Part 1: Why Attribute Certificates are No Longer Just About Electricity- EAC Fundamentals & SBTi V2 Updates

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Hi and welcome once again to the Renewable Roundup podcast from
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Schneider Electric. I'm Russell Redding, Head of Energy Markets at Zygote.
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Every week I'll bring you a podcast with top stories,
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critical sustainability topics, insights,
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and hopefully some thought-provoking topics. So please do subscribe
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and don't miss a thing. I've been wondering about attribute
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certificates and what they really mean, so I'm very pleased this
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week to be joined by Xander Dale, one of Schneider Electric's managing consultants.
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Xander's agreed to share his extensive knowledge in this area.
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In part 1, we'll talk about what an EAC is,
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how the E is changing, and maybe have some breaking
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news on the SBTI version 2.
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In part 2, we're going to look at why this is a hot topic now,
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the differences between certificates and carbon credits, and finish
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up with some practical examples and steps. If you're interested
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to learn more on attribute certificates, this is the podcast for
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Hi Xander, thanks for joining me again, and how are you doing today?
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I'm very good, Russell. It's, uh, it's very nice to be back. Thank you for
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having me, uh, back after the last one. Oh, it's a pleasure. Uh, I'm excited
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to, uh, learn a bit more about, um,
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attribute certificates. But before we get kind of diving into all that stuff,
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would you just like to tell the listeners, um, because amazingly
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some of them may not have listened to your other podcast on insetting, which I
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think, you know, is a mistake because it's a great podcast, but here we go.
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Um, do you want to give the listeners who haven't heard you before a bit
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of an overview of who you are and what you do? Uh, yeah, of course,
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uh, and outrageous to have not listened to the last podcast, but, uh,
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hello everyone, my name is Xander Dale. I'm a managing consultant
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here at SE Advisory Services, part of Schneider Electric.
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Um, I am the offsetting and insetting service line
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lead overseeing, uh, our service line, which covers offsetting
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strategies, project development, uh, insetting and
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value chain interventions, um, accounting. Reporting,
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claims, etc. And a big love of the forest,
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land, and agricultural sector where a lot of my work kind
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of is carried out. But I do integrate and work with
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the wider service lines, supplier engagement, decarbonization strategies,
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transition plans, etc., to link those different
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aspects and interweave into the sustainability strategies that
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companies are developing. Fabulous, thank you very much.
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Um, so you agreed to come and have
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a chat with me about, uh, attribute certificates,
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and I would say probably a bit like me, when people
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hear, you know, like sustainability teams and people generally hear EAC,
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most people think of, all right, yeah, an energy attribute certificate.
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So like a renewable energy certificate, so a REGO
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or Guarantee of Origin, a Goo and IREC, um, a green,
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you know, green gas certificate, or, or even things like the sort of ISCC
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stuff for RTFO, um, but all
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about energy. But I, I guess
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it's wider than that, and I think what I'm understanding from you is that the
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E bit now kind of needs a bit work, a bit more work.
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It's not just purely electricity or biomethane.
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What do you kind of mean by that?
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I think you're, you're right. And yeah, when you think of EAC or EAC,
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it is energy that pops to mind. And energy
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attribute certificates are still very important. They are kind
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of very important for meeting market-based Scope 2
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targets and reducing those emissions. But across
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the market and the wider last few years,
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we've seen a kind of wider family of environmental
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and commodity attribute certificates kind of pop up and emerge.
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So it's not just on energy, it's actually bringing in other
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commodities which can be made low carbon, such as lower
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carbon steel, cement, fuels, chemicals, and agricultural
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commodities. And so this term of environmental attribute certificate
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popped up. I think the,
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the basic problem that it is trying to solve is
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very practical. And it's very similar to the— well,
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it's exactly the same as the Energy Attribute Certificate.
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But it's to support companies who want to support lower carbon production.
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But the physical product is not always available in the right place,
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volume, or timeframe. So it opens up
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this idea and very much linked to my work on insetting about
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engagement across supply chains and value chains and pooling blending and
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kind of linking up those geographies to ensure that
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they're not kind of constrained. So, you know, there's a load of different rules that
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we could bring in that, but ultimately it is funding the scaling and development
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of low-carbon commodities that you can't
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necessarily touch or integrate within your operations right
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now. Okay, that's, that's interesting. So would
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you then say that Although, how do I kind
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of say it, these things are important, direct action
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still comes first? Yes, yeah,
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yeah, and I think that's very much the same with the Energy Attribute Certificate,
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that it's part of that mitigation hierarchy, and I think the
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SBTi have kind of added a little bit more clarity and
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pushed that a little bit more in their Net Zero 2.0, which I'm sure we'll
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discuss in a little bit. Direct action and location-based work
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should always come first. Can you kind of sort this problem out at the source?
