Summary

Following the first draft of Land Sector and Removals Guidance (published Q3 2021), the GHGP has come forward with the second draft of Land Sector and Removals Guidance for Pilot Testing and Review, offering guidance on accounting and reporting biomethane usage for corporates, including accounting for:

• Biomethane emissions in a GHG inventory
• Pipeline-delivered gas
• Emission impacts relative to counterfactual scenarios

With an ongoing process to consider extending coverage of a ‘market-based account’ for emissions adjustment in scope 1 and/or scope 3, in addition to the use in scope 2, this could potentially increase demand for biomethane certificates/GOs.

GHGP Land Sector and Removals Guidance for Pilot Testing and Review (Draft 2)

In our previous article , we provided an overview and timeline of GHGP Land Sector and Removals Guidance, including the potential impact on demand for biomethane Guarantees of Origin (GOs). In this article, we dive deeper into the specific biomethane context, introduced by Draft 2 to understand its potential effect on corporates purchasing biomethane GOs and its market impact.

Biomethane is presented in the Land Sector and Removals Guidance for Pilot Testing and Review (Part 2: calculation Guidance) under Annex B: Biomethane. Based on the accounting approach under the GHGP Corporate Standard and Scope 3 Standard, the annex addresses guidance on accounting and reporting biogas or biomethane (also known as renewable natural gas or RNG). It applies an average data approach to account for scope 1 and scope 3 emissions. In addition, it provides information on a process to determine the potential suitability of market-based accounting approaches beyond scope 2.

Accounting for biomethane emissions in a GHG inventory

The section addresses guidance for corporates in the biomethane value chain on how to account for the life cycle emissions from biomethane by using an inventory approach as well as how to allocate emissions and removals for waste.

Generally, ‘biogenic net emissions’ are calculated and reported in scope 1, scope2, and scope 3 by using stock-change accounting, while ‘gross biogenic product CO2 emissions’ are reported separately by using flow-based accounting methods.

Corporates purchasing and consuming combust bioenergy, that is, biomass, biofuels, or biogas, shall account for and report:

• Gross biogenic product CO2 emissions
• Scope 1, scope 2, or scope 3 methane (CH4) and nitrous oxide (N2O) emissions
• Scope 3, category 3 upstream emissions from purchased bioenergy (extraction, production, and transportation of bioenergy consumed by the reporting company). This covers all cradle-to-gate emissions of purchased bioenergy, including:

1. Land use change emissions
2. Land management net CO2 emissions
3. Land management non-CO2 emissions
4. Emissions from processing, transportation, and all other upstream impacts

• Any other scope 1, scope 2, or scope 3 emissions, if applicable
• Optionally, and if applicable, removals stored in land or geologic carbon pools
• One or more land tracking metrics (Indirect land use change emissions, Carbon opportunity costs, Land occupation)

Accounting for pipeline-delivered gas

Since molecules of biomethane can not be tracked from fossil gas once injected into the gas network, corporates consuming pipeline–delivered biomethane (common pool) shall account for emissions by using an average data method. Corporates should use a grid-average approach to calculate the proportion, in percentage, between fossil gas and gas of biogenic origins from their consumption. Corporates should follow the requirements for accounting for and reporting fossil and biogenic emissions and separately report fossil and biogenic portions in their gas consumption.

In the case of corporates directly receiving biogenic gas/biomethane, for example via vehicle-based delivery or direct pipeline, they should use the specific emission factors (combustion or life cycle emission factors, as applicable) associated with the biogenic gas.

Accounting for emissions impacts relative to counterfactual scenarios

For corporates using biomethane in their operations, their actions can have a positive climate impact, primarily due to the avoidance of methane emissions at the source, e.g., manure lagoons, landfills, and/or increased removals. The avoidance or displacement of emissions is calculated using a project or intervention accounting method (quantified relative to a counterfactual baseline scenario), rather than an inventory accounting method. Corporates may estimate the impacts of actions using intervention accounting methods and report these impacts separately from the scopes, as stated in GHGP Scope 3 Standard section 9.5:

What’s in it for corporates and the biomethane GO market?

According to the present Corporate Standard, biomethane GOs/certificates are not eligible for scope 1 emissions adjustment from the combustion of gas (in company-owned or controlled sources) delivered via a common carrier pipeline. Purchase of biomethane GOs/certificates may be reported separately from the scopes in a GHG inventory report.

However, GHGP is under the process to evaluate a ‘market-based accounting’ approach for use in scope 1 and/or scope 3, beginning in 2023, as stated:

Since the emissions adjustment through contractual instruments such as GOs and other energy attribute certificates is possible through the market-based accounting method in scope 2, the possible expansion of using this approach to scope 1 and/or scope 3 emissions would potentially encourage companies to use biomethane GOs for emissions adjustment and reporting.

In addition, the annex suggests accounting for gas consumption via pipeline delivery from different gas origins by using a grid-average approach. To allow the calculation of proportion from the gas mix in the gas grid, a tracking mechanism must be implemented in order to distinguish gas of biogenic origins from fossil gas. Thus, we may assume that this supports the uptake of biomethane GOs as a tracking tool for this purpose.

Consequently, the above reasons could increase demand and create bullish sentiment for the biomethane certificate/GO market (Please note that earlier Greenfact published the article relating to energy attribute certificates – power and gas GOs – for reporting scope 2 emissions).

Greenfact will closely follow the development of expanding implementation of the market-based accounting method in GHGP emissions reporting and report it in due course.