The energy transition is off-track.
These were the opening words of the International Renewable Energy Agency (IRENA) in their 2023 global study. Annual investment in renewable energy must more than quadruple to remain on the 1.5°C pathway of the Paris Agreement.
Where progress has been made, it has not been equal – investment has been concentrated in a handful of advanced economies to date, with 85% of global renewable funding changing hands in countries home to less than 50% of the world’s population.
Corporations have begun to play an important role in the energy transition, through investment in renewable energy sources. Last year companies globally supported a record 46 GW of solar and wind capacity via Power Purchase Agreements (PPAs). However, companies today looking to buy renewable power must do so within the same ‘market boundary’ as their demand, typically drawn along country borders, if they want it to be recognized. 80% of deals last year were inked in Europe and North America.
We have explored how prioritizing emissions impact for renewables procurement could allow corporates to catalyse not just a faster energy transition, but a more equitable one.
Our study
Amazon, a co-founder of the Emissions First Partnership, asked Baringa’s market-leading energy advisory team to conduct an independent study on the impact of cross-border renewables procurement by corporates that optimizes for decarbonization impact.
Our study comes against a backdrop of change in the Greenhouse Gas Protocol, which sets emissions reporting standards worldwide. Changes are being considered around how organizations report emissions associated with their power consumption, or ‘scope 2 emissions’. The new rules could have a huge impact on the sourcing of renewable power, changing the landscape for the global build-out of renewables and therefore the decarbonization impact of the global power sector.
The Corporate Catalyst quantifies the size of the prize that could be realized by prioritizing emissions impact and relaxing market boundaries in the carbon accounting standard for scope 2 emissions (defined by the Greenhouse Gas Protocol as ‘impact-based reporting’). The study also considers the knock-on impact for the quantum and distribution of renewables investment to drive a lower-cost and more equitable transition.
A step forward for decarbonization
Our analysis shows that taking this approach of prioritizing emissions impact could drive savings of 1.7 billion tonnes of CO2 over the next 15 years, equivalent to taking more than 40 million cars off roads today.
This impact comes from increased investment in renewables in coal-dominated power markets across South and East Asia, Africa, and Eastern Europe. These have attracted proportionally low investment in renewables to date when compared to their demand, population, and power-sector emissions, and represent an untapped opportunity to accelerate global decarbonization.
This change could accelerate global power-sector decarbonization by 18 months, compared to the current trajectory, and send a strong market signal in geographies where renewable investment is most needed and has the most emissions impact.
Our base case conservatively assumes that only 325 TWh of annual corporate demand would adopt cross-border procurement for its renewable energy by 2040, reflective of only the largest corporates. If adoption was to increase to 660 TWh annually by 2040, more reflective of the scale of corporates with concrete decarbonization ambitions today, the global impact could almost double to 3.2 billion tonnes of CO2 – more than the annual power sector emissions of the European Union today. Our analysis suggests that there is significant headroom to continue delivering decarbonization as demand grows, well beyond this.
An alternative to coal-fired power
We show that CO2 savings in South and East Asia would be driven by the displacement of 2,100 TWh of coal-fired power by 2040, leaving 825 thousand tonnes of coal in the ground. Homes and businesses would instead be powered by the output from 155 GW of wind and solar projects. By 2040 these projects are no more than 15 years old, and could go on to produce another 5,800 TWh of zero-carbon electricity.
The scale of these markets, and the dominance of coal on their grids, gives huge scope to deploy renewables without risk of ‘curtailment’, which occurs when renewable generation exceeds demand in a market and must be turned down.
A cheaper and more equitable energy transition
Focusing on emissions impact and removing market boundaries for scope 2 emissions reporting could help to drive $85 billion of investment into developing economies by 2040. This cumulative figure, which only accounts for capital from corporates headquartered in advanced economies, is more than the total foreign direct investment made into India, Indonesia and Vietnam combined in 2022.
A cross-border renewables procurement approach would also enable a lower-cost energy transition, by offering greater impact for each dollar of capital spent. The total investment cost of reducing carbon through cross-border procurement averages $65 per tonne of CO2, less than half the cost compared to equivalent investment made within today’s market boundaries. This is driven not just by the 60% greater decarbonization potential of renewables in these markets, but also a 20% lower cost of available projects per MWh.
An achievable vision for corporate procurement
While this change starts with new reporting rules, it would need to be supported by enablers such as a well-designed cross-border mechanism, supportive national policies, and transparent access to data.
If these challenges can be met, our report shows that the substantial reward is a faster, cheaper, and more equitable energy transition.
Read the full report on Baringa’s website here.
Get in touch
We’d love to speak to you about your views on the energy transition and how you’re managing your renewable power strategy, particularly in light of the changes being proposed by the Greenhouse Gas Protocol.
If you have any questions on our study or would like to speak about your energy strategy, please reach out to report authors Dr. Mark Turner (mark.turner@baringa.com), Hannah Simmonds (hannah.simmonds@baringa.com), and Alec Granville-Willett (alec.granville-willett@baringa.com).