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Navigating Environmental Certificates: A Roadmap to ESG Compliance and Transparent Reporting

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An important aspect of Environmental Certificates involves the appropriate treatment of the certificates under programs and reporting guidelines. Certificates and their markets serve as valuable economic tools to incentivise businesses to embrace decarbonisation and environmental responsibility. Understanding how Environmental Attribute Certificate (EACEnergy attribute certificate - generic term for a certificate issued for 1MWh of renewable electricity generated. Used interchangeably with renewable energy certificate (REC).) market’s function and operate will help businesses design a EAC and Energy Procurement strategy that aligns with the national decarbonisation goals as well as their own corporate sustainability objectives. 

The executive summary of the treatment of registered certificates: 

Businesses wishing to claim renewable energy or emissions reductions from project-generating certificates need to adhere to the following rules. If the business does not make the claims they are free to sell the certificates or use them in other ways.

  1. Renewable Energy Certificates (LGCs) must be surrendered to validate that a business is using renewable energy (see 5 for the exception). 
  1. Australian Carbon CreditA certificate that is equivalent to 1 tonne CO2-e. Credits often refer to instruments issued under a cap and trade scheme, where companies are allocated credits up to their emission cap. If they exceed the cap they need to purchase more credits. Units (ACCUs) must be surrendered to validate emission reductions from specific projects (see 5 for the exception). 
  1. Small-scale Technology Certificates (STCsSmall-scale Technology Certificate under the Australian Renewable Energy Target. More) provide an immediate discount on solar systems cost and the business will be able report lower grid-based emissions.   
  1. Victorian Energy Efficiency Certificates (VEECs) and Energy Saving Certificates (ESCs) lead to immediate energy savingsElectricity or gas savings or both. and reduced Scope 2 emissions.  Selling VEECs or ESCs has no impact on the emissions reductions. 
  1. There are arbitrage opportunities to sell LGCs or ACCUs and buy other recognized Environmental Certificates or Carbon Credits to surrender, which can be financially advantageous. 
  1. Businesses can sell VEECs and leverage the proceeds to buy and surrender LGCs or ACCUs, resulting in greater emissions reductions than just the original VEECVictorian Energy Efficiency Certificate project. 

The Northmore Gordon carbon advisory team has extensive knowledge in navigating the treatment of domestic and international certificates within programs such as NGERs, Climate ActiveClimate Active is an accreditation program for Australian companies to certify their organisations, products, services, events, buildings or precincts as carbon neutral. The program is backed and administered by the Australian government. Companies have to measure their scope 1, 2 and material scope 3 emissions, reduce where possible and offset the remainder by purchasing and retiring offsets. Allowed offsets are LGCs for scope 2 and ACCUs, CERs, RMUs, VCUs or VERs for scope 1 or 3 emissions. Annual reporting is required and published on the Climate Active website. More, Science-Based Target Initiative (SBTiScience Based Targets initiative), Corporate Emissions Reduction Transparent (CERT) report, RE100RE100 is the global corporate renewable energy initiative bringing together large businesses committed to 100% renewable electricity. The members must be influential based on their either their brand, global presence, significant energy use or other characteristics that bring attention to their commitment. All companies must commit to purchasing 100% of their electricity from renewable sources by 2050 and purchase that power in the same location they are using it. Interim targets are 60% by 2030 and 90% by 2040. The program is led by the Climate Group in partnership with the CDP. More, and others. It equally applies to companies with decarbonisation targets or voluntary targets conforming to Greenhouse Gas (GHGGreenhouse gases trap heat in the atmosphere. They all have different global warming potentials (GWP) over different time frames, the higher the number, the worse the impact. For simplicity of accounting everything is referenced back to carbon dioxide which has a global warming potential of 1. There are over 200 GHGs listed in the IPCC fifth assessment report, a sample are below. Note that in current carbon accounting standards the 100 year GWP is used. Greenhouse gas 20 year GWP100 year GWPCarbon dioxide CO211Methane CH48428Hydrofluorocarbon HFC-134a37101300Chlorofluorocarbon CFC-1169004660Nitrous Oxide N2O264265Sulfur hexafluoride SF617,50023,500) Protocol.  This understanding allows us to maximise the monetary value whilst still meeting emissions reduction targets. 

 

Environmental Certificates assist in different ways

I have a corporate target for renewable energy purchases 

  1. Can I use VEECs to demonstrate renewable energy purchases? 

VEECs are not a Renewable Energy Certificate, instead they represent the energy savings. 

