Carbon Accounting for Solar-Powered Foundry: How to Claim the Decarbonization Credit
A foundry that installs a solar PV array and powers its induction furnace with solar electricity has reduced its carbon footprint. But the actual carbon reduction depends on how the accounting is done, what methodology is used, and what the claims are based on. The rules are non-trivial, and getting them right matters for carbon credit claims, for customer reporting, and for regulatory compliance. Here is how the accounting actually works.
Start with the GHG Protocol.
The most widely used carbon accounting standard is the GHG Protocol Corporate Standard. It defines three "scopes" of emissions:
Scope 1: Direct emissions from sources owned or controlled by the company. For a foundry, this includes the combustion of natural gas in the furnaces and the combustion of diesel in the vehicles.
Scope 2: Indirect emissions from the generation of purchased electricity. For a foundry, this includes the CO2 emitted by the power plant that generates the electricity that the foundry uses.
Scope 3: Other indirect emissions in the value chain, both upstream and downstream. For a foundry, this includes the raw materials (iron, steel scrap, alloying elements), the inbound logistics, the outbound logistics, and the end use of the cast products.
The solar PV array affects Scope 2 (and possibly Scope 3, if the cast products are sold with a carbon footprint claim). The solar electricity is consumed on-site and displaces grid electricity. The Scope 2 emissions are reduced.
The accounting method for Scope 2.
The GHG Protocol allows two methods for Scope 2 accounting:
Method 1: Location-based. The Scope 2 emissions are calculated using the average emission factor of the grid in the location where the electricity is consumed. For a foundry in a coal-heavy region, the grid emission factor is 0.7 to 1.0 kg CO2 per kWh. For a foundry in a renewable-heavy region, the factor is 0.02 to 0.05 kg CO2 per kWh.
Method 2: Market-based. The Scope 2 emissions are calculated using the emission factor of the electricity that the company has contractually purchased. If the company has a PPA for solar electricity, the emission factor of the solar electricity is 0 (the solar electricity has zero Scope 2 emissions by contract).
The dual reporting is required - companies have to report both the location-based and the market-based Scope 2 emissions. The dual reporting prevents "double counting" and "greenwashing" claims.
For a foundry that installs a solar PV array on its own roof, the situation is clear. The solar electricity is generated on-site and consumed on-site. The market-based Scope 2 emission for the solar electricity is 0. The location-based Scope 2 emission is still based on the grid mix, but the physical displacement of grid electricity is real.
For a foundry that signs a PPA with a remote solar farm, the situation is different. The solar electricity is generated off-site and delivered through the grid. The PPA includes renewable energy certificates (RECs) or guarantees of origin (GOs) that convey the renewable attribute. The market-based Scope 2 emission is 0 for the PPA quantity. The location-based Scope 2 emission is still based on the grid mix.
The additionality question.
For a solar project to qualify as "additional" - meaning that the project would not have happened without the carbon revenue - the project has to meet certain criteria. The additionality is important for the issuance of carbon credits under the various carbon standards (Verra VCS, Gold Standard, etc.).
A solar project on a foundry roof is typically considered additional if the foundry would not have installed the solar without the carbon credit revenue. This is a case-by-case judgment.
A solar project in a region with high solar penetration and falling costs may not be additional, because the project would have happened anyway. The additionality assessment is a serious exercise and should be done by a qualified carbon accounting firm.
The RECs and GOs.
In the US, the renewable energy certificate (REC) is the instrument that conveys the renewable attribute of 1 MWh of electricity. A solar REC represents 1 MWh of solar electricity. A foundry that owns a solar array and consumes the electricity on-site can claim the RECs (or sell them, but then the renewable claim is lost).
In the EU, the equivalent is the guarantee of origin (GO). The GO is issued by the national registry and tracks the renewable attribute. A foundry that signs a PPA with a solar farm gets the GOs and can claim the renewable electricity.
In China, the green electricity certificate (GEC) is the equivalent. The GEC is issued by the China Green Electricity Certificate Trading Center. The market is still developing.
The RECs (or GOs or GECs) are tracked in a registry to prevent double counting. The registry tracks the issuance, the transfer, and the retirement of the certificates. When a foundry claims a REC for its solar electricity, the REC is "retired" in the registry, and the claim is logged.
The carbon credit frameworks.
The major carbon credit frameworks for solar projects are:
- Verra VCS (Verified Carbon Standard): issues Verified Emission Reductions (VERs) for projects that meet the additionality and MRV (monitoring, reporting, verification) requirements
- Gold Standard: issues Gold Standard Credits (GS-CERs) for projects that meet the additionality and sustainability requirements
- CDM (Clean Development Mechanism): issues Certified Emission Reductions (CERs) for projects in developing countries
The carbon credit revenue is in the range of $5 to $30 per ton of CO2, depending on the standard, the project type, and the market conditions. For a 2 MW solar array producing 3600 MWh per year and displacing 1800 to 3600 tons of CO2 per year (depending on the grid mix), the carbon credit revenue is $9,000 to $108,000 per year.
The carbon credit revenue is a meaningful contribution to the project economics, but it is not the primary driver. The primary driver is the avoided electricity cost, the energy security, and the marketing value of the green claim.
The customer-facing claims.
A foundry that has decarbonized its melting process can make customer-facing claims about the carbon footprint of its cast products. The claims have to be specific and verifiable.
Acceptable claims:
- "Cast iron produced with 100 percent renewable electricity"
- "Carbon footprint of 0.05 kg CO2 per kg of cast product (vs industry average of 0.5 kg)"
- "Powered by on-site solar array and verified renewable energy certificates"
Not acceptable claims:
- "Zero carbon casting" (the Scope 3 emissions of the raw materials are not zero)
- "Green iron" (the term has a specific regulatory meaning in some jurisdictions and cannot be used casually)
- "Climate positive" (the claims have to be backed by verified carbon removal, not just emission reduction)
The customer claims have to be supported by documentation - the GHG inventory, the third-party verification, the REC retirement records. The documentation has to be kept current and made available to the customers.
The CBAM question.
The EU Carbon Border Adjustment Mechanism (CBAM) is a carbon tariff on imported goods. The CBAM started a transitional phase in October 2023 and will enter the full implementation phase in 2026. The CBAM applies to iron and steel, aluminum, cement, fertilizers, electricity, and hydrogen.
For a foundry outside the EU that exports cast iron or steel products to the EU, the CBAM imposes a carbon cost on the embedded emissions of the products. The embedded emissions include the Scope 1, Scope 2, and certain Scope 3 emissions of the production process.
Author: MONTE INTELLIGENCE carbon accounting team. For carbon footprint studies and decarbonization strategy, contact helenxu@cnlymonte.com.
