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Writer's pictureDoug Miller

The Climate and Social Benefits of Relaxed Market Boundaries for Low-Income Countries




Companies are currently disincentivized to support projects that will expand clean electricity access to the over 780 million people in low-income, fragile countries who lack electricity access and are the most exposed to the negative impacts of climate change. As a result, the vast majority of the US3$ trillion invested globally in clean energy in recent years goes back into developed energy markets, with only 2% reaching communities across the entire African continent.


Corporate clean energy procurement has served and will continue to serve as a critical lever for accelerating and scaling power sector decarbonization across global markets. The additional revenue that corporate procurement delivers in turn enables financing for clean energy projects around the world. Companies have a growing menu of next generation procurement options at their disposal, including options for supporting clean energy access in low-income countries. For example, companies can transact Peace Renewable Energy Credits (“Peace RECs”) to support new renewable mini-grids with connected community social-impact projects (e.g., public street lighting, productive use hubs, and hospital or school electrification) in fragile countries. Peace RECs serve as high-impact energy attribute certificates in countries such as South Sudan, Nigeria, the Democratic Republic of Congo (DRC), Somalia and Chad, that help companies maximize the social benefits and avoided emissions of their clean energy procurement strategy. 


Unfortunately, current “geographic matching” rules that require companies to procure clean energy only in the same countries or markets as their electricity use perpetuates the climate finance gap and underinvestment in clean energy access in low-income countries. The Greenhouse Gas Protocol’s Scope 2 Guidance requires that companies only apply market-based emission reduction claims from clean energy they procure in that same market. These industry rules have the unintended side effect of discouraging companies from using their procurement to provide catalytic financing that contributes to decarbonizing the power sector globally and supporting green transitions and first time electrification in low-income countries . 


For example, imagine a company has facilities in Cameroon and Cote d’Ivoire, both of which are countries that have not yet authorized I-REC issuance and lack a voluntary clean energy market. This company thus lacks a procurement option in either country to decarbonize the electricity use from these facilities. Nevertheless, if this company decided to procure Peace RECs from neighboring countries like Chad or Nigeria, under the current rules this company would not be able to count this clean energy procurement (beyond 100 MWh for each country) toward addressing its emissions from its electricity use in Cameroon and Cote d’Ivoire. As a result, this company likely chooses to not procure clean energy anywhere to decarbonize this electricity use in either country. Similarly, a company without supply options in Singapore, Taiwan, or Republic of Korea—a common challenge for corporate buyers in these markets—could not apply P-RECs from outside the Asia Pacific region toward its Scope 2 emission reduction claims in these three markets.


Consider the three examples in the table below that offer real-world scenarios about how geographic matching rules hinder Peace REC procurement and wider corporate clean energy procurement in low-income countries: 



Table 1: Real-world examples from Peace REC markets illustrating the impact of relaxing market boundaries on corporate procurement and clean energy financing in fragile countries


Real-world scenarios

Impact of relaxing market boundaries 

Neighboring market example:

A company lacks clean energy options in one sub-Saharan African country to address its electricity use (Scope 2) emissions in-country. The company does not procure Peace RECs available in a neighboring country within the region because of geographic matching rules, meaning this already-approved clean energy budget remains unspent.

If a company could procure Peace RECs from a neighboring country and apply them to the country where they consume electricity and have Scope 2 emissions, then they would gain the option to decarbonize their Scope 2 in one country by supporting a Peace REC project in a neighboring country. If there are little to no options in the country where they consume electricity (e.g., there is not yet an authorized energy attribute certificate market), then relaxed market boundaries mean that already-approved corporate budgets will get spent and can support high-impact projects with environmental and social benefits for the region as a whole. Such procurement would deliver tangible economic, health, educational, and safety benefits at the local and wider regional level.


Distant market example

A company lacks clean energy options in an Asian market to address its Scope 2 emissions in-country. The company does not procure Peace RECs from outside the region and apply the Scope 2 reduction to its load in this Asian market because of geographic matching rules. This procurement budget remains unspent to support clean energy. 

