Our Terms & Conditions | Our Privacy Policy
By Kim Sung-woo
According to “Clean Electricity Breaks New Records; Renewables on Track for Another Strong Year” published by BloombergNEF on Aug. 27, 40 percent of the world’s electricity produced in 2023 came from zero-carbon energy sources: solar and wind contributed almost 13.9 percent, whereas hydro power and nuclear power accounted for 14.7 percent and 9.4 percent, respectively.
On a separate note, Brazil and France currently generate more than 75 percent of their energy based on carbon-free energy sources, while India and Mexico are under 25 percent, showing a wide gap among different countries. There is no question about the energy sector being a key industry to any country, and the ability to secure low-price and stable supply of energy is critical to companies. On the top of that, now carbon-free energy is becoming increasingly important as various stakeholders in society demand electricity generated from carbon-free energy sources.
For example, key stakeholders associated with companies, such as investors and consumers, would like the companies to disclose their greenhouse gas emissions so as to determine how rigorous companies are in combating climate change. The recently published Climate Disclosure Standards, in fact, incorporated these demands. With the disclosure obligation now in place, companies have no choice but to disclose their greenhouse gas emissions amounts reflecting the proportion of carbon-free energy use. Moreover, to meet the stakeholders’ demands to reduce greenhouse gas emissions, companies would likely need to increase their use of carbon-free energy.
Let’s take the EU Corporate Sustainability Reporting Directive (CSRD) as an example. Starting this year, the CSRD mandates not only EU companies but also offshore companies to submit reports on various sustainability-related items. Among those items to be reported, the greenhouse gas emissions amount must be calculated in accordance with the GHG Protocol, an internationally recognized methodology.
To be more specific, companies’ greenhouse gas emissions should be classified into Scope 1 (direct emissions from sources that are controlled orowned by the companies, e.g. emissions from their manufacturing facilities), Scope 2 (indirect emissions from the use of electricity) and Scope 3 (indirect emissions from supply chain), and the absolute emissions should be calculated and disclosed. Moreover, Scope 2 emissions, which are affected by use of carbon-free energy sources, should be classified into location-based and market-based emissions as defined in the GHG Protocol: the location-based emission volume is calculated by using the power emission coefficient of the country or region where the company is located, whereas the market-based emission volume is calculated by using the emission coefficient of the other party to the power purchase contract, along with the renewable energy use certificate.
Companies can reduce the emissions amount they should report, if their electricity use depends, in large part, on carbon-free energy. If, by contrast, the companies does not utilize carbon-free energy sources for their electricity, the amount of emissions to report would likely increase. From a company’s standpoint, the emissions amount to report depends on how much carbon-free energy is used by power plants that supply the company’s electricity.
Korea is also preparing for mandatory disclosure. The Korea Sustainability Standards Board (KSSB) had prepared draft sustainability disclosure standards based on the standard for sustainability disclosure published by the IFRS Accounting Standards Board (ISSB), and had received public comments thereon until the end of last month. In addition, the draft standards also adopted the GHG Protocol for the calculation of greenhouse gas emissions, but alternative calculation methodology the government proposed may be also utilized. Under the government’s alternative methodology, companies must report their greenhouse gas emisssions in absolute amounts for Scope 1 and Scope 2, while companies are required to report only emissions that fall under “major categories” for Scope 3. In particular, Scope 2 defines “indirect greenhouse gas emissions” as emissions generated from electricity, steam, heating or cooling purchased or acquired and used by companies, and requires location-based emissions to be disclosed in the company’s report.
A challenge is that Korea has a relatively difficult environment to increase use of carbon-free energy, compared to other countries. This is due to the lack of natural energy sources such as wind and solar energy, lack of hydroelectric power generation, difficulty in reaching consensus among local residents when it comes to building power infrastructure in their areas, isolation of its power grids from other countries and the discrepancies between locations of the power supplying facilities and locations of power demand. Under these circumstances, companies face hardships and limitations in increasing the level of carbon-free energy in the power grids that supply electricity to the companies.
The “Carbon Neutrality Status Survey” conducted by the Korea Chamber of Commerce and Industry in late March 2024 on about 390 companies in Korea, which are regarded as “large amount emitters,” well-supports this observation: as two primary reasons for gaps between Korea and other advanced countries, the companies responded “carbon-free energy infrastructure” (72.8 percent) and “financial support such as subsidies and tax benefits” (67.2 percent).
Now that the mandatory climate disclosure system is starting to affect the companies’ bottom lines, and that carbon-free energy is rising as a key to the new disclosure system, Korean society should think about how to resolve the challenges faced by the companies in transitioning to this new disclosure regime.
Kim Sung-woo, head of Environment & Energy Research Institute at Kim & Chang, is a member of the Presidential Commission on Carbon Neutrality and Green Growth.
Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.
Aggregated From –
