BASED ON A. Bjørn et al. Nature Climate Change (2022).

The policy problem

Comprehensive regulatory policy to drive down corporate emissions is lacking. At the same time, there is growing pressure from citizens, investors and others for companies to reduce their greenhouse gas emissions. ‘Science-based targets’ are a new development in which companies voluntarily set emission reduction targets intended to be aligned with the temperature goals of the Paris Agreement. For such targets to be effective, companies must account correctly for their emissions. Existing emission accounting standards allow companies to claim emission reductions by purchasing renewable energy certificates. This accounting practice is based on the assumption that the certificates will trigger increased investment in renewable energy generation and will thereby ultimately reduce emissions from electricity production. However, existing research finds very limited empirical evidence supporting this assumption. Corporate purchasing of certificates can therefore lead to inflated estimates of emission reductions, but the size of this problem is not well understood.

The findings

We analysed the emissions reporting of 115 companies with approved science-based targets. Eighty-nine per cent of the companies claimed emission reductions through the use of renewable energy certificates. In combination, the companies reported a 31% reduction in emissions related to purchased energy during the 2015–2019 period, which would align with the 1.5 °C goal of the Paris Agreement (Fig. 1). However, two-thirds of this claimed emission reduction was due to the use of renewable energy certificates that were unlikely to have resulted in actual emission reductions. Hence, the real combined emission reduction was closer to 10%, which is only barely aligned with the well-below 2 °C goal (Fig. 1). Our finding that ineffective renewable energy certificates have led to substantially overstated emission reductions probably also holds for companies that have made other ambitious emission reduction commitments, such as net-zero targets.

Fig. 1: Company-reported emissions trends compared with our estimates of real emission reductions.
figure 1

While companies reported a combined 31% emission reduction in alignment with the 1.5 °C goal (solid purple line) between 2015 and 2019, two-thirds of these reductions were attributed to purchases of renewable energy certificates that were unlikely to have resulted in actual emissions reductions (shaded orange). Actual emissions reductions were associated with grid decarbonization and direct corporate support for renewable energy projects, and were offset slightly by increased energy consumption (shaded green). This results in a combined real reduction estimate of 10%, which is only barely aligned with the well-below 2 °C goal (solid blue line). Figure adapted with permission from A. Bjørn et al. Nature Climate Change (2022), Springer Nature Ltd.

The study

Among the 813 companies with approved science-based targets at the time, we identified 115 companies with complete disclosure data for the period from 2015 to 2019. The data included reported emissions, as well as the variables that companies used to calculate these reported emissions following the Greenhouse Gas Protocol. These variables include energy consumption, direct support for new renewable energy production (power purchase agreements) and purchased renewable energy certificates. Based on the disclosed data, we estimated the change in emission intensity of electricity grids over time (that is, the grid decarbonization), which is a fourth variable used in corporate emission accounting. We then estimated the contribution of the four variables to changes in reported emissions and assessed each company’s alignment with the goals of the Paris Agreement with and without the contributions from renewable energy certificates (Fig. 1).