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Sustainability now: Inside the GHG Protocol’s Scope 2 changes · PwC's accounting podcast

0:00
SPEAKER_00: Thought leadership from PWC's national office.
0:09
SPEAKER_02: Hello, I'm Heather Horn, PWC's U.S.
0:13
SPEAKER_02: Sustainability Technical Leader, and welcome back to PWC's Accounting Podcast.
0:18
SPEAKER_02: This is Sustainability Now.
0:20
SPEAKER_02: In today's episode, we're focusing on the GHG Protocol's first major recent update.
0:26
SPEAKER_02: It's recently released public consultation on scope two.
0:29
SPEAKER_02: To walk through these changes, I'm happy to be joined by Colin Paul, PWC Canada partner and a member of the GHG Protocol Scope 3 technical working group.
0:39
SPEAKER_02: A couple quick notes before we get started.
0:41
SPEAKER_02: If you're listening to this podcast and would like to watch instead, please check out the show notes for a link to the video, as well as other resources on GHG reporting, including two prior episodes with Colin, as well as a recent episode with Paul Muncher, a member of the GHG Protocol's Independent Standards Board, covering the modernization of the GHG protocol, including the scope two guidance.
1:04
SPEAKER_02: All right, with that, we have a lot to cover today.
1:06
SPEAKER_02: So let's get started.
1:07
SPEAKER_02: Colin, welcome.
1:09
SPEAKER_01: Thank you.
1:09
SPEAKER_01: Thank you.
1:10
SPEAKER_02: I appreciate having you here today.
1:11
SPEAKER_02: So this is a big change.
1:14
SPEAKER_02: And I think there was a huge amount of interest when the exposure draft came out.
1:18
SPEAKER_02: Definitely a very quick timeline because it came out October 20th.
1:22
SPEAKER_02: And for those of you who are planning to comment, uh comments are due December 19th.
1:26
SPEAKER_02: So we got to get this episode out quickly to educate people.
1:31
SPEAKER_02: And, you know, in today's episode, we're we will mostly focus on what's in the proposal, and then maybe we'll have to do a follow-up one once PwC submits this letter.
1:42
SPEAKER_02: But I'm sure people are dying to know what reaction you're hearing in the marketplace.
1:46
SPEAKER_02: So just any initial reactions that you've heard from clients.
1:50
SPEAKER_01: Yeah, I think uh from a broad spectrum of clients, those who report under scope two, local location based.
1:55
SPEAKER_01: And then I think especially those who do market-based now is just a recognition of a big, big change.
2:01
SPEAKER_01: Um, there's been a huge shift.
2:03
SPEAKER_01: And I think, I mean, people expected this to come ultimately, like the the guidance is is quite old, and so and and and the standards attached to it.
2:10
SPEAKER_01: So there is an expectation of a of a revision.
2:14
SPEAKER_01: I think this big of a revision maybe was a bit of a surprise, ultimately.
2:19
SPEAKER_02: Yeah, and I think I mean it's really interesting because we've been spending, you know, since it came out, but particularly in the past few days, really studying the questions and the proposal, and there are a lot of changes.
2:30
SPEAKER_02: So maybe just jumping into the detail and then maybe I'll come back with some questions.
2:34
SPEAKER_02: Uh, I would say the the maybe one thing that stayed the same is we still do have location-based reporting and market-based reporting.
2:42
SPEAKER_02: So, from that point of view, the terminology is familiar, but even the definitions are quite a bit different.
2:48
SPEAKER_02: So, what would you, from your perspective, what are some of the biggest changes within that structure?
2:54
SPEAKER_01: Yeah, and they they did keep the two, uh, the dual reporting structure, but I think the aim overall was to really tie like a kilowatt hour of energy to the actual generation at the end of the day.
3:05
SPEAKER_01: Um, and you can see that intention behind a lot of the changes, um, which is which is really admirable because I think the previous Scope 2 quality criteria could left a lot of room for interpretation.
3:17
SPEAKER_01: Um, I was having a discussion today with a client that was just asking, like, when can I buy a rec to and when do I have to apply that kilowatt hour?
3:24
SPEAKER_01: And I think the changes as they're proposed provide a lot of clarity to that.
3:29
SPEAKER_01: Um, we'll talk about feasibility and implementation later, but ultimately that's the big difference, right?
3:33
SPEAKER_01: Um, location is really meant to location base is meant to define the geography that it's coming from and the time.
3:39
SPEAKER_01: And then market base is meant to reflect what's actually happening and they're procuring in terms of the contracts.
3:44
SPEAKER_02: Yeah, and again, I think directionally, even if I look back at PwC's 2023 letter, which we were looking at, directionally, we actually agreed with all of this.
3:53
SPEAKER_02: I think then it does come to some of these feasibility questions.
3:57
SPEAKER_02: One thing though, before we get into the detail that actually we were talking about earlier, is the whole document starts by defining, or they say redefining the purpose.
4:08
SPEAKER_02: And so they give a purpose for location-based and a purpose for market-based.
4:12
SPEAKER_02: And we were talking about this because actually, once you agree the purpose, it should help drive some of what's happening in more detail.
4:20
SPEAKER_02: And so, was that something that you were surprised to see, or what's your view in terms of the helpfulness of those questions?
4:27
SPEAKER_01: I think that was that's been common across all the uh technical working groups, as I understand it, is there was really an intention behind revising the purpose and the objectives of these standards.
4:38
SPEAKER_01: And there was time, I think on the scope three one, there was two meetings of just discussing and revising the objectives of that standard, right?
4:45
SPEAKER_01: And so I think that I mean, that's helpful.
4:47
SPEAKER_01: That's what I would talk about with my clients if we're doing strategy, is just like to talk about it from a very high level allows the details to come and you're referenced back.
4:56
SPEAKER_01: And I think it also points to the way that they were um they developed the decision-making criteria, and you'll see this like through the document, is they're really trying to balance the different aspects of scientific integrity, accuracy, uh, feasibility, comparability throughout the document.
5:12
SPEAKER_01: Um, and so you see some maybe some tip toward uh uh say integrity or accuracy, and sometimes tip toward um feasibility.
