Last updated: November 16, 2022 - 20 min read If you see anything inconsistent, or would like to propose a change, feel free to contact us.
Each electricity consumer on the grid is responsible for a share of the grid's emissions, and is thus provided with an incentive to reduce their emissions to zero. Electricity consumers therefore have an important role to play in accelerating the energy transition. However, multiple ways to attribute grid emissions to consumers exist. This guide compares these different attribution rules by investigating how credibly they represent the responsibility of a consumer as well as how effectively they motivate consumers to take actions that drives us towards a truly decarbonised grid.
In the end we all share the same objective: have a power grid which doesn’t directly emit any greenhouse gasses. How close we are to that goal is simple to measure: simply add up the emissions of all generators of that grid. These are called the grid emissions and it's clear it should be our ambition to get that number to zero.
Amongst generators, fossil fuel power plants cause emissions by burning fossil fuels (coal, gas, oil..) to generate electricity. From the generator's point of view, these emissions are direct, and are thus classified under their scope 1.
However, as generators produce electricity as a result of a consumer's demand, consumers are indirectly responsible for a share of the grid's emissions. As these emissions are indirect, they are thus classified under their scope 2.
Scope 1 emissions: direct emissions resulting from the combustion of fossil fuels
Scope 2 emissions: indirect emissions resulting from the use of energy
Generators are incentivised to reduce their (scope 1) emissions via carbon taxes such as the EU Emission Trading System (ETS) . On the other hand, corporate consumers are incentivised to reduce their (scope 2) emissions by e.g. showcasing and committing to their science-based targets .
2. Attributing Grid Emissions to Consumers
The portion of grid emissions allocated to each consumer is the result of an attribution process where the emissions of generators are distributed amongst grid consumers. The process of attributing grid emissions to consumers is called scope 2 attributional accounting.
There is unfortunately no scientifically proven way to determine the recipient of each unit of generated electricity, as there's unfortunately no way to "dye" a unit of generated electricity and observe where it ends up. Therefore, there is no scientifically "correct" way to allocate emissions from generators to consumers, meaning there are multiple attribution rules possible, each relying on certain assumptions, and each having their advantages and disadvantages.
These assumptions represent different answers to the following question:
Can I choose the origin of the electricity that I consume? (i.e. can electricity be directed to a specific consumer in the network?)
Option 1: No, I get the same electricity as others connected at the same location (leads to the location-based method)
Option 2: Yes, I can choose the origin of my electricity (leads to the market-based method)
Each possible attribution rule leads to a set of actions that a consumer can take to reduce their emissions. If the goal is to reach a decarbonised grid, then each attribution rule should not only be seen as a traceability instrument, but also as an incentive mechanism which ultimately should be assessed by the results it provides: how quickly it decarbonises the grid.
3. Principles of an Effective Attribution Rule
We therefore propose the following list of principles to compare the ability of various attribution rules to drive tangible reductions in grid emissions:
Actionability: how many consumers end up taking action
Effectiveness: is an action taken likely to drive a reduction in grid emissions
Credibility: how intuitive is it as a traceability instrument
With these principles in mind, let us now introduce the different attribution rules and assess how effective they are at decarbonising the grid.
4. Attribution Rules
Location-based: I get the same Electricity as others connected at the same Location
At the core of this rule is the assumption that electricity from different sources (wind, solar, coal..) mix together when injected into the grid. Once mixed, that electricity can’t be unmixed, and thus it becomes impossible to consume electricity from a specific source (similarly to how it is impossible to drink only the banana part of a banana-strawberry smoothie once it has been mixed). Therefore, consumers do not get electricity from a specific generator, but instead get it from a mix of generators. As a consequence, all consumers connected to the same connection point of the grid receive the same electricity.
A coal/wind dominated grid alongside a 100% hydro grid
The origin of electricity is based on where a consumer is located, and hence, this attribution methodology is called location-based. Algorithms such as flow-tracing  can determine the origin of electricity at different time scales (from years to minutes) and at different aggregation levels (from countries to individual nodes on a grid). An example can be seen on the Electricity Maps app.
