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Energy certification as a flexible and adaptive mechanism for the future

The recent Climate Change Commission’s (CCC) advice is extensive, covering every sector of the economy. It was developed to inform the New Zealand Government on the direction for the future.

If New Zealand is to meet both the 2050 net zero target for long-lived gases and its Paris commitments by 2030, there will need to be deep societal change. As per the CCC’s advice, this will require:

“…changes to the way energy is produced, the way people travel, the communities they live in and the way land is used. It will involve changes to individual and corporate behaviours, changes to existing processes and ways of operating, and technological innovation.”

In particular, the advice focuses on the first three emission budgets, the direction of the policies and strategies needed, and advice on the Nationally Determined Contributions (NDCs).

It’s up to the government now to consider this and determine policies to be implemented. The government has until the end of 2021 to respond.

What is energy certification?

Energy certification markets globally have been operating since the late 1990’s, creating the opportunity to leverage private funding from businesses and individuals who are motivated to support renewable energy development and operation.

The reporting of GHG emissions is becoming common and is used by various entities to support emission reduction goals, reduce exposure to climate-related risks and provide transparency of impacts. Businesses typically purchase energy attribute certificates (EACs) to match their energy use, this reflects their support for renewable/zero carbon electricity generation.

The New Zealand Energy Certificate System (NZECS) was established in 2018 to manage the registry for voluntary EACs in NZ. The system aims to influence behaviour change, support renewable energy funding streams and aid in GHG reporting.

The NZECS supports the reduction of energy demand, increased energy efficiency and on-site renewable electricity installations in the first instance. However, beyond these, EACs, where properly managed, are a flexible tool that provide funding streams to support the energy transition.

The aims of the NZECS are supported by one of the key elements of the advice, which is to:

“Drive system transformation by supporting innovation, mobilising finance for low-emissions investments and supporting behaviour change.”

What does the advice mean for energy certification?

Overall, the advice necessitates an increased pace from current policy ambition, which NZECS supports.

One of the predominant messages within the report is the need to decarbonise the energy system by scaling up the provision of low emission fuels. A large part of the success of this goal will involve more rapid deployment of renewable electricity capacity and generation, as well as continued innovation and development of technologies for hard-to-abate sectors, both of which require financing.

The advice recommends an overarching national energy strategy, a renewable energy target and a 95-98% renewable electricity target. These measures will help to signal the direction for the future, focusing the energy industry to confidently search for financing options.

Although NZ already has a relatively high percentage of renewable electricity, and while the physical 100% renewable electricity target remains aspirational, the demand from the voluntary market for 100% certified renewable products continues to grow. A number of electricity generators are getting increasing requests from customers wanting to certify that 100% of their consumption is provided by renewable generators prior to the electricity market being 100% renewable. This provides renewable generators with additional finance, and where managed appropriately, will be used towards investing in renewable energy developments and innovation at all scales.

What will the role of voluntary action be?

Businesses and the public are increasingly becoming interested in taking voluntary action to reach net zero emissions, thus it is important for the government to facilitate this ambition.

Alongside ambition, the NZ Emissions Trading Scheme influences choices and investment within the energy sector and will continue to do so as the emissions price increases.

The CCC advice on voluntary action states that:

“From 2021, if the Government allows voluntary offsetting for carbon neutral claims to take place in Aotearoa through cancelling NZUs, adjustments corresponding to the amount of NZUs cancelled must be made to the relevant emissions budget, or to the inventory, to avoid the emissions reductions claimed from being negated by increases to the NZ ETS cap.”

However, it will also be important that other voluntary activities that sit outside the ETS that result in genuine consequential emission reductions are recognised and rewarded. These activities could include renewable energy projects assisted by certificate-derived revenue.

As government policy naturally increases to include more directives around renewable energy, demonstrating ‘additionality’ beyond business-as-usual will become more difficult. As an example, the advice is recommending discontinuing the installation of new coal boilers and setting a timetable to phase out fossil fuel use in existing boilers. If this becomes policy, it will be difficult to prove additionality (and therefore legitimacy) of ambition that includes investment in this activity, which may disincentivise voluntary ambition. Revision of alternative criteria to demonstrate additionality, and ultimately, consequentiality, will need to be considered in the future.

Voluntary activity provides a significant opportunity to mobilise finance from private institutions for renewable energy/low-carbon technology investment. Guidance and support from the Government will help to enable this important sector to thrive.

We look forward to continued discussions and future decisions around this.

What does the future hold for energy certification?

The one certainty of the coming decades is that it will be a period of intense change and technological innovation. Financing for both small and large-scale renewable expansion will be key in meeting future demand. Additionally, it will also be important for voluntary ambition to be clearly recognised and encouraged.

There will also likely be demand for smaller-scale boutique style innovative energy solutions that promote energy sovereignty, security and diversity. These will need to allow for the efficient use of energy within homes, enable value-based support for social progress, value the growing number of co-benefits and, service remote and rural communities.

Multiple solutions will be needed to service such a profound global transition. The challenge will be prioritising those that contribute to positive change, while still being flexible and least-cost.

Energy certification can respond rapidly to new innovation at least-cost, thereby supporting new ideas and developments. The system is flexible and can quickly capture the attributes of an activity, promoting a market for large corporate entities to demonstrate support for and provide financing of.

Other than tracking renewable generation attributes, as is common for energy certification, the system can , for example, also track attributes that describe and promote cleaner fossil fuel extraction fields over ‘dirtier’ fields, assets that have lower entire life cycle emissions (wind, solar etc) and, differentiation between waste streams.

The demand for attribute tracking and energy certification will be maintained as long as there remains interest in acquiring ‘positive’ attributes within a market that still contains negative attributes, be it electricity, fuels or waste.

Bindi Robertson, Sustainability Technical, Certified Energy

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