Girl math and 'avoided emissions'
Beware of the self-serving counterfactual
Do you save money by buying an expensive dress on sale? “Girl math” says yes. If you were going to buy the dress anyway, then it was indeed thrifty to wait for the sale. But most of us know, deep down, we were never going to pay full price. Whether you have saved money depends on your counterfactual: what you would have done in the absence of a discount. “Climate math” is sometimes not so different.
Many firms report their own carbon emissions as a matter of course. Some go one step further to estimate their “avoided emissions,” how much their products and services reduce emissions versus if they did not exist. When it comes to calculating hypothetical emissions reductions, choosing a credible alternative reality is complex because of uncertainty. It can also be fraught with bias, and lead to extraordinary results. Lazard found that an elevator and automatic door manufacturer, not your typical climate villain, claimed the lifetime emissions reduction from their products versus alternatives was equivalent to the entire planet’s annual emissions.
Under the Partnership for Carbon Accounting Financials, the “largest voluntary carbon accounting framework for the financial sector,” banks currently track “financed emissions” based on the reported carbon emissions of companies in their portfolio. PCAF recently proposed to broaden these standards to include “avoided emissions.” The hope is that this creates new opportunities to finance the energy transition, like phasing out coal. Yet it risks diluting the impact of climate finance if done poorly.
How we think about waste is one example of questionable counterfactuals. Trash is increasing at an alarming rate and landfills are filling up. One option to deal with all this waste is to simply burn it. Therefore, climate math says that if we are going to burn the waste anyway, we may as well use these garbage bonfires for energy. If heating and electricity use fossil fuels like coal and gas, this could save on carbon emissions by repurposing waste that would have been burned anyway.
Yet this depends on what the waste is made of. According to the BBC’s analysis in October, using waste to generate electricity is more carbon intensive than gas in the UK. The counterfactual calculations that justified using waste for energy are no longer accurate, they say, because more of the burned waste is coming from plastics and not organic matter. Using incineration to manage overflowing landfills meant the waste industry could then market energy from waste as a climate solution. An even more radical solution as a society would be to produce less waste in the first place.
Monetising waste can also subsidise emissions-intensive core products. Eating meat is widely recognised as a carbon intensive activity. Yet pet food is a surprisingly large portion of meat consumption – as much as a quarter of total meat calories consumed in the USA according to Gregory Okin. Industry lobbies argue that pet food is environmentally sustainable, because it primarily sources from waste meat. However, without the extra profits from pet food, the price for human consumption would be more expensive, and potentially reduce demand for the main product.
Even industries we take for granted as sustainable are not immune from climate math pitfalls. Solar electricity has low emissions but will be more impactful on a coal-intensive grid than a cleaner hydro-electric one. Batteries can reduce emissions by charging using renewable energy and discharging when fossil fuels are the next best alternative, though in practice the best revenue optimisation strategies increase emissions in some markets. Electric Vehicles break even on emissions depending on how much they are driven. According to Bloomberg New Energy Finance, this happens in the US after two years, while in China it can take ten years or more because the grid is heavily reliant on fossil fuels.
But what about unlocking investment for the hardest-to-decarbonise industries? If environmentally-conscious investors freeze these companies out of conventional financial markets, they might lack the funding to make sustainable investments and oversight could decrease. Yet this misses the point for industries which primarily decarbonise by going out of business, like coal power. Until there are sufficient alternatives to replace it, coal is a necessary part of the power system, particularly with rising demand from data centres, electric vehicles and air conditioning. Investing in competitors like gas and renewable energy supports coal retirement due to market pressure on energy prices. Divestment policies also reduce financing options, which increases the likelihood of early coal plant retirement according to a Harvard Business School study.
Avoided emissions can be a helpful metric for decision-making, and introducing standards to calculate them could reduce greenwashing. However, financing the reduction of real emissions each year, not hypothetical ones, is what matters for addressing climate change. Anything else seems like a justification to maintain the status quo, dressed up as a good deal. Don’t buy it.
