lower emissions. (P&G, Cisco, and Continental all defend their environmental performance and say their carbon accounting follows widely accepted standards.) \u201cMarket-based accounting just ruins the accuracy of greenhouse gas disclosures,\u201d says Matthew Brander, a senior lecturer on carbon accounting at the University of Edinburgh.
\n\u201cIf we\u2019re trying to deal with the climate crisis\u2009\u2026\u2009we need accurate information on when companies have actually reduced emissions.\u201d<\/p>\n
The debate about how companies should account for the emissions caused by the electricity they consume is no trivial matter. One-quarter of the planet\u2019s heat-trapping emissions are caused by the production of electricity and heat. Commercial and industrial customers gobble up about two-thirds of that energy.<\/p>\n
Businesses typically purchase their power from local electric grids, which are supplied by a mix of sources\u2014everything from zero-emission wind turbines to sky- choking coal plants. Once power plants feed electricity into the grid, it becomes intermingled like water in a mountain lake fed by different streams. It\u2019s impossible to know which plant supplied the power running a company\u2019s assembly lines, so they\u2019ve traditionally calculated their emissions using the average pollution of the local grid\u2019s energy mix. This is known as \u201clocation-based accounting.\u201d<\/p>\n
Companies can make meaningful cuts to their pollution with this approach, but progress can be slow and expensive. For instance, Lowe\u2019s Cos., which operates 2,200 home improvement stores in North America, spent $68 million in 2020 to upgrade lighting and air-conditioning equipment at hundreds of stores.<\/p>\n
The new energy-sipping equipment helped trim its electricity use by 11%. The result: a very real 9% drop in emissions.<\/p>\n
Many companies are reluctant to spend this kind of capital, even if it eventually saves money through lower energy bills; those that do find it hard to replicate these kinds of improvements year after year. Others are tantalized by the prospect of marketing dramatic climate improvements to their customers or even declaring their businesses to be carbon neutral.<\/p>\n
That\u2019s where the grandiose claims enabled by market-based accounting can make the difference.<\/p>\n
When wind or solar farms sell their power to the grid, they get paid for the electricity like any other power plant. The owners of clean energy resources also usually get tax credits from governments. To increase the incentives, corporations began paying the renewable plants an extra bonus for the right to take credit for that clean energy.<\/p>\n
This approach relies on a measure of fiction. The corporate buyers never physically use the clean electricity, yet they can claim credit for zero-emission energy on their ledgers.<\/p>\n
Many companies became enamored with this method as they discovered it could seemingly wipe away vast quantities of emissions in a hurry. But market-based accounting sparked a bitter debate. The US Environmental Protection Agency and nonprofits such as CDP embraced it as a way to funnel more money into clean energy, believing these extra payments from companies would accelerate the transition away from fossil fuels. On the other side, dozens of academics cringed at the idea of allowing companies to take credit for green energy they hadn\u2019t actually used, fearing it would warp the accuracy of emissions reports and provide a cheap cop-out instead of meaningful greenhouse gas cuts.<\/p>\n
In 2015, after years of deliberations, one of the most esteemed climate nonprofits essentially settled the debate.<\/p>\n
World Resources Institute helps run the Greenhouse Gas Protocol, the most popular emissions accounting standard, which is used by thousands of companies around the world. The Washington-based group said companies should include both location- and market- based numbers in their emissions filings, but they could pick either method to underpin their public climate claims. Companies flocked to the more creative approach.<\/p>\n
\u201cOnce it had the GHG Protocol\u2019s blessing, then all hell broke loose,\u201d says Michael Gillenwater, executive director of the Greenhouse Gas Management Institute, a nonprofit that provides carbon-accounting training to climate professionals.<\/p>\n
\u201cNow whenever I talk to companies, they say, \u2018Well, the EPA and the GHG Protocol say it\u2019s fine, so we don\u2019t need to think about it. It\u2019s been blessed.\u2019\u2009\u201d<\/p>\n
WRI and its partners are now reevaluating the decision and have started a review of the standard with a particular focus on how electricity emissions are measured. But any changes aren\u2019t expected for at least two years. \u201cThese critiques are well heard and appreciated,\u201d says Michael Macrae, a senior manager at WRI.<\/p>\n
To be sure, some of the ensuing clean energy contracts have had major climate benefits. Last year, for instance, more than 100 companies including Amazon.com, Nestl\u00e9, and Target signed long-term power purchase agreements (PPAs) for wind or solar power. In these complex transactions, companies claim credit for green power that they don\u2019t consume. But the companies will typically shoulder some of the power plant\u2019s risk for a period of 10 or 15 years, which helps the renewable developer get financing to build the project.<\/p>\n
