Unlocking Investments to Support Energy Equity through Market Boundary Flexibility & Carbon Matching

Under the current carbon accounting system, companies are disincentivized from investing in clean electricity procurement projects in low- and middle-income countries, where communities are most susceptible to the dual challenge of climate impacts and electricity access (or energy poverty). Consequently, the $2 trillion spent globally on clean technologies such as renewable energy investments flows back to already developed markets, with 85% of those investments in the US and Europe. This system further excludes the 25% of the global population that lacks access to clean and reliable electricity. 

Corporate power purchase agreements (PPAs) are a significant driver of renewable energy investments globally, with 198 GW of solar and wind procured since 2008 - greater than the power generation capacity of countries like France, the United Kingdom and South Korea. The PPA market has grown 33% on average year-over-year since 2015 and catalyzed hundreds of billions of dollars of investment into the clean energy transition. To date, however, 80% of PPAs have been confined to the US and Europe. PPAs are measured through clean Energy Attribute Certificates (EACs) such as Renewable Energy Certificates (RECs). The clean EAC market in 2023 was valued at $10 billion and is forecast to grow to $100 billion by 2030. This growth forecast presents a historic opportunity to re-orient renewable energy investment flows so that a greater proportion drives needed investment in low- and middle-income countries.  

Current carbon accounting guidance for Scope 2, which measures electricity emissions, poses two constraints to expanding global investment: 1) market boundaries and 2) accounting for all megawatt hours equally, regardless of when and where they can have the greatest impact on the climate. Addressing both constraints is essential to expand global renewable energy investments to regions where they increase access to reliable electricity for those living in energy poverty, and deliver the greatest impact on emissions reductions to accelerate grid decarbonization.

First, Scope 2 accounting guidance requires companies to adhere to market boundaries, which require that renewable energy must be sourced from the same market in which a company’s electricity-consuming operations are located. This constraint keeps renewable energy investments within markets where companies operate – unjustly excluding most of the world from corporate clean energy investments because it has the effect of concentrating corporate renewable energy investment in the US and Europe. It also has the effect of hindering corporate investment in renewable energy in cases where companies consume electricity in a country that offers no path to procurement. 

Added flexibility to the market boundary guidance, by incorporating an exemption for certain investments to regions outside of a company’s market boundary, would drive needed renewable energy resources to emerging economies. These renewable energy investments serve as catalytic financing that contributes to decarbonizing relatively carbon-intensive grids, supporting the green transition, and first time electrification in low-income countries. Amending market boundary guidelines incentivizes companies to invest where they can have the highest impact globally.

Second, Scope 2 guidance allows companies to record their total energy load in megawatt hours and use EACs within the same grid and market boundaries to reduce their calculated market-based emissions on a megawatt hour to megawatt hour basis. Within this accounting system, all megawatt hours within the same market boundary are considered equal: it does not reflect the true system reality that electricity emissions vary based on time and location. There is no accounting for the higher emissions reduction impact of one megawatt hour of renewable energy added to a carbon-intensive grid, versus the lower impact of one megawatt hour of renewable energy generation added to a less carbon-intensive part of that same grid. For example, adding a megawatt hour to a relatively carbon intensive grid in Kentucky has a greater impact on emissions reduction than adding a megawatt hour to a relatively cleaner grid in West Texas, but current accounting rules treat each of these equally.  

Because the current scope 2 guidance does not account for the emissions impact of each megawatt hour, it does not incentivize organizations to make renewable energy investments on dirtier grids (and dirtier locations within grids) where these purchases can displace the greatest amount of emissions. In a system where all megawatt hours are accounted for equally, regardless of emissions impact, organizations default to invest where renewable energy is most affordable and easiest to add to the grid within their market boundary. 

Carbon matching is an accounting method that focuses on the actual emissions impact of renewable procurement, while maintaining critical accounting guardrails. Carbon matching applies the proven metric of marginal emission rates (MERs) to actual energy consumption in order to account for real in-time and in-location emissions abatement. By calculating load emissions and impact of avoided emissions separately, carbon matching shifts the focus from megawatt-hours to emissions impact, incentivizing companies to invest renewable energy in regions with lower energy access and reliability. Carbon matching is not a procurement strategy, but an accounting framework that can have the critical real world effect of unlocking corporate investment opportunities that increase energy equity. This incentive is curtailed, however, by market boundaries. 