5:20
SPEAKER_01: And so I think that broad objective perspective is a good one to have.
5:24
SPEAKER_01: And I think then redefining these things to just be a bit more clear was necessary.
5:28
SPEAKER_01: Yeah.
5:29
SPEAKER_01: But the prescription throughout the document is very, very clear.
5:32
SPEAKER_02: And I guess, Colin, one thing you did mention this decision-making hierarchy in one of our past podcasts, but I I think it is interesting to reflect on because if you look at it, it is different than some of what we consider, you know.
5:46
SPEAKER_02: I think uh reporters would be used to like qualitative characteristics of information, is what we think about for ESRS or for reporting under the ISSB standards.
5:55
SPEAKER_02: And here, as you mentioned, there are these other criteria.
5:58
SPEAKER_02: And uh I was reading a blog post that was talking about some of this hourly matching, and it was very focused, it was from a not-for-profit, and it was very focused on uh the decision-making criteria, and they mention that decision-making criteria will be considered when they're reflecting on comments.
6:15
SPEAKER_02: So, again, before we get into the detail, if companies are considering commenting, how important do you think it is to tie the comments back to those criteria and any other perspective on the criteria?
6:27
SPEAKER_01: I think, I mean, I said this today to a client and they were asking how how I should frame my responses.
6:31
SPEAKER_01: I said use the decision-making criteria, because that's the lens that's been used so far.
6:36
SPEAKER_01: It's also the lens that the ISB is taking to comment on the changes that's cut that have come from the technical working group.
6:42
SPEAKER_01: So I think it's a very important lens.
6:43
SPEAKER_01: Whether you want to focus very much on one of those decision-making criteria, that's okay, I think.
6:48
SPEAKER_01: Yeah.
6:48
SPEAKER_01: As long as you're understanding that's the lens through all of these, all of through which the decisions will be made, it's a good way to frame comments.
6:55
SPEAKER_02: All right, that's very helpful background.
6:57
SPEAKER_02: So, with all of that, then why don't we get into some of the detail since we've teased this already?
7:01
SPEAKER_02: Let's start with location-based.
7:03
SPEAKER_02: Uh, and starting with they have a new emission factor hierarchy, which I have a few questions about, but why don't you start by talking about sort of the big changes in that hierarchy?
7:14
SPEAKER_01: Sure.
7:14
SPEAKER_01: And so there's there's ultimately uh three dimensions to it.
7:17
SPEAKER_01: Um, one is based on geography, then one is based on time, and then one is based on production versus consumption.
7:24
SPEAKER_01: Um, and so the ultimately it's meant to drive companies to use the most granular, so the most gross granular, like to the grid you're purchasing from, um, the most granular in terms of time.
7:36
SPEAKER_01: So there's an hourly, there's a monthly, and there's an annual, and then to focus really on what's being consumed at the level of the um the reporting company.
7:44
SPEAKER_01: So consumed being more granular than produced.
7:47
SPEAKER_01: Um the push ultimately is to get companies to report on an hourly basis of that kilowatt hour, right?
7:53
SPEAKER_01: So if you have the ability to report every hour, you're gonna meet that criteria.
7:58
SPEAKER_01: Um, and ultimately it's meant to track that more specifically, right?
8:01
SPEAKER_01: So if I if I have the ability to really understand what's going on in my market, um I can meet that uh particular requirement.
8:07
SPEAKER_02: Let me ask about the consumption data first, and then I'm gonna come back and ask some questions because I think you need to understand both.
8:13
SPEAKER_02: So they they have the hierarchy for the emissions factors, but there's also a hierarchy for the consumption data, or we would say activity data.
8:21
SPEAKER_02: And so what is that hierarchy look like?
8:24
SPEAKER_01: Yeah, it does follow it pretty closely again.
8:27
SPEAKER_01: Um, like the aim is to really understand if whatever your consumption is.
8:31
SPEAKER_01: So if I can break it down to 9 p.m., 10 p.m., 11 p.m., that's the ideal situation.
8:36
SPEAKER_01: That is the best um activity data you can get.
8:38
SPEAKER_01: But there's an understanding that's probably quite limited.
8:41
SPEAKER_01: I know my own utility bill does not give me that data.
8:43
SPEAKER_01: I know a lot of my clients, they do not get that data.
8:46
SPEAKER_01: Um, so there is an expectation that maybe the data doesn't exist.
8:49
SPEAKER_01: Um, but there are parts of the uh exposure draft that talk about ways to model it.
8:55
SPEAKER_01: Um so can you model um, say, uh a company or a building's electricity load using a typical load for that industry?
9:04
SPEAKER_01: Or if you have one building's load that is hourly, can you apply that to a building in which you don't have an hourly breakdown of electricity consumption?
9:11
SPEAKER_01: So they have tried to provide a little bit of um relief in that sense.
9:15
SPEAKER_01: So you're allowed to model it.
9:17
SPEAKER_01: But again, it all it all falls back on like the intention here is to get as granular as you can in terms of the um consumption and then match that with an emission factor that is as granular as possible.
9:28
SPEAKER_02: Yeah, and one thing that really stood out to me on this is that when you look at the emission factor guidance, there's a lot of shells and basically start with the the most, most detail and then down to like an annual factor for the best location you can.
9:41
SPEAKER_02: But in sort of the the notes almost is if the only factors available are from not the same period, then it says, okay, use an annual factor.
9:51
SPEAKER_02: And so it's almost like, okay, either use, I think we were doing the math, it's like 8,000, almost 9,000 uh for the year and the hours, or use one for the annual period.
10:01
SPEAKER_02: And we thought that was interesting because there are obviously middle grounds.
10:05
SPEAKER_02: You could use monthly because that's seasonal.
10:08
SPEAKER_02: So again, I think as companies are thinking about this, I think this question is is it the right balance between the data that is available?
10:17
SPEAKER_02: Because again, one of the big issues we're dealing with right now from a reporting perspective is the delays in receiving emission factors.
10:24
SPEAKER_02: And then this is saying, okay, well, it's actually use hourly.