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Can you do it on your own properties, in your own operations?
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But then not everyone has access to those
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kind of those possibilities within their control.
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So someone might be pushing and have the budget or have the drive
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to be able to kind of scale these aspects.
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Let's take cement, for example, you might want to use low carbon cement within a
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building that you're creating, but that low-carbon cement is not available
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locally, it's available somewhere else. So that's where the value chain and
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insetting aspect opens up. You can fund someone else
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to be developing it elsewhere, but hopefully in the future you'll be able to
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do it on your own properties as well. Great plug for the Insetting podcast,
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by the way, and listeners should know that's one of our most popular podcasts actually.
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I think people have found that really helpful. So basically what you're
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saying is it's not about certificates going to solve Scope 3,
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Is it that they're going to become like a useful delivery mechanism,
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as you said? So you can't, you know, I guess
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I saw it in the ISCC stuff, you know, things are blended or they're not
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available here or there or whatever. But basically it's about you can't
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just say, I'm going to be able to buy, you know, low carbon steel,
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have it shipped to my factory here and use it. It's a way of kind
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of saying if that's not possible, there's still like a plan B.
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Exactly. Yeah. And I think that it's— it can help channel that
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demand and finance towards the lower carbon
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production and help scale it to the point that hopefully
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in the future you will be, you will be able to use it in your
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own factories or in your own locations. So it's very much a,
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um, it's very much a mechanism, um, and it's not—
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and I think it needs to be reported as well— it is not the environmental
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outcome itself. It's not a free pass. It is a development
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of a path to be able to decarbonize. And I think
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it kind of really supports global net zero, not just your own operational
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net zero. Cool. Yeah, that's good. So to
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try and just kind of like cement the terminology a bit,
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what is an environmental or commodity attribute certificate and
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how is it different from just buying,
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say, a greener product? So yeah, it's good to
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get the definitions correct. So I would say a commodity certificate
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is a third-party assured market instrument that
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kind of represents a defined environmental attribute or an of an
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underlying good, product, or service. So that could
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be steel, cement, fuel, fertilizer. I think we're seeing
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this a lot with SAF and HVO. And then the attribute
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that it's talking about might relate to kind of more a lower GHG
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intensity or other specifically measured environmental
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performance characteristic that can be defined to that specific
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product. But the majority of times we're talking about it, The attribute certificate
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means that it is of a lower carbon, it's a
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lower carbon version of a specific product. And I think,
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you know, if I was to physically buy lower carbon steel and
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receive that steel, the product and the
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attribute travel together, but there's a few different ways of doing it.
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So, you know, if you're able to buy it and actually have the physical
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commodity, Great, that's the dream.
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But in a kind of maybe more of a book and claim model,
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it's— that's where companies can fund or purchase the verified lower
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carbon attribute, even if they don't receive that physical
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steel. So they are still funding from it, they can make a claim against
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it, but they are not able to actually use it.
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And that's where that kind of physical segregation,
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it becomes impractical. Um, or where, you know,
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producer needs broader demand to finance that new capacity
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to develop it and be able to use that low-carbon steel in the future.
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So you're funding the ability for you to use it in the future. Okay,
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it's interesting. So I think that's something that, um, people kind
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of get, say, with electricity or biomethane, but it's interesting
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to see that it's kind of in, in, in other areas. That's good.
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Um, when we talk about certificates,
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I slightly what springs to mind is one of my
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former colleagues that I used to work with who would literally always
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question the value in, in some cases of certificates and what,
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what they are and what they do. So to use his words, um,
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so what does the certificate actually give the buyer?
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Well, having worked in the, uh, the voluntary carbon market for
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a long time, uh, yeah, get this, this question quite a lot, uh,
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Basically, it should give the buyer a defined reporting right.
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And it's not just a story that you're kind of doing something. It is a
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defined reporting right. It can be used
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to be credible. It needs production data. It needs a
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clear methodology of how the carbon, lower carbon
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has been calculated. There needs to be clear chain
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of custody rules. Where is it from? Where is it going? Who's going to be
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using it? Who's going to be claiming what? Ideally,
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and I think this is where this is developing in the environmental attribute certificate
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aspect, it will be linked to a registry and you would hope
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that it has third-party independent assurance as well.
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And again, these are the principles we laid out in the previous podcast,
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but ultimately it needs that backing data to be
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able to give whoever the buyer is or the funder the right
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to report and actually be able to kind of back that up with evidence
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behind it and that it's actually been attributed to
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you. Yeah, it is, it is proof
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that, that you have purchased this, you have funded it, and you have the right
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to report that lower carbon aspect.
