Does Draft GHG Protocol Guidance Limit Market-Based Mechanisms for Bioenergy?

Coauthored by Wiktoria Beckmann and Caspar Noach

Bioenergy (including biomass, liquid fuels, and biogas) is essential for achieving net-zero emissions. Bioenergy will cover at least 25% of global energy demand by 2050, according to the International Energy Agency’s 1.5°C scenario, and is crucial to decarbonizing aviation, shipping, electricity, and high-temperature sectors like paper and cement production.

Global Bioenergy Policy Support Is Increasing

Policymakers around the world are developing supporting policies to stimulate global demand for bioenergy in the future. For instance, the US’s Renewable Fuel Standard mandates biofuels blending, while the EU’s Renewable Energy Directive imposes similar obligations for the transportation sector. The UK’s Green Gas Support Scheme provides financial incentives for the development of biomethane digestion plants, and China has a comprehensive policy for renewable energy, including bioenergy, with ambitious targets and support mechanisms for development and deployment in power and heat generation.

Market-Based Mechanisms Are Commonly Used for Bioenergy

Market-based mechanisms for bioenergy are policy instruments that create a market for bioenergy products or activities, incentivizing their adoption and use as a low carbon alternative to fossil fuels through market forces such as carbon pricing or subsidies. For instance, mechanisms such as bioenergy certificates enable buyers to credibly claim their energy’s low carbon performance, much like renewable energy certificates (RECs) do, thus driving bioenergy market development.

The EU’s Fit for 55 proposal allows the use of high quality green gas certificates under the EU Emissions Trading System (ETS), provided that the supply and demand of green gas in the network is accurately tracked. Multiple independent certification schemes and national policies include requirements for sourcing, feedstock management, and bioenergy production to guarantee that bioenergy does not harm other environmental goals.

Market-based mechanisms for bioenergy are also commonly applied by corporations to reduce emissions. The Science-Based Targets initiative, for example, allows companies to account for bioenergy consumption in their targets, provided they include and report biogenic emissions and associated removals separately under their target boundaries.

New Guidance Limits Market-Based Mechanisms for Bioenergy

Until recently, the Greenhouse Gas (GHG) Protocol did not provide explicit guidance or requirements on using market-based mechanisms for bioenergy in GHG accounting (apart from an annex that was later removed implying bioenergy certificates could be used if criteria like those in place for RECs were met). However, with the publication of the draft Land Sector and Removals (LSR) Guidance, the use of market-based Scope 1 instruments is now explicitly restricted to biofuels or biogas sourced directly or via a dedicated pipeline. This may significantly discourage bioenergy use by corporations, including the application accepted under the EU ETS.

The draft LSR Guidance also raises the question of whether biogenic emissions can still be balanced with a respective amount of CO₂ previously removed from the atmosphere and stored in the feedstock used for bioenergy if it is not harvested and used in the same reporting year. This situation poses a challenge to corporations that rely on bioenergy to achieve long-term climate goals.

Despite these challenges, Guidehouse is convinced that bioenergy and market-based systems to trade them have an indispensable role to play in hard-to-abate sectors, as long as the value chain is effectively monitored and sustainability criteria are met. We hope that the recently closed GHG Protocol survey on market-based instruments will result in updates allowing their use for bioenergy and other applications, albeit under strict quality criteria.