10:28
SPEAKER_02: So, and then also to your point on hourly consumption data, uh, I was talking to Martin Olawinsky, who many of our listeners will know.
10:35
SPEAKER_02: So he does have hourly data.
10:36
SPEAKER_02: He was reading it to me this morning.
10:39
SPEAKER_02: Um, but you know, to your point, a lot of companies don't.
10:41
SPEAKER_02: And then is the company that does almost being penalized?
10:46
SPEAKER_02: Because if you have it, you're in this, you have to use it.
10:50
SPEAKER_02: So I think that's gonna be some of the things companies need to think about as this balance of is this additional detail actually providing more information?
10:59
SPEAKER_01: Yeah, and I wonder um it within the working group deliberations, like I imagine this is a bit of a push on some of the utilities as well to provide that granular data.
11:07
SPEAKER_01: Because it, I mean, it's obviously available in some systems somewhere.
11:11
SPEAKER_01: Yes.
11:11
SPEAKER_01: Whether or not the actual purchaser of the energy can see that, that's a big question.
11:16
SPEAKER_01: Um, and so I wonder if this is a bit of a nudge to say, like, hey, you know, that you're you're part of this as well.
11:22
SPEAKER_01: Um, and so there'll be a push to say, okay, actually, I know I can get um hourly emission factors, but like I also so that means I actually I want my yeah hourly activity data.
11:32
SPEAKER_01: Yeah, and and ultimately, I mean, there's some interesting things in the exposure draft because they they said they did an analysis of CDP companies and that only some of them would actually hit that threshold or a proposed threshold to actually have to do that hourly stuff.
11:46
SPEAKER_01: So so it's an interesting piece.
11:48
SPEAKER_01: Like they they it seems like they put some work in understanding how many companies it may affect within a CDP database, but it really does depend on that um exemption threshold, which they've been talking about.
11:58
SPEAKER_02: Yeah, and I think we'll come back to the exemptions and like philosophically how you think about exemptions and and scaling of this.
12:05
SPEAKER_02: But again, I think from a company perspective, understanding this leap from annual times one for one location to potentially this hourly.
12:17
SPEAKER_02: And do you think this modeling is again providing more information?
12:21
SPEAKER_02: I think in some cases, definitely, I think companies will think yes, and other cases maybe less so.
12:28
SPEAKER_02: Yeah.
12:28
SPEAKER_01: And it's, I mean, ultimately, what information is it providing to like an investor?
12:33
SPEAKER_01: Um, whether you're gonna model your building using a typical electricity load, like or or not, or use an annual figure.
12:40
SPEAKER_01: Like, is that is that really adding a lot of information?
12:43
SPEAKER_01: We'll see.
12:44
SPEAKER_02: Yeah, yeah.
12:45
SPEAKER_02: And then from your perspective, what are some of the challenges you're seeing from companies?
12:49
SPEAKER_02: And maybe what are some of the things companies like that you've heard as well?
12:52
SPEAKER_01: I think we'll start with the the latter.
12:54
SPEAKER_01: The the like part is there was a now a definition of accessible within the document.
12:58
SPEAKER_01: Um, and so there's a discussion of you're you're supposed to use emission factors that are accessible.
13:03
SPEAKER_01: So they're free, easy to use, and from like very public sources.
13:06
SPEAKER_01: And so there's no expectation that you'll have to go purchase a uh a database uh for electricity emission factors.
13:13
SPEAKER_01: Um the word free is in there, which is quite helpful to a lot.
13:16
SPEAKER_01: Yeah.
13:16
SPEAKER_01: Um, because I think there was an expectation that the granular level would require some sort of database subscription or um extraction of data from some systems that would just add a add a burden ultimately to the reporting process.
13:28
SPEAKER_01: So that was a nice thing to see, I think.
13:31
SPEAKER_01: Um, because also it wasn't really clear in the original scope two what that meant.
13:36
SPEAKER_01: Yes.
13:36
SPEAKER_01: Um, and so it was, I think that was like a clear, okay, we need to do this tech.
13:40
SPEAKER_01: Uh let's check that box.
13:42
SPEAKER_01: Um, in terms of concerns, again, it's just, you know, what is the added burden to the reporting company ultimately to do this work?
13:48
SPEAKER_01: Um, them to review, you know, what is the what are the available emission factors?
13:53
SPEAKER_01: Where can I get uh hourly activity data?
13:56
SPEAKER_01: Does that differ for every single building that I have in my portfolio?
14:00
SPEAKER_01: Um, it just it will likely add um at least a first round of additional burden to the companies just to be able to see what's available and then apply an approach to um to the reporting.
14:13
SPEAKER_02: Yeah, we were talking about the exemptions and we'll get to them later, but the exemptions are more for smaller companies.
14:19
SPEAKER_02: And in some ways, this is actually going to be a much, much bigger challenge for large companies with a lot of locations.
14:25
SPEAKER_02: So it's it's interesting, you know, when you think about it from that direction.
14:29
SPEAKER_02: So then, Colin, if we turn our attention to market-based, uh what I guess again, big picture.
14:36
SPEAKER_02: What was the philosophy that they were trying to follow when they set up these new rules?
14:41
SPEAKER_01: Yeah, I mean, I think uh the previous, say, quality criteria were still quite ambiguous, right?
14:47
SPEAKER_01: Like I think I've I've had a lot of conversations with um our audit teams on how do I audit a market-based um uh scope too.
14:54
SPEAKER_01: And I think I had a conversation yesterday, again, I said, I think I said this, like, when when can I procure a rec and when can I apply it?
15:01
SPEAKER_01: Uh and and the um the previous quality criteria says as close as possible to the time, right?
15:07
SPEAKER_01: And so I think there's been um a push to just provide more prescriptive guidance under those criteria, which I think I think everyone welcomes at the end of the day.
15:16
SPEAKER_01: Um, so they've really focused on looking at um the the like same market question.
15:22
SPEAKER_01: Like, are you matching your uh market-based instrument with something that's actually happening in the same market?
15:27
SPEAKER_01: So there's a lot more prescriptive guidance in this exposure graph, which I think most of us welcome.
