Turning emissions from electricity consumption into a hard currency

By Fanny Tausendteufel, Senior Associate, Industrial Policy and Energy Sector Integration & Leon Berks Supply Chains and Raw Materials Analyst at Agora Verkehrswende

The European Green Deal has set the ambitious goal of achieving a climate-neutral EU by 2050. This also includes the automotive industry's value chains. But when it comes to carbon accounting methods, especially regarding emissions from electricity consumption in the industrial sector, Europe’s regulatory framework is rather inconsistent. 

Industry will play a significant role in achieving climate neutrality, as the sector is responsible for some 20 percent of overall European emissions. Accordingly, the EU has implemented various instruments to reduce industrial emissions, including the Corporate Social Responsibility Directive (CSRD), the Battery Regulation, the Carbon Border Adjustment Mechanism (CBAM), and the Renewable Energy Directive (RED). 

However, these regulations currently rely on divergent carbon emission accounting methods. While the CBAM, for example, requires companies to report emissions based on the emissions intensity of the European electricity grid, the RED III and the current draft of the delegated act of the Battery Regulation only foresee the national electricity mix as a basis for corporate CO₂ balances. This inconsistency is especially relevant for automotive manufacturers and suppliers, as they can be affected by all of the mentioned regulatory norms.

Regardless of whether companies are required to report their carbon emissions or to pay a price based on product carbon footprints (PCFs), they need methods to measure their emissions in a reliable and harmonized way. Only then will they be able to reduce industry emissions in a cost-efficient manner. To be sure, comprehensive and consistent results are also necessary to build confidence among stakeholders in European climate policy.

In addition to the question of how to measure carbon emissions, there is also the question of which instruments for reducing emissions are permissible under the regulatory framework. Power Purchase Agreements (PPAs), for example, cannot be considered under the Battery Regulation, according to the draft of the delegated act. This is problematic, as PPAs have the potential to significantly support and accelerate the energy transition. These long-term contracts between electricity producers and off-takers provide financial stability for plant operators and facilitate the development of new renewable energy plants. For this reason, PPAs are a key element of the revised Electricity Market Design Regulation.

The exclusion of PPAs from the Battery Regulation impairs the ability of companies to influence their CO₂ balance and product carbon footprints. Indeed, PPAs provide companies with a valuable tool for reducing the emissions profile of their electricity use. Without the possibility to take advantage of contractual instruments such as PPAs, the only way for companies to reduce emissions from electricity consumption is to choose production locations with low emissions intensity. This denies companies agency, turning climate policy measures into industrial location policy measures.

As part of the Clean Industrial Deal, the European Commission plans to simplify and harmonize carbon accounting methods this year. An important step would be to include PPAs in the Battery Regulation, so there is one electricity procurement method that companies can consider in their CO₂ balance to fulfill every carbon accounting requirement under European regulations.

To harness the potential offered by PPAs, associated policy design should include three criteria: additionality, temporal correlation, and geographical correlation. Additionality ensures that companies are investing in new renewable energy projects, rather than relying on existing supply. Temporal correlation ensures that electricity use aligns with generation. And geographical correlation requires that renewable electricity is produced close enough to where it is consumed, thus reducing grid congestion. A blueprint for a policy framework that includes these criteria can be found in the delegated act to the Renewable Energy Directive (RED) on the production of renewable fuels of non-biological origin (RFNBO).

The policy design should also include a certification system to verify environmental claims – as foreseen by the delegated act of the RED II. This would make sure that the aforementioned criteria are met while also minimizing the risk of double counting. Double counting occurs when the environmental attributes of renewable electricity are claimed by multiple parties. This was a key reason for excluding contractual instruments such as PPAs from the Battery Regulation, given the challenges of verifying claims outside the EU. A certification system is necessary to verify that environmental attributes are only credited to the buyer who signed the PPA with the electricity producer.

It is promising that the European Commission has recognized the need to harmonize carbon accounting methods as part of the Clean Industrial Deal. This is an important and urgent undertaking, not only for reducing industrial emissions, but also for continued progress in the energy transition – and, by extension, for achieving the targets set forth by the European Green Deal. The task now is to implement suitably designed policy measures.

This article first appeared as a guest contribution in Tagesspiegel Background on 23 June 2025