Under the location-based rule, consumer actions are limited to consuming electricity at a time where the grid is cleaner (depending on the time of day or weather conditions) or relocating one's electricity consumption to a location where the grid is cleaner, its actionability is low. However, as there's a strong likelihood that consumer actions lead to reduced grid emissions (moving towards times or locations where the grid is cleaner almost always avoids emissions), its effectiveness is high. Finally, as most people assume the same power line delivers the same electricity to neighbouring houses, the credibility of the location-based attribution rule is high.
Actionability: 🟢 ⚪️ ⚪️
Effectiveness: 🟢 🟢 🟢
Credibility: 🟢 🟢 🟢
Market-based: my Electricity comes from the Generator with whom I have a Contract
A limitation of the location-based attribution rule is that it doesn't allow consumers to voluntarily fund infrastructure development. The market-based attribution rule therefore introduces a market where consumers can fund the energy transition. In exchange, they get to claim a specific origin of electricity, and thus a reduced amount of emissions.
In order to allow consumers to fund infrastructure development, a tradeable financial instrument representing the origin of electricity is introduced. A generator (e.g. a wind turbine) producing a unit of electricity would thus produce two commodities:
An Energy Attribute Certificate (EAC), which can be bought by a consumer. It gives the holder the ability to claim that this unit of electricity came from e.g. wind energy.
The electricity itself, which is sold on a different market (the electricity market). It doesn’t give the buyer the ability to claim that this electricity comes from wind energy as the "windness" has already been sold as part of the EAC.
Energy Attribute Certificate (EAC) have different names in different parts of the world. They are called Renewable Energy Certificates (RECs) in the US and Guarantees of Origin (GOs) in Europe.
"Consumer 2" has a contract with the Wind generator.
"Consumer 2" has a contract with the Hydro generator.
Consumers can choose the origin of their electricity, based on a contract. Note that in order for all emissions to be accounted for, other consumers become affected and get a so-called "residual mix".
As emissions from all generators must be attributed amongst all consumers, a so-called residual mix must be introduced for consumers without a contract in the market-based approach. It makes sure emissions from all generators are accounted for.
EACs play a dual role: they are both a traceability instrument (used to determine what electricity and thus which emissions a consumer is responsible for) and a funding instrument (used to finance the energy transition). As it isn't credible to say that one's electricity comes from a generator located in a disconnected grid or from a solar panel during the night, the credibility of EACs as a traceability instrument depends on their ability to incorporate the physical limitations of electricity delivery. Furthermore, their effectiveness as a funding instrument is based on their ability to cause a real reduction in grid emissions (beyond simply installing more renewables), a concept called additionality.
100% Renewable Claims using the Yearly Market-based Rule
Historically, claims called "100% renewable"  are made when a consumer has purchased the same amount of renewable electricity as the electricity it consumes in a year, without ensuring that electricity can be physically delivered. This leads to situations where a consumer can claim to consume solar electricity during the night, or from an island isolated from the continent. Although keeping the electricity delivery requirements to a minimum ensures that the list of projects eligible for funding stays large, it reduces its credibility as a traceability instrument, the latter being necessary if one wants to credibly assign responsibility amongst consumers as part of the scope 2 attribution mechanism. Therefore, its actionability is high, but as a result, its credibility as a traceability instrument is low.
Different contractual instruments have different potentials to reduce grid emissions, which is a concept called additionality (sometimes also called emissionality). For example, some contracts target assets that have already been built or that are already receiving government subsidies. They are seen as less additional, as these projects already have secured funds and are thus unlikely to have been built because of the purchase of a contract. As the Scope 2 Guidance does not currently include any additionality requirements , the effectiveness of this rule is not guaranteed .
In summary, the yearly market-based attribution rule used for 100% renewable claims has the advantage of increasing actionability as customers can now buy (and get assigned) electricity from specific generators. This creates a market which enables consumer to fund the installation of renewable generation. Its effectiveness in driving real grid reductions depends on the additionality of the associated contracts. The lack of physical delivery constraints reduces its credibility as a traceability instrument, as most people e.g. assume they can't be powered by solar electricity during the night regardless of which certificates have been bought.