15:32
SPEAKER_01: There is an interesting, I mean, the level of details they go into on the actual markets is actually quite interesting, where they're saying, like, in this country, these are the this is what I would say is uh local.
15:43
SPEAKER_01: This is what I would say like is uh the independent system operator.
15:46
SPEAKER_01: Like they're adding that detail.
15:47
SPEAKER_01: Um, I don't know if they're gonna have one of those for every single country.
15:50
SPEAKER_01: Yeah, I think that is the intention because they certainly name a lot of them, um, which I think a lot of people will welcome.
15:56
SPEAKER_01: It's just um whether you're able to assign your particular consumption to that um to that like level of granularity, I think is a big question.
16:05
SPEAKER_02: Yeah, and I think it's interesting with this prescription because that's actually something we were talking about.
16:10
SPEAKER_02: And anytime we see this in accounting standards or in these types of standards, how quick can that go out of date?
16:17
SPEAKER_02: Yeah.
16:18
SPEAKER_02: And and so at a minimum, you know, can we give the criteria and then give examples?
16:24
SPEAKER_02: Or as of the state, this is what we think about some sample markets, because I think we had a big concern, um, and we see this with the current corporate standard, that there were changes and accounting in that case, that now the standard's out of date and and sort of what do you do?
16:39
SPEAKER_02: And so I don't think we want to be set up to already be obsolete from out of the gate, especially given how quickly electricity markets can change.
16:47
SPEAKER_02: So it is interesting to your point, though, there's a lot of prescriptiveness or a lot of description uh in in this um this exposure draft.
16:58
SPEAKER_02: Maybe I think it would be helpful for our listeners.
17:01
SPEAKER_02: So if we're thinking about market-based, we're really talking about applying contractual instruments that you know that you've procured to lower your theoretical emissions.
17:12
SPEAKER_02: And it is interesting, they go from the terminology of you said RECs, renewable energy credits, they're called um, you know, emission allowances in other places or otherwise, to now just saying contractual instruments.
17:24
SPEAKER_02: And I think that is a helpful change because it's much um you know more inclusive.
17:30
SPEAKER_02: But what are they proposing from the hierarchy of what's required for those contractual instruments?
17:37
SPEAKER_01: Yeah.
17:38
SPEAKER_01: And so uh ultimately the the matching piece comes up.
17:42
SPEAKER_01: Um as the location base is moving towards you know hourly being the best for an activity data and for um for an emission factor.
17:49
SPEAKER_01: The intention here as well is that for those large larger companies that are above the exemption thresholds, um, should they stay, you'll have to have hourly matching of uh your consumption with a contractual instrument.
18:02
SPEAKER_01: And so that is a massive, massive change.
18:04
SPEAKER_01: Um, although some companies are already doing this, some of the bigger um tech companies have been doing this for years.
18:10
SPEAKER_01: And I think that's probably where a lot of this is coming and saying, hey, we've been doing it.
18:14
SPEAKER_01: Yes, so so other people can be doing it.
18:17
SPEAKER_01: Yes.
18:17
SPEAKER_01: Um and so that is just an absolute change that we will see a lot of um uh I guess concern over.
18:24
SPEAKER_01: Um and the big question is around feasibility, because how is that even possible?
18:28
SPEAKER_01: Is the market set up for that?
18:29
SPEAKER_01: Are different markets around the world set up for that?
18:32
SPEAKER_01: Um, and that is a lot of the discussion within the document of like geographical disparity and it be able to be being able to meet this.
18:38
SPEAKER_02: Yeah.
18:38
SPEAKER_02: And then one thing that's interesting is that when we talked about location-based, you talked about the hierarchy, but if the hourly is not available, you're not forced to go to hourly.
18:47
SPEAKER_02: You can use these load profiles, but you're not required to.
18:51
SPEAKER_02: In this case, you're actually required to allocate to hours, and there's different ways you can do it.
18:57
SPEAKER_02: I think for listeners' benefit, a load profile is basically saying either for that market or for a typical company, you usually use electricity in these hours, so spread it that way.
19:08
SPEAKER_02: I think this allows also averaging, but it doesn't give you any ability to not.
19:13
SPEAKER_01: Yeah, exactly.
19:14
SPEAKER_02: Um, and I think that does raise a question because, you know, in even in the US right now, recs are not assigned hourly and the markets aren't set up.
19:24
SPEAKER_02: They're moving.
19:25
SPEAKER_02: They some are experimenting, and I think they're at various stages, but you know, that I think how ambitious um the GC protocol should be in pulling the markets versus what's possible for companies is an interesting question.
19:41
SPEAKER_01: Yeah, and I think I mean it really does depend on the market.
19:44
SPEAKER_01: And I think, I mean, thinking of Canada selfishly, the the markets are quite regulated.
19:48
SPEAKER_01: And so uh an hourly PPA or an hourly rec is probably not gonna be available to most companies in Canada.
19:55
SPEAKER_01: And I would say a lot of companies or sorry, a lot a lot of countries around the world would have the exact same thing.
19:59
SPEAKER_01: And so, how how pulley can the GHG protocol be in in markets where it just is not a thing that exists, right?
20:06
SPEAKER_02: Yeah, and I'm gonna skip ahead and then I want to come back to this because you talk about regulated markets.
20:11
SPEAKER_02: And one of the things included here that I really personally find interesting is they do have now a provision for like a standard supply.
20:19
SPEAKER_02: And this is basically, I'm gonna be very simplistic that if you get your power from your local regulated utility and that utility is procuring renewable power, you effectively get to take a share of it.
20:32
SPEAKER_02: And I think that is actually probably welcome for a lot of companies, particularly who are using, you know, you talked about Canada.
20:39
SPEAKER_02: Okay, well, if all the recs are tied up, but you I was looking at a map of Canada today.
20:44
SPEAKER_02: There's some provinces that's practically all green anyway.
20:48
SPEAKER_02: Yeah.
20:48
SPEAKER_02: And so then, you know, you're able to take credit for that.