These arrangements often result in new clean energy projects that are \u201cadditional\u201d\u2014meaning they wouldn\u2019t exist without the corporate partner\u2019s help. \u201cPPAs really helped spur the proliferation of renewable energy projects,\u201d says Fahad Afolabi, director of capital markets at Brookfield Renewable, which builds and owns clean energy plants.<\/p>\n
RECs and GOs, on the other hand, do little to get new clean energy plants built. Unlike power purchase agreements, these are typically short-term transactions that allow a company to acquire credits from facilities that have already been operating for years, with the corporate buyer shouldering none of the power plant\u2019s risks.<\/p>\n
\u201cI\u2019d argue they don\u2019t stimulate investment at all,\u201d says Gerard Pieters, who ran renewable financing at German bank Nord\/LB and is now a director at Tierra Underwriting, which insures clean energy transactions. \u201cFrom a banking perspective, after 15 years of looking at models and investments, they\u2019ve just never carried any value.\u201d<\/p>\n
Academics have reached similar conclusions. Gillenwater studied wind power investments in the US in 2013 and found RECs were an inconsequential source of income. A 2019 paper from Corvinus University of Budapest, meanwhile, found GOs were too inexpensive in Europe to spur development of new renewable plants.<\/p>\n
Even a corporate stalwart such as Walmart Inc. figured out this glaring weakness in market-based accounting almost a decade ago. In a 2014 paper explaining its aversion to using RECs to hit its renewable energy targets, the retail giant said it feared these credits were \u201csimply shifting around ownership of existing renewable electrons\u201d without \u201cthe desired impact of accelerating renewable energy development.\u201d
\nThat hasn\u2019t kept RECs and GOs from attaining huge popularity among corporate buyers, according to Bloomberg Green\u2019s analysis of the CDP data.<\/p>\n
Many of the 1,318 companies that used market-based accounting in their 2021 filings didn\u2019t specify the types of renewable energy contracts they use to reduce their electricity footprint, known as \u201cscope 2\u201d emissions in climate-accounting jargon. But of those that do, nearly half purchased RECs or GOs representing 108 million megawatt-hours of electricity. That\u2019s equivalent to half the annual power consumption of Spain\u2014poof!\u2014erased from these companies\u2019 ledgers.<\/p>\n
This is leading to wildly inflated claims of climate progress. Researchers at Concordia University in Montreal published a study this year examining 115 companies that set climate goals pegged to the Paris Agreement\u2019s aims of limiting global warming to 1.5C or 2C. The companies reported combined reductions of 31% from 2015 to 2019. Without RECs, however, their emissions fell only 10%\u2014leaving many well behind the Paris Agreement\u2019s trajectory. \u201cThe widespread use of RECs raises doubts on companies\u2019 apparent historic Paris-aligned emission reductions,\u201d wrote the authors, \u201cas it allows companies to report emission reductions that are not real.\u201d<\/p>\n
\u201cAt a very fundamental level, they\u2019re claiming to have reduced emissions when they haven\u2019t.\u201d<\/p>\n
The seductiveness of these credits is illustrated by Cisco\u2019s environmental claims. Five years ago, the tech giant vowed to slash 60% of its operations-related emissions by 2022 from 2007 levels. It beat that impressive target last year, reporting a 61% drop in pollution. RECs, however, have long supplied most of the company\u2019s improvements. Rerunning the numbers under location-based accounting, Cisco\u2019s emissions moved in the other direction\u2014climbing 22%.<\/p>\n
It\u2019s been incredibly inexpensive for Cisco to transform its appearance from a climate laggard to a green champion. The company reported spending $600,000 on RECs in 2020, or about 60\u00a2 per credit. For just 1\/18,000th of its $11.2 billion in profit that year\u2014or the income it made in 28 minutes\u2014Cisco bought enough credits to completely flip its environmental image.<\/p>\n
Mary de Wysocki, Cisco\u2019s chief sustainability officer, says RECs have become more expensive since 2020 and they send a signal to the market that more low-carbon energy is needed. The company is working hard to sign more long-term contracts, she says, \u201cthat are really adding renewable energy.\u201d In 2015, for instance, Cisco signed a 20-year power purchase agreement with a solar plant in the Sonoran Desert, which accounts for about 4% of the company\u2019s renewable energy. \u201cYou\u2019re going to see us continuing to move in that direction,\u201d she says.<\/p>\n
This refrain is echoed by many other major REC buyers.<\/p>\n
JPMorgan Chase & Co., Wells Fargo & Co., and others similarly say they\u2019re transitioning away from RECs to long-term agreements.<\/p>\n
But the pace of progress can be slothlike. When Wells Fargo announced in 2017 that it was powered exclusively by renewable energy, the bank also vowed to transition in three years from buying RECs to long-term contracts \u201cthat fund new sources of green power.\u201d As of 2020, just 0.5% of Wells Fargo\u2019s clean energy came from on-site solar panels or long-term power purchase agreements. \u201cWe\u2019re trying to align the renewable projects with where we have the electricity demand, so it takes a bit more work,\u201d says Richard Henderson, head of corporate properties. Bank officials add that these numbers will soon improve, as they\u2019ve signed several long-term deals with plants that will begin operating in a few years.<\/p>\n
