Carbon Competitiveness

With climate change increasingly making news, companies are competing on the strength of their carbon performance—including emissions and climate-related risks to their business. 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: On March 6, 2024 the United States Securities and Exchange Commission (SEC) adopted its final rules requiring the disclosure of certain climate-related information in filings with the SEC--including registration statements and annual reports. On April 4, 2024 the SEC agreed to a voluntarily pause the requirements pending court review in order to speed up the litigation processes toward resolution. Regardless of how the SEC rules end up after litigation, many customers compete globally for investment and product quotas.

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. Many of our customers need carbon competitiveness information to compete or are required to do more extensive public reporting of greenhouse gas emissions and climate related-risks to their business.

As part of their emissions disclosures, Customers often ask about the CO₂ intensity, or pounds of CO₂ per MWh of the electricity, they buy from us. Many companies, much like they disclose financial reporting, also disclose their carbon emissions directly emitted by them as well as the electricity they purchase each year. It’s not unusual for companies to move production quota to a more competitive plant or for corporate buyers to select products or investors to screen a stock or bond based on carbon performance.

Q: What emissions information do companies report?

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 actual CO₂ gas coming out of a smokestack or tailpipe directly into the air that can be measured. 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 made from creation to disposal. Scope 3 is not required by the SEC final rules, but interest among customers and investors is increasing and some customers are working to report it to meet other requirements or voluntarily.

TVA recognizes that carbon performance can be a critical factor in customer competitiveness. TVA, consistent with generally accepted voluntary carbon accounting standards and in response to customer requires, TVA annually allocates actual CO₂ emissions to customers according to their actual electricity usage in the same manner as it allocates costs.

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 global standard on how electricity customer CO₂ lbs/MWh are fairly and accurately calculated that is consistent with existing North American practices. We were actually an official case study for this 2014 global accounting standard.

Q: Why are companies asking for this?

A: It’s not only because of new U.S. and other state or country 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 and do attract additional production and investment in the Valley.

Q: How does TVA deliver value to our customers?

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—attracting more production for companies already here and bringing new companies into the Valley.

Q: When is low carbon competitiveness 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.