20:52
SPEAKER_02: Um, maybe even, you know, it's also in some extent air location base, but this also takes into account some imports and exports and things like that.
21:02
SPEAKER_02: So I don't know your view on that standard supply.
21:05
SPEAKER_01: It's it's welcome.
21:06
SPEAKER_01: And I think uh it's been a question commonly amongst uh our clients.
21:09
SPEAKER_01: I'm sure we're not the only country getting these questions of like how much credit can I get?
21:13
SPEAKER_01: Yes.
21:14
SPEAKER_01: Haven't you seen our grid mix?
21:16
SPEAKER_01: Um it's like, yes, that's fair, but you're actually not really allowed to do that in the current structure.
21:21
SPEAKER_01: So I I think this is a bit of a uh you've seen these throughout the document, a bit of a relief to some with the implementation.
21:28
SPEAKER_01: So I I do like seeing it.
21:30
SPEAKER_01: I like the way it's framed.
21:31
SPEAKER_01: They gave a good example.
21:32
SPEAKER_01: Um it's it's well described.
21:34
SPEAKER_01: So uh I'm I'm glad it's there.
21:36
SPEAKER_02: Yeah, I I know I said we weren't gonna weigh in, but this one I think is a change that you if you understand the way these markets work, it's it's it's almost obvious that something like this was needed.
21:47
SPEAKER_01: It's meeting the market, I think, and meeting the expectations of the market.
21:50
SPEAKER_01: Um I think generally it'll be well understood.
21:52
SPEAKER_02: Yeah, I think so too.
21:53
SPEAKER_02: All right, let me rewind for a moment because we talked a bit about this matching, but I think perhaps even the bigger thing with REC.
22:00
SPEAKER_02: Is this deliverability criteria?
22:02
SPEAKER_02: So you talked about the fact that the existing criteria, I'll use sort of a bit loose, and people define, you know, if it's in the same market very, very loosely.
22:12
SPEAKER_02: Now it will be much different, including very specific criteria about whether or not it can be delivered.
22:18
SPEAKER_02: And so can you just share a bit about what's being proposed?
22:22
SPEAKER_01: Yeah, I mean, it is ultimately just being more prescriptive about those things.
22:25
SPEAKER_01: And because I think that that same market, that deliver deliverability piece was very, very fuzzy before.
22:31
SPEAKER_01: Um and so they do break it down into a hierarchy again of how they're going to define that, um, what that same market is.
22:38
SPEAKER_01: Um, I do think that the top one, the most granular one, is probably a bit more harder for most to meet at the end of the day.
22:44
SPEAKER_01: And so you just may not see that much uh approach, I guess, in the in the coming years, like using that, using that approach ultimately.
22:51
SPEAKER_01: Um, you do see a breakdown of independent system operator.
22:54
SPEAKER_01: Um, e-grid is in there, like you're you're seeing the words that you should expect to see.
22:59
SPEAKER_01: Um, and so the approaches I don't think are that going to be that um challenging to me at the end of the day.
23:04
SPEAKER_01: I think it just is providing more prescription around what it means.
23:08
SPEAKER_01: Um and so I think that actually may pull the market a bit because you know you see a recs from Green E, they're they're quite broad.
23:15
SPEAKER_01: You know, they say Canada and the US are the same market.
23:17
SPEAKER_01: Yeah.
23:18
SPEAKER_01: And and I and the the document itself, the exposure draft, doesn't go that far because it actually is prescriptive, but it allows you to kind of move throughout the the definitions, which say like, oh, there's interconnections, oh, there's import-export.
23:30
SPEAKER_01: So there is like a relief in it, but also just a bit more prescription at the end of the day.
23:34
SPEAKER_02: Yeah, and again, I think from a listener point of view who hasn't been as focused on electricity markets, I think very simplistically it means that if the power from that uh facility that generated the renewable credit, um, is there a way for that power to actually physically get to you?
23:52
SPEAKER_02: And again, understanding that power is amorphous once it goes into the grid.
23:56
SPEAKER_02: But I think right now we see cases where there's wrecks from markets that are completely um disparate.
24:02
SPEAKER_02: Yeah.
24:02
SPEAKER_02: And so then there's not that physical possibility.
24:05
SPEAKER_02: This is raising the bar.
24:06
SPEAKER_02: And I again, I think that's something, you know, that there have been a lot of push for.
24:11
SPEAKER_02: One thing that's interesting though, is that they did issue at the same time a proposal around consequential amendments.
24:19
SPEAKER_02: And I don't want to get into too much detail on that, but it what that's really saying is I'm gonna be extremely simplistic here, is that if a new renewable facility is going into place, is it actually lowering overall grid emissions?
24:34
SPEAKER_02: So it might be helpful to the company who put in place, but overall, maybe that means you have to put on more base load or otherwise.
24:41
SPEAKER_02: And what we were talking about is with this deliverability criteria, it's almost like a disincentive to make sure that it's overall reduction versus, hey, I'm actually gonna make an investment in another country that's almost coal-fired, almost all coal.
24:58
SPEAKER_02: And overall, it's actually more helpful.
25:01
SPEAKER_02: And so that I think is a push.
25:03
SPEAKER_02: They do ask some questions around impact accounting, but I don't know if that's anything that's come up at all in the discussions you've had so far with clients.
25:12
SPEAKER_01: I think so.
25:12
SPEAKER_01: It's probably less on the minds of most of our clients at the end of the day.
25:16
SPEAKER_01: Um for some, where we see it being impactful is um, say, sustainability link loans and where they're seeing impacts from calculating impacts from that.
25:25
SPEAKER_01: Um, where larger banks are offering that, you know, maybe it's a green building, maybe it's an electricity generation project, and they're able to calculate that.
25:32
SPEAKER_01: And now there's a methodology for it under that approach, where they've been using probably not so standard things, but ultimately I find that's the least of our of the worries that yeah, completely agree.
25:44
SPEAKER_02: I just I do think it's interesting because it does interrelate from the point of view of like if you get so focused on deliverability, it's taking away from that.
25:54
SPEAKER_02: And it's it will be interesting to see if if people do comment on that, who is commenting on that, and then how it relates to then these criteria.