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Okay, that's understood. So it sounds like the distinction between
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the environmental outcome and the reporting is
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quite central to all this? Correct,
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correct. And I would say, I will, I will give you a warning
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though, that the— and this, you know, this is a of
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the work that I do, a legitimate certificate can still be
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used to make an illegitimate claim. So even if you've
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done it all right, you can overclaim what is actually being kind
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of carried out and what you're doing. So it is really
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clear to link any claims to what that attribute
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and environmental outcome is. So, you know, I think
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that we've seen this across the sustainability work
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all over, you shouldn't be overclaiming. If you're overclaiming,
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you're making crazy claims up, you're going to get in trouble ultimately.
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Um, so, you know, I would, I would recommend testing the, the different instruments,
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you know, and defining what you're trying to do, why you're trying to do it,
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what are your targets, what's your GHG inventory, uh, what's— how are you going to
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account for this? Is it within your GHG inventory? Is it outside
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of it? You know, when we're thinking about Scope 2, you've got your location and
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your market-based inventories and reporting lines, for example.
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So it's, it's just make sure you've got all that defined.
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And then, you know, if any of those steps are weak,
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then that's where I would hold back
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a little bit on what you are actually trying to claim. Yeah. And I
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think I've sort of seen it with different, I suppose,
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different certificates and registries and things, you know, again, very limited
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in a sort of energy sphere personally. Recently, you look at some
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of them and you go, do you know what, that's really solid. Um, there are
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really well-defined rules there, you know, and, and how it's used and how it's
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transported and, and all these things and, you know, how it ships. And others are
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like, well, there's a certificate and it's held in a registry and it's fairly simple
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and it kind of worked. And it's like, is it fit for purpose today?
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And you know what, we could go on. We, yeah, we could, we could go
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on about that for hours and hours. Um, but what, what I
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was gonna— why I wouldn't love to talk to you is, um, if that's all
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right, is that I'm fairly sure a lot of listeners will
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be interested in your views on how
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this might link to SBTi. Yep. And particularly
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the shift in SBTi's corporate
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net zero standard, the so-called version 2.2. With this
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kind of context, what would you say is the practical change?
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I think, yeah, obviously we mentioned SBTi and Net Zero 2.0.
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I think that that has catapulted this a little bit more to the mainstream.
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People have been been doing this for a long time. People have been developing these
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kind of mechanisms for a long time. But the SBTi
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Net Zero 2.0, um, was obviously kind of released this year.
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They have— they released a draft consultation last
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year, and that's where they kind of put the term environmental
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attribute certificate into the public stratosphere,
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uh, and kind of put that in. Interestingly,
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they have taken environmental attribute certificate out
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of the final guidance. So they now refer to this as
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market-based instruments rather than environmental attribute certificates,
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probably due to the confusion with energy attribute certificates.
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But when kind of, I've kind of questioned them and pushed that we're
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talking about the same thing. And, you know, in my kind of wider conversations more
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recently during London Climate Action Week, for example, people are still using
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the term environmental attribute certificates.
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The discussion of what they are, how they're to be used, for example,
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is very much joining up the dots between targets and GHG
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inventories. You've got the GHG Protocol Actions
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and Market Instruments draft whitepaper that was released recently.
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And so we're seeing joint upthinking across GHG Protocol,
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ISO, SBTi Net-Zero 2.0. Specifically here,
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the practical change is that the Net
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Zero 2.0 standard gives energy and commodity certificates that
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defined guardrail role within the broader target implementation
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hierarchy. What that means without the jargon is just
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what are they? How can you use them to meet your targets? And I think
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that's huge because it just provides organizations a lot more options
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to actually be able to kind of reach their targets, and especially if they're
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in a kind of geographic geographical or value chain constrained point of view.
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So yeah, it allows organizations to kind of actually move forward with this
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rather than being constrained. We mentioned
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the mitigation hierarchy previously, and so that's what the SBTi Net Zero
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2.0 is given. It's given different levels, and obviously the push is always
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going to be for direct action on your own operations
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in your own value chain, etc. But in the
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SBTi Net Zero 2.0, it gives the activity level action,
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the activity pool section,
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and then the sector action. And that's different levels of how
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close to the actual low carbon
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aspect you can get. So that activity is reducing
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it within your own operations or in your identifiable value chain activities.
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That's the big push. The activity pool is kind of the smallest
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reasonable shared system connected to an activity.
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Such as a grid, a supply shed, or a logistics network.
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Let's take HVO, for example, or I've worked previously
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with the shipping industry and
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about kind of integrating biofuels into that. You can pay for
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someone to be able to utilize that biofuel, but you don't
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necessarily know if it has been used within the ships that you're
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funding or that are shipping your products, for example. But that
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is a defined system. Wider than that, you've got that
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sector action, and that's kind of pushing it up a little bit more,
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and the guardrails become a little bit tighter, but it's kind
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of taking the broader sector. So let's say you're in the steel sector, you're not
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defined to wherever you are sourcing steel from and how that is operating.