VEECs are calculated on energy savings, and then converted to a tonne of CO2e using factors set by the Victorian Government. For some processes (methods) under the VEEC scheme, a user can claim VEECs from energy savings that are forward created for the next 10 years with a discount factor and based on assumptions about the greenhouse gas intensity of the future grid. Hence it is difficult to demonstrate compliance with international GHG reporting standards that VEECs can be retired and used directly against a renewable energy purchase target.  

  1. Buying LGCs in Australia using money from sale of VEECs  

For those companies aiming to achieve renewable electricity targets that comply with GHG Protocol Scope 2 guidance for emissions reductions, retiring LGCs or IRECs would be required. 

A company may sell VEECs, and this would help to fund the purchase of Renewable Energy Certificates.  It is recommended to begin the purchase and retirement of RECsI-RECs, GOs, TIGRs, LGCs, ZNECs, J-Credits in advance of any corporate target dates (e.g. 6 months) to ensure that any claims can be supported by the publicly available register. 

Due to price differences, the total quantity of RECs purchased won’t be the same as the number of VEECs sold.  

  1. Buying RECs from the global market using money from sale of VEECs 

Whilst LGCs are solely acknowledged in Australia, companies with international operations, may purchase international RECs. These can be more cost effective than buying LGCs, increasing your renewable energy percentage in your global footprint. 

RECs are a globally recognised mechanism to demonstrate renewable energy purchases. They empower a company to demonstrate its utilization of 100% renewable energy, decarbonize its supply chain, fulfill certification criteria for products, buildings, or companies, and enhance climate-related disclosure standards. There are many different RECRenewable Energy Certificate types and registries, and knowing which ones to buy and how much to pay can be challenging.  

International RECs are currently trading at both higher and lower prices compared to LGCs, depending on the country. Having a strategy in place helps you to optimise the amount of renewable energy per dollar spent. 

I have a corporate target for carbon and need carbon offsets 

  1. Buying Carbon Offsets  

Purchasing carbon offsets can mitigate emissions that can’t be avoided by other means. They may also be needed for compliance – for example to meet the Safeguard Mechanism in Australia, to ensure you maintain Climate Active Accreditation, or to reduce the cost of a Carbon Tax (e.g. in Singapore). Alternatively, they could be voluntarily retired such as for Scope 3 emissions from employee travel.  

Carbon offsets are created from both avoided emissions and removals and are available from the Australian and international markets. in Australia, Australian Carbon Credit Units (ACCUs) represent a tonne of CO2-e that can be traded on the wholesale market, voluntarily surrendered to offset emissions, or sold against government contracts through auctions. Internationally, there are several registries and rating systems that are used to create high quality offsets such as VerraVerra is a not for profit organisation that administers the Verified Carbon Standard (VCS) Program under which VCUs are created. Operating since 2006 it is the largest voluntary greenhouse gas program in the world. More, Gold StandardAccreditation scheme for voluntary carbon offset and renewable energy projects. The tradable instruments are Verified Emission Reductions (VERs). The Gold Standard label can also be applied to CERs and I-RECs where the project meets the Gold Standard requirements around sustainable development and project additionality., and Puro. Earth.  

Price and Quality are key considerations when purchasing carbon offsets. The following factors are some that should be considered: 

How do EACs fit into an integrated Strategy? 

For any business, there are four typical ‘Carbon Reduction Levers’ available to decarbonise its operations. The availability of these levers differs from site to site, company to company. No one-size-fits-all.  

An integrated strategy will draw on all these levers. However, what is common for every single site is the ability to create, monetise, and purchase Environmental Attribute Certificates.  

At Northmore Gordon we believe that high-integrity environmental markets are critical for businesses to transition to clean energy. This will support businesses to adopt a nature-positive model, and strategically position them for enduring success.  

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What must businesses do with Large-scale Generation Certificates (LGCs) to validate renewable energy use?

According to Northmore Gordon, Renewable Energy Certificates (LGCs) must be surrendered to validate that a business is using renewable energy, unless the exception applies where the business sells VEECs and uses the proceeds to buy and surrender LGCs or ACCUs for greater emissions reductions.

What must businesses do with Australian Carbon Credit Units (ACCUs) to validate emission reductions?

Australian Carbon Credit Units (ACCUs) must be surrendered to validate emission reductions from specific projects, with an exception where proceeds from selling VEECs are used to buy and surrender ACCUs for greater emissions reductions.

Can VEECs be used to demonstrate compliance with international renewable energy purchase targets?

No. VEECs are not a Renewable Energy Certificate but instead represent energy savings, calculated using factors set by the Victorian Government. Because some VEEC methods allow claims for forward-created savings over 10 years with discount factors based on assumed future grid intensity, it is difficult to demonstrate compliance with international GHG reporting standards by retiring VEECs directly against a renewable energy purchase target.

