To achieve Net Zero by 2050, the power sector will need to decarbonise more quickly than other sectors, because of its dependence for transport, buildings, and industrial decarbonisation.

In their Sixth Carbon Budget advice, the Climate Change Committee (CCC) recommended that the UK fully decarbonise electricity generation by 2035, while meeting a 50% increase in demand.1 In October this year, the Government formally made a commitment to fulfil this recommendation.

There are a range of policy options for achieving a zero carbon grid, using incentives and/or regulation. Ultimately these interventions need to shape the behaviour and choices of buyers and sellers of electricity so that they, in aggregate, deliver a Net Zero electricity system.

These mechanisms will be much more effective if they are based on accurate data about the actual carbon content (or intensity) of the electricity they buy, sell, and/or use in real time in real locations.

This means that we need to examine options to improve the tracking of carbon content in electricity markets. Judgements will need to be made about how this is done and the balance between strict accuracy and practicality of implementation.

In this joint paper between Energy Systems Catapult and Elexon, we aim to:

1. Explain the importance and opportunities that could arise from accurate tracking of carbon in electricity markets,
2. Provide a preliminary exploration of the current state of the art and options for improvement, and
3. Identify recommended next steps.

If the UK can harness the power of digitalisation to accurately track carbon across the system at a granular level in time and space, then it opens up significant opportunities to align power market reform with the implementation of ambitious carbon policy, as well as responding to consumer demand for zero carbon electricity.3 To enable this, the challenge is to ensure that carbon is fully accounted for across the electricity system, right from generation to its eventual use.

Key points

In this paper, Accurately Tracking Carbon in Electricity Markets, we have established the importance and opportunties that can arise from granular tracking of carbon, highlighting the potential requirements and how it could be possible to build on existing arrangements.

While efforts are underway or already in place to measure, track, and report the carbon content of electricity within the electricity system, both within existing mechanisms and increasingly in voluntary initiatives, there still remains no whole system coordinated effort in Great Britain to do so at a more granular level. This will likely require the development of common rules and standards, to ensure coherent and consistent verification processes across the entire electricity system. In addition, it may be necessary to improve regulatory practices to ensure this is carried out, which will require further exploration

We believe that the existing rules for electricity markets provide a basis, removing the requirement to develop entirely new systems, and therefore a substantive effort to address carbon tracking should begin in the near-term.

Recommendations for policymakers

1. Carry out a study to assess the feasibility for measuring and reporting carbon emissions across the electricity system, exploring options for measurement (e.g. direct emissions measurement, proxy via carbon content of fuel, etc.) and approaches for reporting between actors and associated parties.
2. Carry out a detailed assessment of the current electrictiy system to understand pathways to granular carbon data measurement and reporting that build on existing rules and processes for electricity markets as well as options for implementing new approaches. This could involve learning from international best practice within a UK context.
3. Seek to establish a coordinated approach to granular carbon data tracking, working with innovative initiatives that are already developing options on a voluntary basis.
4. Ensure data development, management, and governance follows best practice, building on the principles recommended by the Energy Data Task Force.