Others, including PepsiCo Inc. and Dell Technologies Inc., quit using RECs in the past only to relapse. Pepsi was one of the planet\u2019s biggest buyers of renewable credits in the late 2000s, but executives worried it wasn\u2019t doing much to help the climate. There was significant concern that these credits weren\u2019t getting new renewable projects built, says David Walker, who was an environmental manager at Pepsi at the time, before retiring in 2015. \u201cDid you buy an indulgence? Did you have your sins forgiven for a large donation? Or did you make a difference?\u201d<\/p>\n
The beverage giant announced in 2010 that it would move away from buying these credits, because it felt it could have more impact developing clean energy projects on its own buildings. The restraint lasted until two years ago, when Pepsi reentered the market with gusto, purchasing 1.4 million credits\u2014or the 15th biggest amount, according to the CDP data.<\/p>\n
That allowed Pepsi to claim it had slashed climate-warming pollution from its operations by almost a quarter since 2015.<\/p>\n
In a statement toBloomberg Green, Pepsi officials said they\u2019re transitioning to power purchase agreements \u201cthat put new renewable electricity on the grid,\u201d having signed six such deals since 2020. When these projects are all operational in two years, the company expects they\u2019ll account for 70% of its electricity use in the US.<\/p>\n
But while many companies say they\u2019re moving away from RECs and GOs, the CDP data indicate these instruments are only getting more popular. When looking at the last four years of disclosures, 534 companies supplied detailed information about their renewable energy contracts every year, including some that haven\u2019t purchased RECs. As a group, these companies in 2021 reported buying a combined 87.3 million MWh worth of credits, which is 61% more than the 54.2 million reported in 2018.<\/p>\n
Some of the world\u2019s biggest buyers of the credits, meanwhile, have no immediate plans to change course.<\/p>\n
Intel Corp., for instance, has leveraged RECs to refashion itself into a beacon of environmental virtue, recently ranked No.\u20091 on Barron\u2019s 100 Most Sustainable Companies list. In reality, the tech titan\u2019s contribution to climate damage is growing rapidly. With dozens of offices and energy-hungry chip plants, Intel\u2019s electricity use soared 48% from 2017 to 2020, as it manufactures increasingly complex products. That\u2019s double the company\u2019s 24% increase in sales.<\/p>\n
This is bad news for the climate. But the extent of Intel\u2019s difficulties is hard to decipher from its environmental reports.<\/p>\n
That\u2019s because the company acquired 7.2 million RECs\u2014the most of any company in Bloomberg Green\u2019s analysis\u2014to claim 82% of its power in 2020 came from renewable sources. So instead of reporting a 38% jump in emissions from 2017 to 2020, it reported a more modest 17% increase.<\/p>\n
More glaring, the company claims that since 2000, it\u2019s cut emissions by 19%. In reality, when excluding RECs from that calculation, Intel\u2019s climate footprint has jumped by more than a third.
\nMarty Sedler, Intel\u2019s director of global utilities and infrastructure, pushes back on the notion that RECs are an empty gesture or hugely inferior to long-term power purchase agreements. By delivering added income to a renewable power plant, Sedler says, RECs are generating more demand. \u201cAnything you do that is positive and adding contributions to the renewable industry is a good thing,\u201d he says. \u201cIf I go to a charity and give $10 or a million dollars, my $10 is not bad.<\/p>\n
Maybe it\u2019s not as good as a million. But it\u2019s still the right thing to do.\u201d<\/p>\n
Making a dubious claim of major climate progress, however, isn\u2019t exactly harmless. \u201cAt a very fundamental level, they\u2019re claiming to have reduced emissions when they haven\u2019t,\u201d says Brander of the University of Edinburgh, referring to the company. \u201cThat seems massively problematic.\u201d<\/p>\n
Claire Lund, vice president for sustainability at GSK Plc, has seen how this accounting system can put climate-friendlier projects at a disadvantage. When the UK drugmaker set out in 2020 to eliminate all its emissions within a decade, it began buying up hundreds of thousands of RECs and GOs, which created the impression that it had immediately cut its electricity emissions in half.<\/p>\n
At the same time, the company was working with a renewable developer to add two giant wind turbines and 45,000 solar panels to its manufacturing facility in Scotland. GSK won\u2019t own the clean energy project when it begins operating next year.<\/p>\n
Instead, it\u2019s signed a 20-year power purchase agreement that enabled the plant to be financed and built, according to Jens Rosebrock, managing partner at Farm Energy, which owns the facility.<\/p>\n
The Scotland project has a very real climate impact. Yet Lund says it \u201cweirdly\u201d counts the same as buying RECs and GOs.<\/p>\n
\u201cOur market-based emissions will not differ. This is my challenge,\u201d she says.<\/p>\n
This is the crux of the problem for Gillenwater of the Greenhouse Gas Management Institute. If companies get equal credit for vapid clean energy contracts that have little impact on the climate, what incentive do they have to take more meaningful action? \u201cWe should all want a system that accurately reflects what\u2019s happening to the atmosphere,\u201d he says, \u201cnot just something that\u2019s convenient for companies\u2019 PR efforts.\u201d<\/p>\n