The carbon matching approach is advocating for carbon accounting guidelines to give market boundary exemptions to a company’s procurement strategy, which would include low income regions outside of their load regions. A volumetric exemption, for example, would entail 5-10% of a company’s scope 2 emissions to be matched outside its market boundary. To maintain accounting rigor, exemptions would need to meet clear criteria to justify claiming emissions outside of their market boundary. One such criterion might include ensuring the emissions reduction impact of the clean energy they have added to the grid in the designated location outside of their market boundary is greater than the electricity they consumed. A wider relaxation of market boundaries would drive greater investment to emerging economies.

In 2024, Baringa completed a study that quantified the benefits of the corporate sector adopting a carbon matching approach with relaxed market boundaries. Baringa estimated at least 1.7 billion tonnes of CO2 could be saved over the next 15 years; equivalent to taking 40 million cars off roads today and accelerating global power-sector decarbonization by 18 months. Relaxing market boundaries was estimated to drive $85 billion of additional corporate investment into emerging economies by 2040. This is more than the total foreign direct investment made into India, Indonesia and Vietnam combined in 2022.

There are critics that argue against flexible market boundaries. These critics claim that allowing a company to take credit for procuring electricity in a different location from where it is consumed treats reducing grid emissions like an “offset”. However, that argument fails to take into account the inequitable distribution of corporate clean energy investments over the last decade, the imperative of accelerating the pace of decarbonization and a recognition that emissions - unlike electrons - have a global impact. The actions taken by companies have shown the importance of this impact. 

In 2023, Salesforce announced the purchase of 280 GWh of renewable energy certificates from small, distributed energy projects across Africa, Southeast Asia and Latin America over the next eight years. This contract enables Salesforce to maintain its renewable energy commitment and delivers clean energy access in regions highly dependent on fossil fuels. Salesforce’s purchases will help unlock an estimated $65 million of investments in new solar capacity and are expected to avoid over 50,000 tonnes of CO2 emissions annually. A market boundary exemption would encourage more purchases like this one, increasing investment in emerging economies while increasing emissions impact.

Investment in emerging economies is essential to address energy poverty and maximize emissions impact globally, but because of market boundary constraints, companies rarely invest outside the markets in which they currently operate. Examples from Heineken and Amazon, while within their existing market boundaries, demonstrate the value of investing in renewable energy in emerging economies. An exemption to market boundaries would incentivize more of these investments.  

HEINEKEN has signed two renewable PPAs that will take effect in 2025 and 2027. These investments are supporting critical renewable energy infrastructure while connecting breweries to reliable power. In Kaduna, Northern Nigeria, for example, where HEINEKEN signed a PPA to receive 100% of its electricity needs at their brewery (~20 GWh annually), the power will come from the 30 MW Gurara Hydro Power Plant, wheeled through a dedicated transmission line. The renewable electricity supply from the grid will also be supported by on-site battery storage.   

In 2021, Amazon announced that the first operational solar project it has enabled in South Africa had begun contributing renewable energy to the electricity grid. Located in the Northern Cape, South Africa's largest province, the 10 megawatt (MW) solar project supplies renewable energy to Amazon’s data centers and contributes to South Africa’s 2030 renewable energy goals. In November 2022, Amazon signed a power purchase agreement with Perusahaan Listrik Negara (Persero, aka PLN) in Indonesia to procure 210 MW solar power from four solar sites for its operations in Indonesia.

In a number of these countries, there are limited procurement options (such as PPAs) for corporations. This could be due to structural regulatory barriers or a lack of available procurement options. New contractual models are emerging from startups, particularly related to distributed rooftop solar and aggregating environmental attribute certificates. The Salesforce purchase of 280 GWh of renewable energy certificates from small, distributed energy projects across Africa, Southeast Asia, and Latin America is an example of this12. A market boundary exemption and a focus on emissions impact would spur greater innovation to reduce energy poverty and accelerate grid decarbonization.

Corporate procurement can be an important driver of catalytic clean energy investments in emerging markets, but only if carbon accounting guidelines incorporate an exemption for market boundary requirements. A market boundary exemption would drive the greatest impact where it matters most, helping to reduce energy poverty and accelerate grid decarbonization.