26:03
SPEAKER_01: So it goes to the balance, I think they're trying to strike as well.
26:06
SPEAKER_02: Yeah, I think this is extremely tough a task.
26:10
SPEAKER_02: Because again, if you look at their big picture talking about scientific integrity and otherwise, they're balancing a lot of pieces.
26:18
SPEAKER_02: Okay, let me ask you about a couple more things that we see changed in market method that I think were broadly welcomed as well.
26:26
SPEAKER_02: One is on the residual mix factors.
26:28
SPEAKER_02: There's some change in calculation, but we don't need to go into too much.
26:31
SPEAKER_02: But I think the bigger thing is what happens if you don't have a residual mix.
26:36
SPEAKER_02: Yeah.
26:36
SPEAKER_02: So can you briefly describe what residual mix is and then what this new default is?
26:40
SPEAKER_01: Yeah, so residual mix basically is when you have uh an emission grid factor that basically any contractual instrument has been removed from.
26:47
SPEAKER_01: So they've been already assigned to other folks.
26:50
SPEAKER_01: And so the calculation would be that.
26:52
SPEAKER_01: Um the the calculation approaches, uh, there's not really a standard one.
26:56
SPEAKER_01: Um, some jurisdictions do actually uh publish them.
27:00
SPEAKER_01: So you can find them for Europe.
27:01
SPEAKER_01: You can now find them for the US.
27:03
SPEAKER_01: Uh you cannot find them for Canada, speaking selfishly.
27:06
SPEAKER_01: So we have like, you know, it's a bit of a mixed bag.
27:08
SPEAKER_01: Um, but ultimately if the if the number exists, you should be using it.
27:12
SPEAKER_01: If you don't procure recs for your market-based instruments.
27:15
SPEAKER_01: And so what they've done now is said, well, first of all, they're saying, okay, we'll try to match hourly again to try to get to that point.
27:22
SPEAKER_01: But if there isn't one for your market, you'll basically um calculate a fossil, fossil fuel only calculate uh emission factor.
27:29
SPEAKER_01: And so just remove the um any of the the zero emission electricity and calculate that number.
27:36
SPEAKER_01: If you can't do that, try to pick a default number uh for the prime like fossil fuel for your for your jurisdiction.
27:43
SPEAKER_01: So it's really just focusing on one of the higher emitting um uh generation sources within that market that you're procuring from.
27:50
SPEAKER_01: And that's your that's your number ultimately.
27:52
SPEAKER_02: Yeah, and I think really the purpose here is to make sure that there's not like a double counting where people who didn't buy the recs are still effectively getting credit uh for them because that residual mix factor would pull the benefit of all that uh zero emissions energy that has been sold to someone out.
28:11
SPEAKER_02: Yeah.
28:11
SPEAKER_02: So it's it's it interesting.
28:13
SPEAKER_02: I mean, I think we welcomed this when we saw it.
28:16
SPEAKER_01: Yeah, yeah.
28:16
SPEAKER_01: It makes sense to me.
28:17
SPEAKER_01: Yeah.
28:18
SPEAKER_01: Because even when you when you fall back on the location-based approach, which is what it's what it is now, yeah, ultimately it's not the right answer.
28:24
SPEAKER_01: So this is at least closer to a more right answer.
28:27
SPEAKER_01: Yeah, yeah.
28:28
SPEAKER_02: And again, I think looking at the practical how they're proposing it, so I would still need to, it's just directionally, I think this is more uh will provide better information, I think, in the end.
28:38
SPEAKER_02: So that'll be interesting to see.
28:40
SPEAKER_02: Now, we've talked about this briefly, but there are some provisions, both exemptions and then legacy clauses that are intended to ease, I'd say, application, specifically talking about the exemptions.
28:54
SPEAKER_02: You know, most of them around if you're small, you don't have to do the same thing.
28:59
SPEAKER_02: I I don't know.
29:00
SPEAKER_02: I'm assuming the clients you're talking to are not focused on those exemptions.
29:04
SPEAKER_02: But is that something that you would expect to see in all of these standards as they come out?
29:08
SPEAKER_02: Is there a lot of focus on this?
29:10
SPEAKER_01: Or that's why it was a bit of a surprise to me, honestly.
29:13
SPEAKER_01: Um, because it hasn't been discussed at all in the scope three technical working group.
29:18
SPEAKER_01: I assume it hasn't really been discussed in the corporate standard because it is a standard for all companies, right?
29:23
SPEAKER_01: It is meant to be that go-to how corporates are accounting.
29:27
SPEAKER_01: And so it's interesting to see the protocol instill some sort of threshold.
29:33
SPEAKER_01: Um because I mean, if you practical application of it, if I have to report under California and I have to use the GSU protocol, am I now don't have to report or am I now subject to the protocol's thresholds or or does CARB have a threshold that I have to meet?
29:49
SPEAKER_01: It's it's almost a bit confusing not to provide no personal comment on this, but it was that why it was surprising to see it.
29:56
SPEAKER_02: We had a similar conversation that again, it's the standard or sorry, it's actually regulators that should be giving any exemptions, basically.
30:05
SPEAKER_02: So that the protocol which should just be sort of one size fits all.
30:10
SPEAKER_02: And then if a local regulator wants to say, okay, this size company can disregard, yeah, that would at least be again an initial reaction to that.
30:19
SPEAKER_01: And that that's why I preferred to see some of the more like um implementation uh uh I guess thresholds or implementation relief where you know you can use a uh prescribed load profile or a typical load profile, which makes things a bit easier on you to implement, not so much, you know, who it's going to affect.
30:37
SPEAKER_01: Um and I we had these discussions in the scope three group as well.
30:40
SPEAKER_01: It's like a little bit of when does the actual standard take effect?
30:44
SPEAKER_01: And they do talk about that as well.
30:46
SPEAKER_01: They talk about transition releases.
30:47
SPEAKER_01: Yes.
30:47
SPEAKER_01: Um, and and again, that was a bit of a surprise because it's you know, who why is it up to the GSU protocol to say when this is in force?