If a company lacks procurement options in any of the several Asian markets currently with limited clean energy supply (e.g., Singapore, Taiwan, Republic of Korea, and Japan) but could apply Peace RECs from, for example, sub-Saharan Africa toward their Scope 2 emissions in those countries, then they would have the incentive to support high-impact projects that expand clean energy access. This would help ensure that already-approved corporate procurement budgets get spent fully to support power sector decarbonization across the globe and create the opportunity for at least some of this procurement to support Peace REC projects that contribute to emerging market green transitions and an increase in universal clean energy access.


Social impact optimization example: A company is interested in procuring Peace RECs to cover part of its Scope 2 emissions in the U.S. or European Member State and because the Peace REC project will deliver clearer social and environmental benefits to the local community. The company does not procure Peace RECs because it cannot claim the emission reductions due to geographic matching rules, limiting procurement in communities with limited clean energy access. 

If a company can allocate some of its annual clean energy procurement that would otherwise support a large established clean energy market in the United States or Europe to instead procure Peace RECs, then the company would have a stronger incentive to support high-impact projects that expand energy access as part of its procurement strategy. This would enable the company to use its procurement to directly support a new project and send the strongest possible demand signal for clean energy access. 



With stronger incentives, such as by relaxing market boundaries, corporate procurement could play a greater role in the mosaic of private sector finance solutions in low-income and fragile countries and better address the need for more than triple annual clean energy financing everywhere to keep global warming under 1.5°C. Relaxed market boundaries would produce greater flexibility around geographic matching and lead to new procurement strategies and decisions. For example, it would enable more companies to support a new renewable mini-grid and linked community project through a Peace REC purchase in a country where they do not have a physical presence and then apply these Peace RECs toward their global annual electricity use (Scope 2) emission reduction claims. It would also help stymie the growth, particularly in sub-Saharan Africa, in highly-polluting yet accessible diesel generators and put these communities on a greener path. 


There is increasing recognition of the importance of creating stronger incentives for motivating companies to support global power sector decarbonization through the expansion of clean energy access. This is why fifteen nonprofits now support the Leapfrog Alliance, which aims to update greenhouse gas accounting frameworks in order to create powerful new incentives that will drive corporate climate investments to high-impact projects in un-electrified and under-served communities. More specifically, the Leapfrog Alliance aims to deploy new incentives that encourage companies to exclude up to 10% of their annual clean energy procurement from geographic matching requirements only if the procurement supports clean energy projects in these types of communities. In other words, the Leapfrog Alliance calls for greater flexibility around geographic matching based on a prerequisite of expanding clean energy access. This prerequisite serves as an example of an impact-based protection against the risk of a race to the bottom among corporate clean energy buyers from relaxing market boundaries, instead creating a purpose-driven new incentive that fosters a race to the top.


Communities in low-income countries would benefit from relaxed market boundaries. If companies could, for example, procure Peace RECs and apply this toward their respective global Scope 2 emission reductions in their annual greenhouse gas inventories—all without having a physical presence in the same country as the Peace REC project—then this would help activate more financing for more new renewable mini-grids in more communities in low-income countries. This change would help unlock financing for communities to gain clean energy access, delivering various social benefits and peace dividends for communities in the world’s most climate change-exposed, at-risk countries. 


As more communities gain clean energy access, they would gain various proven benefits of such access: improved health, safety, educational, and economic outcomes. What is remarkable is how an in-the-weeds change to determine what clean energy procurement “counts” in annual corporate greenhouse gas inventories—market boundaries—can transform legacy underinvestment patterns in low-income countries. This change would help unleash corporate procurement-led catalytic financing that empowers hundreds of millions of people to leapfrog over the fossil energy system and benefit from newfound clean energy access, while contributing to decarbonizing the global power sector. 


With updated greenhouse gas accounting frameworks that send the right incentives for companies to prioritize projects that deliver the greatest environmental (and social) impact bang for the buck for each megawatt-hour of clean energy they procure, this would help channel more of the revenue, commitment, and demand signals from corporate clean energy procurement to support decarbonization in the most carbon-intensive places everywhere.


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