With climate change increasingly making news, companies are competing on the strength of their carbon footprint. TVA’s Senior Program Manager for Climate Policy Karen Utt is doing groundbreaking work in helping Valley companies more accurately account for the carbon in the electricity they use to establish a competitive edge. Here, she talks about her work.
Q: Can you give us some background on the issue?
A: TVA is the nation’s largest public power company and we continue to carry out our mission of serving the people of the Tennessee Valley region, to make life better through our work in energy, the environment and economic development. Well, our customers want to know about the CO2 intensity, or “carbon footprint,” of the electricity they buy from us. Companies routinely ask for this information because carbon performance is something that some product markets and investors look at very closely. Many companies, much like they disclose financial reporting, also disclose their carbon footprints each year, and it’s not unusual for corporate buyers to select products or investors to screen a stock or bond based on carbon performance.
Q: What is meant by “carbon footprint?”
A: There are three categories of emissions that are calculated, and they work like debits and credits do in financial accounting. Scope 1 emission is what most people picture—it’s CO2 coming out of a smokestack or tailpipe into the air that you can measure. Then there are two categories of indirect emissions. Scope 2 deals with energy purchased for end-use consumption, like electricity, heat, steam or chilled water. Scope 3 is the supply chain of a particular company—including the indirect upstream and downstream transportation and materials for all the pieces and parts that go into the product you made. That includes the electricity customers use to manufacture their products with. Someone has to calculate that, and at TVA we’ve come up with a new, more precise way of doing it.
Q: How did you do that?
Typically, a utility provides an overall system CO2 lbs/MWh rate to all their customers. They just add up all CO2 emitted and all megawatt hours delivered, and that’s their emission rate. But we learned that some of our customers who try very hard to be efficient—like using power in off-peak hours—didn’t want to use the average; they wanted the emissions rate that’s matched to their own usage. So we figured out how to do that. Basically, we utilize commonly used utility cost allocation modeling process to calculate customer-specific CO2 rates. Like financial accounting, there are also generally accepted standards for carbon accounting. While there has been a North American standard on how to calculate electricity customer CO2 lbs/MWh rates since 2009, variations in international calculations were impacting customer competitiveness. TVA participated in the multi-year, multi-stakeholder process to create a new global standard on how electricity customer CO2 lbs/MWh are fairly and accurately calculated that is consistent with existing North American practices. We’re actually an official case study for this new global accounting standard.
Q: Why are companies asking for this?
A: It’s not because of regulations, but because customers and investors are demanding it. Customers can reduce risk and increase profits by managing their corporate carbon performance. These companies believe, supported by various studies, that disclosing and improving their carbon performance will increase earnings and attract investment. Some of these companies participate in various sustainability indices, such as the Dow Jones Sustainability Index (DGSI) or FTSE4Good and good carbon performance can significantly impact their overall ratings. Lower electricity carbon rates can attract additional production and investment in the Valley.
Q: How does TVA deliver?
A: TVA has a really good story in terms of its carbon competitiveness for electricity. There are utilities that have lower CO2 emission rates but they tend to have higher prices, and the utilities that have lower prices have higher CO2 emission rates. TVA sits in kind of a sweet spot in respect to value. So that alone is attractive to bringing companies into the Valley or increasing production in the Valley, because our carbon footprint is smaller.
Q: Why is our carbon footprint smaller?
A: We have a lot of hydro that doesn’t emit any CO2. We have the benefit of Raccoon Mountain. And lots of nuclear power—adding Watts Bar Unit 2 is a huge advantage for us. Our competitive customers are very interested in Watts Bar Unit 2 coming online in 2016.
Q: When is that most important?
A: If electricity is a large part of a products manufacturing process, and the CO2 lbs/MWh associated with the electricity consumed is high, then the CO2 content in the product may be high relative to its competition—potentially impacting product sales and the company’s bottom line. Having a lower CO2 number associated with the electricity is an advantage. TVA has the advantage of having a lower rate than the national average, and can be very attractive to industry. And because of the CO2 allocation model we use, we're able to provide directly served industrial customers with CO2 numbers that are even lower than TVA's average. TVA’s carbon competitiveness supports our economic development activities. Companies that have an attractive product price point and also hit an attractive carbon number can make the argument that a plant in the Valley deserves an expansion or that a new businesses should locate here.