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You can be funding steel to be made in a low-carbon capacity
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somewhere elsewhere, claim it at the sector level, and then hopefully
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get it within your activity pool later on, and finally
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down to the actual activity level at the end.
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And one very exciting classification,
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and Russell, you and I were talking about this just before we started,
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but we've kind of been pushing the SBTi on how this
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works and where you report it, you know, market versus location-based
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GHG inventory reporting. And the SBTi
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have actually confirmed to us that the actions will contribute
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towards target achievement. Market instruments are reported separately,
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but can be used for target implementation subject to the criteria
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in Chapter 4 of the SBTi Net Zero 2.0.
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And I think that's quite exciting. That is, that is big news.
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And, you know, that's nice. Don't often get a breaking story on
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the podcast. So thanks for that. It's great.
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That's good. So basically, obviously,
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following up that, I would say bombshell, but following that, I'm guessing there
19:43.122 --> 19:45.859
are 2 disciplines here. So what you're saying is you follow the hierarchy.
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And keep the physical inventory separate from the additional
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implementation action. Is that right? Yes. And I think,
19:54.474 --> 19:58.308
you know, that, that's where the link with the GHG Protocol AMI draft
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white paper that is going to come out eventually is
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really coming to the forefront. We've learned a lot from Scope
20:06.109 --> 20:09.154
2, the market versus location-based aspects.
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And that's where I think we will see that split of location versus
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market-based accounting across all scopes.
20:17.558 --> 20:20.907
And that links in that mitigation hierarchy of activity level,
20:21.099 --> 20:24.512
activity pool, and sector. And that is
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kind of, as long as that is reported correctly
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across those 2 GHG inventory levels,
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then that is going to be demonstrating the action that can actually
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be happening and not pretending that you're doing everything
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within your own factory or your own office or wherever
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you are operating. So it is kind of providing both of it. But it's still
20:46.510 --> 20:49.994
saying you are carrying out decarbonization action.
20:50.653 --> 20:54.201
Yeah, but a skeptical question could be that does this not just create a
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loophole for companies that find direct action
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difficult? Sure. And I think, you know,
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there is— there's always loopholes, there's always issues, and there's probably someone who's
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always going to take a shortcut. But that's the risk. And that's why the evidence
21:10.162 --> 21:13.196
is the kind of key thing that matters. And we've seen
21:13.293 --> 21:16.408
this across loads of different kind of parts. But the evidence is
21:16.520 --> 21:20.885
really, really kind of key, and it's a structural constraint.
21:22.157 --> 21:26.617
You know, a structural constraint of not being able to source different materials becomes
21:27.117 --> 21:30.462
a label for kind of not being able to decarbonize. This helps
21:30.962 --> 21:34.696
push that forward, but then the requirement for that evidence makes— means
21:34.954 --> 21:38.355
that even though you're kind of not able to do
21:38.855 --> 21:41.821
it on your own site, you're purchasing it elsewhere,
21:42.631 --> 21:46.262
you can still make a claim, and that's going to push and engage organizations to
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actually do this rather than just saying can't do it, so I won't do it.
21:50.944 --> 21:55.261
Okay, that's really interesting. Um, so I think this probably
21:55.357 --> 21:58.102
wraps us up for part 1. Um, we still got a lot of stuff I'd
21:58.602 --> 22:01.199
like to, to go through with you for, for kind of like— I talk too
22:01.215 --> 22:05.163
much. No, no, no, this is really interesting. It's useful. It's good. It's good.
22:05.660 --> 22:08.389
So, um, yeah, Xander,
22:08.453 --> 22:11.984
thanks so much for coming and doing, uh, or starting to talk about
22:12.484 --> 22:15.786
this. Really appreciate it. Um, anyone who's listening, If this has been
22:15.995 --> 22:19.522
exciting, stay tuned because part
22:20.022 --> 22:23.034
2 will talk about some more about why this kind of stuff's moving up the
22:23.534 --> 22:27.026
agenda. You know, some actual real examples
22:27.219 --> 22:30.842
from, from sectors and the value of book
22:31.342 --> 22:34.803
and claim, talk about commodity certificates and carbon credits,
22:35.957 --> 22:39.405
integrity claims and what good looks like, and close
22:39.905 --> 22:42.467
up then perhaps with some practical steps. So yeah,
22:42.708 --> 22:46.229
Xander, once again, uh, massively appreciate you, you coming
22:46.729 --> 22:48.994
and joining me. Thank you. Thank you very much for the time,