What happens to emissions reductions if a business sells its VEECs or ESCs rather than retiring them?

Selling VEECs or ESCs has no impact on the emissions reductions, since Victorian Energy Efficiency Certificates (VEECs) and Energy Saving Certificates (ESCs) lead to immediate energy savings and reduced Scope 2 emissions regardless of whether the certificates are sold.

How can proceeds from selling VEECs be used to support a renewable electricity target compliant with the GHG Protocol?

Companies aiming to meet renewable electricity targets compliant with GHG Protocol Scope 2 guidance can sell VEECs and use the proceeds to fund the purchase of Renewable Energy Certificates (such as LGCs or I-RECs), which must then be retired. It is recommended to begin purchasing and retiring these RECs in advance of any corporate target date (e.g., 6 months) to ensure claims can be supported by the publicly available register. Because of price differences, the quantity of RECs purchased won't match the number of VEECs sold.

Why might a company purchase international RECs instead of LGCs?

Companies with international operations may purchase international RECs because they can be more cost-effective than LGCs (which are only recognised in Australia) and help increase the company's renewable energy percentage across its global footprint. International RECs currently trade at both higher and lower prices than LGCs depending on the country, so having a strategy helps optimise renewable energy per dollar spent.

What are Small-scale Technology Certificates (STCs) used for?

Small-scale Technology Certificates (STCs) provide an immediate discount on solar system costs and allow the business to report lower grid-based emissions.

What compliance and voluntary reasons might drive a business to purchase carbon offsets?

Businesses may need carbon offsets for compliance purposes, such as meeting the Safeguard Mechanism in Australia, maintaining Climate Active Accreditation, or reducing the cost of a Carbon Tax (e.g., in Singapore). They may also voluntarily retire offsets, such as to cover Scope 3 emissions from employee travel.

Where do carbon offsets come from and which registries/standards are mentioned?

Carbon offsets are created from both avoided emissions and removals, available from Australian and international markets. In Australia, Australian Carbon Credit Units (ACCUs) represent a tonne of CO2-e that can be traded, voluntarily surrendered, or sold via government contract auctions. Internationally, high-quality offsets are created via registries and rating systems such as Verra, Gold Standard, and Puro.Earth.

What factors should be considered when purchasing carbon offsets?

Key factors to consider when purchasing carbon offsets include additionality, over-crediting, vintage (year of creation), leakage, non-permanence, avoided vs. removal type, stakeholder perception, developer profile, and community impacts.

Which reporting programs and standards does Northmore Gordon's carbon advisory team have experience navigating?

The Northmore Gordon carbon advisory team has extensive knowledge navigating the treatment of domestic and international certificates within programs such as NGERs, Climate Active, the Science-Based Target Initiative (SBTi), Corporate Emissions Reduction Transparent (CERT) report, RE100, and other frameworks conforming to the Greenhouse Gas (GHG) Protocol.

What is Climate Active and which offsets does it allow?

Climate Active is an accreditation program for Australian companies to certify their organisations, products, services, events, buildings, or precincts as carbon neutral, backed and administered by the Australian government. Companies must measure their scope 1, 2, and material scope 3 emissions, reduce where possible, and offset the remainder by purchasing and retiring offsets. Allowed offsets are LGCs for scope 2 and ACCUs, CERs, RMUs, VCUs, or VERs for scope 1 or 3 emissions, with annual reporting required and published on the Climate Active website.

What is RE100 and what are its targets?

RE100 is the global corporate renewable energy initiative bringing together large businesses committed to 100% renewable electricity. Members must be influential based on brand, global presence, significant energy use, or other attention-drawing characteristics. Companies must commit to purchasing 100% of their electricity from renewable sources by 2050, purchased in the same location as use, with interim targets of 60% by 2030 and 90% by 2040. The program is led by the Climate Group in partnership with CDP.

Are there arbitrage opportunities between different certificate types?

Yes, there are arbitrage opportunities to sell LGCs or ACCUs and buy other recognized Environmental Certificates or Carbon Credits to surrender instead, which can be financially advantageous.

How does an integrated decarbonisation strategy relate to Environmental Attribute Certificates (EACs)?

For any business, there are four typical 'Carbon Reduction Levers' available to decarbonise operations, and their availability differs from site to site and company to company—there is no one-size-fits-all approach. An integrated strategy draws on all these levers, but what is common to every site is the ability to create, monetise, and purchase Environmental Attribute Certificates.

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