The incentive provided by the yearly market-based approach can therefore be seen as a support mechanism, not unlike some type of carbon offsets which have the additional advantage to provide emission reductions (i.e. additionality) guarantees.
Actionability: 🟢 🟢 🟢
Effectiveness: depends on additionality
Credibility: 🟢 ⚪️ ⚪️
24/7 Market-based: a Funding Instrument with Deliverability Requirements
"100% renewable" initiatives have focussed on expanding renewable energy capacity, which helped jumpstart the energy transition. However, sustaining the transition and achieving full decarbonisation requires a more sophisticated approach, as installing more capacity is not enough. For example, due to the intermittent nature of new renewables such as wind and solar, expanding the grid with storage solutions will be required to reach higher levels of decarbonisation.
Recently, so-called "24/7 matching" claims have emerged, which take 100% renewable claims a step futher by mandating that electricity be physically deliverable . This means that
As electricity can't be stored on the grid, electricity needs to be consumed at the same time as it was generated.
As the delivery of electricity is constrained by the availability of uncongested power lines, electricity must be consumed in locations where it is available.
By imposing physical deliverability constraints, the amount of eligible contractual instruments that can be matched with a specific consumer becomes reduced. This causes less offer on the certificate market, which could increase their price, and cause the emergence of a stronger price signal. Contractual instruments that can provide electricity during times and at locations where clean electricity is unavailable will see their value soar, as consumers will be willing to pay more during these hours. In areas with a lot of intermittent wind and solar, storage technologies will be incentivised. This price signal can contribute to reduce the additionality problem, as higher contract prices should have a larger likelihood of leading to new projects.
Furthermore, by imposing physical deliverability constraints, the credibility of the claim increases, because it is not anymore possible to claim wind-powered during periods where the wind doesn't blow, or solar-powered in regions without solar. Therefore, the addition of a physical deliverability requirement has the advantage to improve the credibility of the market-based method as a traceability instrument, without reducing its effectiveness as a funding instrument.
Actionability: 🟢 🟢 ⚪️
Effectiveness: 🟢 🟢 ⚪️
Credibility: 🟢 🟢 ⚪️
5. Summary of Attribution Rules
Can I choose the origin of my electricity?
no, because electricity produced is irreversibly mixed into the grid, and therefore, the origin of my electricity depends on when and where I'm consuming it from (location-based)
yes, it depends on who I purchased an attribute certificate from (market-based)
As a consequence, one can justify the origin of one's electricity based on either:
the mixing of electricity as it gets injected into the grid (location-based)
an Energy Attribute Certificate (market-based)
There are two main variants when one is justifying the origin of electricity based on a certificate:
yearly market-based (100% renewable), with minor physical delivery constraints
24x7 market-based, with physical delivery constraints
This leads us to 3 attribution rules:
location-based: fits best with common intuition about the origin of electricity, but doesn't incentivise the consumer to fund the energy transition
yearly market-based: mostly a funding instrument (if additional), but doesn't credibly represent the actual origin of electricity
24x7 market-based: a compromise between both, as it is a funding instrument with credible traceability
There is no scientifically "correct" way to assign emissions from generators to consumers as there is no way to observe the path that generated electricity takes on a grid. This leads to different possible attributional rules which should be assessed by their ability to incentivise consumers to take actions that decarbonise the grid.
The location-based attributional rule is a credible traceability instrument as it incorporates the physical constraints of electricity delivery. However, it doesn't allow consumers to select the origin of their electricity, and thus reduces their ability to fund decarbonisation efforts.
The market-based attribution rule unlocks a new actionability vector: the ability for consumers to enter a contract with a specific generator. In exchange, they get to claim a specific origin of electricity, and thus a reduced amount of emissions. The yearly market-based rule (used in 100% renewable claims) is an effective funding mechanism that leads to real reductions if the associated contract is additional. However, the lack of physical delivery constraints makes it more of a funding instrument than a credible traceability instrument.
By incorporating physical delivery constraints, 24/7 market-based would approach the credibility of location-based as a traceability instrument while remaining an effective funding instrument. The resulting price signal incentivises building the technology the ensures clean electricity is delivered at times and locations where electricity consumption occurs.