30:53
SPEAKER_02: Yes.
30:54
SPEAKER_01: It should be up to the regulators who are applying the standard to say that.
30:57
SPEAKER_01: Yeah.
30:58
SPEAKER_01: Um, but we'll see how it fleshes out.
30:59
SPEAKER_01: I mean, we'll see how the comment come how comments come back.
31:02
SPEAKER_01: I imagine most reporters are gonna be like, no, push, push, push.
31:05
SPEAKER_01: And and and and it's fair, but ultimately it's it's an it's a conversation we should be having um where it's just focused on the scope two, and that hasn't been brought up in the other ones.
31:15
SPEAKER_02: Well, interesting.
31:15
SPEAKER_02: Now, one thing that did come up here, which I think is a bit different than a transition or an exemption, although it is sort of related to transition, is these legacy clauses.
31:25
SPEAKER_02: Um, and so can you explain what that is and what's the purpose of incorporating that?
31:29
SPEAKER_01: Yeah, I think it's mostly around um procurement contracts, right?
31:32
SPEAKER_01: If you're built into or uh have signed up for a particular, you know, market-based instrument contract, you're you're okay to keep on that contract as long as you're procuring it and as long as it's still running.
31:42
SPEAKER_01: So you can follow the previous rules for scope to market-based accounting until your contract is up.
31:49
SPEAKER_01: Um a lot of questions are on implementation, like who's tracking that?
31:53
SPEAKER_01: Um, what is your disclosure on that?
31:55
SPEAKER_01: But ultimately it does permit you to keep on that contract.
31:58
SPEAKER_01: You know, you've committed this money, you've committed to to procure the recs or MBIs, and you can stay that.
32:03
SPEAKER_02: And I mean, again, just a impression-wise, I think for a company that entered into say like a 20-year contract that doesn't meet the new criteria, it would be a bit harsh to just say, okay, sorry, yeah, like you're out of luck to not have at least some transition.
32:19
SPEAKER_02: But it was interesting, and I again think welcome that they at least address that head on and that they were thoughtful in that consideration.
32:27
SPEAKER_01: Yeah.
32:27
SPEAKER_01: And it's it's a bit of a question as well, like how the other not to move off scope too, but like the other parts of the standards will will treat that, right?
32:34
SPEAKER_01: And if you've been reporting under a certain methodology um for years and years, or if you have a technical uh like a technology system that does that, it's like what is the transition there?
32:43
SPEAKER_01: Yeah.
32:44
SPEAKER_02: Yeah, it's very interesting.
32:45
SPEAKER_02: So again, we talked about this at the very beginning.
32:48
SPEAKER_02: Comments are due December 19th.
32:51
SPEAKER_02: Uh, there are so many questions.
32:55
SPEAKER_02: So, so many.
32:56
SPEAKER_02: Um, I think 166 non-sort of demographic questions.
33:01
SPEAKER_02: And so from again, a member of a technical working group, or you know, thinking about how their the protocol is going to use the responses.
33:10
SPEAKER_02: What if I'm a company that, you know, I only really care about part of this, or actually these questions are very complicated in some cases.
33:17
SPEAKER_02: I just want to weigh in big picture.
33:19
SPEAKER_02: What's your view on those types of responses?
33:22
SPEAKER_01: Yeah, I mean, I would still suggest providing a written, written comment.
33:25
SPEAKER_01: Um, and as I said before, use the decision-making criteria as that framework because it is how the these decisions are made ultimately.
33:32
SPEAKER_01: Um, and I would say also, you know, there is room for answering those questions, but finding the right ones.
33:38
SPEAKER_01: They are they are sectioned.
33:39
SPEAKER_01: So you can you can pick and choose.
33:40
SPEAKER_01: If you don't really care about the location-based changes or you're happy with them, you can say either or say nothing.
33:46
SPEAKER_01: Yes.
33:46
SPEAKER_01: Um, and so focus where you're really going to see a big change in the way that your reporting will take place, or if you anticipate a big change in the future because you're subject to other regulations, like maybe have that comment and talk about that.
33:59
SPEAKER_01: Um, a lot a lot of our clients are saying just from a feasibility perspective, like they want to have their voices heard on this.
34:06
SPEAKER_01: So my comment was, you know, basically just focus on the feasibility part and and talk about your challenges.
34:11
SPEAKER_01: Um, you can certainly praise the the accuracy and the scientific integrity and the comparability.
34:16
SPEAKER_01: It's there.
34:17
SPEAKER_01: I think they've they've really gotten there.
34:19
SPEAKER_01: Um so comment on that.
34:21
SPEAKER_01: But if you really want to focus on feasibility, like a written comment in a in a not using their their question form is certainly welcome.
34:29
SPEAKER_02: Yeah, and I think to that point, you you have to submit it through their comment, but there's there's definitely room that you can put that in.
34:36
SPEAKER_02: And there are a lot of questions asking preparers specific questions about you know, is this feasible?
34:42
SPEAKER_02: Yeah, basically.
34:43
SPEAKER_02: And so, I mean, that's worded a bit differently than that.
34:46
SPEAKER_02: So there I think is a lot of room to provide those types of comments.
34:49
SPEAKER_02: And I think the other thing we always say with these is even if you want to answer through an industry group or otherwise, it doesn't always have to be one company, but having that that voice heard will be important.
35:00
SPEAKER_01: It's interesting in some of the questions, it's focusing on concerns, and they they name a lot of concerns.
35:06
SPEAKER_01: They they do all valid.
35:08
SPEAKER_02: Yes, yes.
35:09
SPEAKER_01: So so obviously someone has thought these through.
35:11
SPEAKER_01: Yes.
35:11
SPEAKER_01: Um and it's a good perspective, you know, if if there are concerns from a from a reporting company to like click that box and make sure that that people are are aware of that.
35:20
SPEAKER_02: Yeah, and actually that raises a really good point that if you kind of dig through the survey itself and the materials, there's a lot of supporting materials and a lot of materials on why they're going the direction they are, and then talking about some of the science and otherwise.
