Are REGOs enough to cover Scope 2 emissions?

The conversation around Scope 2 emissions – those from purchased energy – is changing. Businesses that have to carry out reporting on their emissions need to be aware of current best practice and how the rules could be different in future.

Scope 2 emissions count as indirect emissions because your organisation doesn’t generate the power or consume any primary energy sources. It counts as Scope 2 when it is generated by a third party but purchased by your organisation. Your organisation is responsible for its Scope 2 emissions because they happen as a direct result of its activities.

No longer an easy win

Until fairly recently, many organisations felt comfortable declaring zero emissions for Scope 2 because their purchased energy comes from a tariff labelled something like “100% renewable” or “100% green”. Being able to tick this box feels like an easy win on the road to decarbonisation.

Unfortunately, the reality is not quite so simple. It is currently perfectly legal for energy suppliers to label their tariffs as “100% renewable” or similar even if some of the energy they supply comes from fossil fuels. They are permitted to do this if they buy sufficient quantities of REGOs, or Renewable Energy Guarantees of Origin.

REGOs are linked to renewable generation in the sense that they are issued to renewable generators. Each one is equal to 1MWh of verified renewable output. The problem is that the generators are free to sell these separately from the energy itself if they so wish – and many energy providers buy them as a way to “green” a supply that may actually come from a mix of sources.

The government is aware that the situation is causing confusion and launched a review of the REGOs situation back in 2021, but this slipped down the priority list in the face of the energy crisis and political upheaval.

Do REGOs achieve anything?

Most high-volume customers realise that if they have a grid connection, the energy they receive is the same grid mix that everybody else receives, no matter what the tariff. But the logic is that by purchasing energy explicitly labelled as green, this sends a market signal to drive demand for more renewable output. This is a widely accepted view, but a recent joint paper between Cornwall Insight and energy company OVO suggests that it simply isn’t true. The paper asks the question: “Has trading in REGOs provided an effective incentive for investment in new renewable electricity generation in Great Britain?” The answer appears to be no. REGO prices are historically low (although rising in recent years) and are not considered sufficiently secure to support the business case for building new generation assets.

This is why there is pressure on the energy sector to reform the use of REGOs, and it is likely that the government will revisit its plans to overhaul energy tariff labelling at some point in 2023.

Best practice Scope 2 reporting

The guidelines for the Streamlined Energy and Carbon Reporting (SECR) scheme encourage you to use location-based figures to report your organisation’s consumption of purchased electricity. This means, if possible, accessing and sharing the data on the grid’s carbon intensity on an hour-by-hour basis. This gives a more accurate picture of your organisation’s real Scope 2 emissions.

If you have switched to a green tariff or perhaps signed a corporate power purchase agreement (CPPA) then you should take credit for this in your carbon reporting through a “market-based” approach. Market-based reporting is based on the idea that green tariffs or green PPAs do make a difference to your emissions.

For example, two companies in the same region, consuming the same amount of electricity, will have the same location-based totals. But, if one company has purchased green electricity and the other hasn’t, then the market-based total for the green electricity purchaser will be significantly lower.

For your purchased electricity, the guidance says that the market-based approach requires you to “state the reduction in tonnes of CO₂e per year.” The problem with REGO-backed tariffs is that this may not reflect reality. This is why, for now, the official SECR guidance recommends using both reporting methods. It also recommends as much detail and transparency as possible about how the energy is generated and supplied to you.

It is highly likely that the coming years will see changes to the way purchased energy is labelled for consumers, and a tightening of the rules around energy and carbon reporting. The best way to futureproof your organisation’s Scope 2 reporting is to gather and share as much information as possible about your consumption. This means collecting the granular data from smart meters and asking your supplier some tough questions about their sourcing. Building a detailed, accurate overview now is the best way of staying ahead of the changes and avoiding any compliance problems or reputational risk in future.