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November 28, 2023
Telefónica could be seen as a prime example of a telco doing its bit to reduce carbon emissions. For one, it was the first operator to have its targets validated by the science-based targets initiative (SBTi). And having achieved its Scope 1 and 2 targets early, it has recently increased its commitments, seeking to reduce emissions by 90% by 2030, with any emissions to be offset with carbon credits from 2025 onwards. While this is certainly praiseworthy, the metric used to calculate these figures raises questions about how much the company has really slashed emissions.
There is no need to repeat why CO2 emissions need to go down. But in case anyone needs a reminder, the Earth is currently on track to warm by nearly three degrees Celsius, about twice as much as is generally considered safe. In the meantime, excess deaths, internal displacement and food scarcity are already occurring as a result of more frequent – and more severe – extreme weather events.
But back to Telefónica. By widely accepted metrics, the company has fulfilled its previous goal of reducing Scope 1 and 2 emissions by 80% by 2030 eight years early. Common sense dictates that Telefónica's operations therefore generated 80% less CO2 in 2022 than in 2015 –but the reality is more complicated. The figure includes Scope 2 emissions calculated with the so-called market-based (MB) metric, which has been under increasing scrutiny.
This approach allows companies to count a range of mechanisms like renewable energy certificates (RECs) – which are not linked to physical power supply – toward their progress. To simplify, in the case of RECs, renewable energy producers can sell power to the grid and then issue a certificate for equivalent energy. The buyer of that certificate can claim the green attributes of the energy without being the sole consumer of that power.
A tale of Scope 2 emissions
A common argument in favor of RECs is that they support renewable energy projects and create an incentive for new clean power plants to be built. Yet research suggests REC purchases are unlikely to lead to additional renewable energy production, with a study published in Nature Climate Change last year showing that "the widespread use of RECs by companies with science-based targets has led to an inflated estimate of the effectiveness of mitigation efforts."
Put otherwise, there is a concern that the MB approach does not accurately reflect the greenhouse gas emissions caused by a company's activities. Let's imagine a cloudy day with little wind, when a large amount of gas-fired electricity is coming onto the grid. While a company can offset all its emissions by purchasing RECs for this market, it is still consuming some or all its power from the grid. If, hypothetically, it ceased to consume all power, logic dictates fewer fossil fuels would be needed that day.
So what is the alternative? There is another metric – the location-based (LB) approach – which focuses squarely on where electricity is consumed. It takes the figure for average emissions on the grid and uses this to calculate the carbon footprint of any power generated.
Telefónica reports its location-based emissions and the difference with the MB metric is stark. In 2022, MB emissions were 221,537 tonnes of CO2 equivalent (tCO2e) – only about 22% of the LB figure, which amounted to 1 million tCO2e. While MB Scope 2 emissions fell by 85% last year, LB ones decreased by just 46%.
Through rose-tinted lenses
Telefónica is not in any way an outlier when it comes to using the MB approach, and a 46% reduction in LB emissions still shows that progress has been made. In fact, Telefónica could be considered as one of the more climate-conscious telcos given it has introduced clear emission reduction targets. According to EY, 39% of telcos do not disclose a net zero strategy, transition plan or decarbonization pathway, with the quality of carbon disclosures worsening in recent years.
Vodafone, for its part, also had a large gap between MB and LB Scope 2 emissions, which in 2022 stood at 820,000 tCO2e and 1.98 million tCO2e, respectively. For the same period, Orange reported 900,000 tCO2e in MB emissions and 1.1 million in LB ones. It's worth noting that while the French group's MB emissions fell year-on-year, LB ones increased slightly.
Telefónica – or any other telco – isn't responsible for running the national power grid in the markets where it operates, and it would be unreasonable to expect it to have significant influence over decarbonization. No one is asking Telefónica to do that.
But brandishing numbers that don't accurately represent the electricity consumed obfuscates the truth. If all it took to consume clean energy was buying a carbon credit, greening the networks would be a much simpler task. In the long term, refusing to take off the rose-tinted lenses of the market-based approach only hides the problem, a bit like painting over a nasty patch of mold in the bathroom, which will resurface again over time, looking much worse.
Read more about:Europe
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