35:35
SPEAKER_02: And so again, I think to the extent there's pieces that are of great interest to you, looking at some of that supporting material as well can at least provide some context for why they're going in the direction that they're going.
35:46
SPEAKER_01: Yeah.
35:46
SPEAKER_01: Yeah.
35:47
SPEAKER_02: So if we take a step back then and let's focus on scope two.
35:51
SPEAKER_02: So these are due uh December 19th.
35:54
SPEAKER_02: And then if we look ahead to 2026, what do we expect to see?
35:58
SPEAKER_02: And then into 2027.
35:59
SPEAKER_01: Yeah, you'll still, I mean, they're still on track for everything.
36:02
SPEAKER_01: I think the scope two was always supposed to be first.
36:04
SPEAKER_01: Yes.
36:04
SPEAKER_01: Um, the aim still is to have that standard out by 2027, which is in the same um time as the other ones.
36:10
SPEAKER_01: I do believe it might, it's they're all going to try to come out at the same time.
36:14
SPEAKER_01: Um, because the intention is to have them as one.
36:17
SPEAKER_02: I think it'll be quite difficult if it's otherwise.
36:19
SPEAKER_01: Yeah, to be disjointed.
36:20
SPEAKER_01: So you will see a long gap, but ultimately it's for them to measure their or to like manage their workloads.
36:25
SPEAKER_01: Yes.
36:26
SPEAKER_01: Because ultimately it's the secretariat dealing with this, and then you have the the ISB who's managing it.
36:30
SPEAKER_01: Yeah.
36:31
SPEAKER_01: Um the steering committee.
36:32
SPEAKER_01: So I think it makes sense.
36:34
SPEAKER_01: But yeah, you'll see um you'll see revisions likely, I think, in Q2 of next year.
36:38
SPEAKER_02: And I think another exposure drop, right?
36:40
SPEAKER_01: Yeah, it will come out again.
36:42
SPEAKER_01: And so it does provide a lot of opportunity for feedback.
36:45
SPEAKER_01: Um, but I think this is a very important time to shape it because it's just it's been so it's it's such a big change.
36:51
SPEAKER_01: Yes.
36:51
SPEAKER_01: Um, so it's really important right now to get that feedback in.
36:54
SPEAKER_02: And then just touching briefly on your own uh working group and even corporate standard, uh what's what do we expect to see next from those two?
37:02
SPEAKER_01: Yeah.
37:02
SPEAKER_01: So by the end of this calendar year, we'll see um an update basically.
37:06
SPEAKER_01: It won't be a strict exposure draft.
37:08
SPEAKER_01: Um, so it's not gonna be the text.
37:09
SPEAKER_02: Yes.
37:10
SPEAKER_01: Um, but there may be some parts of text in there where there have been decisions made and approved by the ISB, the independent um steering board.
37:18
SPEAKER_01: So uh there'll be both those decisions, and then you'll see, I think, things to focus on or things that'll be focused on in the next year.
37:25
SPEAKER_01: Um so starting in 2026.
37:27
SPEAKER_01: Um, it's unclear whether there'll be comments from that or whether it's just an update.
37:32
SPEAKER_01: Um, but I think it's still important to just get a handle on like what's been discussed, what's been um reviewed by the technical working groups, and then what's been approved or revised by the ISB um just to get an update on where things at.
37:44
SPEAKER_02: And then we'll see exposure drafts from both scope three and the corporate standard next year as well.
37:49
SPEAKER_02: And then standards from all of them in 2027.
37:51
SPEAKER_02: And then markets and actions.
37:54
SPEAKER_02: That's the other one, right?
37:55
SPEAKER_02: Yeah.
37:55
SPEAKER_02: So that one's obviously we saw a sort of first exposure draft from them as part of this, this the separate one we spoke about.
38:02
SPEAKER_02: But what do we see from a broader timeline for that group?
38:05
SPEAKER_01: It's still along the same timelines.
38:07
SPEAKER_01: I think it's a bit of a question of like what that will look like.
38:09
SPEAKER_01: Um, what it's you know, it's a standard, but is it does it sit within the GHU protocol?
38:14
SPEAKER_01: And then how do you report on those things?
38:16
SPEAKER_01: And that's a lot of been that's been the discussion so far of like what does a report look like, which has those things in it.
38:21
SPEAKER_02: Yes.
38:21
SPEAKER_01: Um, a lot their work plan is still like in flux, I think.
38:25
SPEAKER_01: And ultimately there's a lot of discussion of you know market-based instruments in scope three uh and scope one.
38:31
SPEAKER_01: Like a lot of those, and this is a very healthy conversation.
38:33
SPEAKER_01: We should be having that conversation.
38:35
SPEAKER_01: Um, so it uh it's still to come, and I think there's just a lot of questions, more so on on that um work stream than the others.
38:42
SPEAKER_02: Yeah, and I think even the original timeline that was one year later.
38:45
SPEAKER_02: So, and even could be different than that.
38:47
SPEAKER_02: So definitely a it's been a busier.
38:50
SPEAKER_02: It will continue to be busier.
38:51
SPEAKER_02: I hope you have a lot of time set aside next year for your working group responsibilities.
38:56
SPEAKER_02: Um, but it will be very interesting to see.
38:58
SPEAKER_02: And again, I think um final thoughts from a client perspective if if you're looking at this.
39:04
SPEAKER_01: I think just, you know, be be prepared that there likely will be changes.
39:09
SPEAKER_01: I think some of these are are um maybe more than some expected.
39:13
SPEAKER_01: So it's really important to provide feedback, um, direct feedback, um, clear justifications for your feedback, and then use the decision-making um criteria to like arrange your feedback.
39:23
SPEAKER_02: All right.
39:24
SPEAKER_02: Very helpful.
39:25
SPEAKER_02: As always, Colin, such a pleasure to talk to you.
39:27
SPEAKER_02: Thanks for joining me today.
39:28
SPEAKER_01: Thank you.
39:28
SPEAKER_02: All right, and to our listeners, thank you so much for listening to us today.
39:32
SPEAKER_02: I hope you enjoyed our discussion.
39:34
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39:42
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39:48
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39:56
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