What is a Non-Fossil Certificate? – The latest points of the system and a glossary of terms to understand first

✅ Roughly speaking

Introduction

This time we will explain about non-fossil certificates.
As calls for a transition to a decarbonized society grow, many companies and local governments are exploring the use of renewable energy.
One initiative that has attracted attention in this context is the "Non-Fossil Certificate."
The reality is that many people know the name but do not actually know the details, and I believe that the system and how to use it are not yet sufficiently known.
A Non-Fossil Certificate is not the electricity itself, but rather certifies the environmental value of the electricity being derived from non-fossil fuels, and is an option for environmental conservation both domestically and internationally.
Below, we will explain how Non-Fossil Certificates work, how to purchase them, the benefits and precautions to take when using them, and how they differ from other environmental value certificates.

What is a Non-Fossil Certificate?

Non-fossil fuel certificates are a system that separates and certifies the "environmental value" of electricity generated from non-fossil fuel sources (such as renewable energy and nuclear power), making it possible to trade it.
The electricity that consumers actually use is mixed and supplied from power plants via the power grid, and it is not possible to directly know what source that electricity came from. However, by treating environmental value as a separate certificate, Non-Fossil Certificates are used as a means of visualizing and proving efforts to introduce renewable energy and reduce greenhouse gas emissions.
I would like to introduce a website that the Agency for Natural Resources and Energy created in 2018 (7 years ago!) introducing non-fossil fuel certificates, before the Non-Fossil Fuel Certificate System was launched.

Will the "Non-Fossil Certificate" system, which will be introduced in May 2018, make it possible to purchase CO2-free electricity?

Types of Non-Fossil Certificates

There are three main types of non-fossil certificates:
We will explain each one below.

FIT Non-Fossil Certificate

This is a certificate that certifies the environmental value of electricity generated based on FIT.
The target is renewable energy sources such as solar, wind, small and medium-sized hydroelectric, geothermal, and biomass, and when power generation companies sell electricity, the environmental value belongs to the government, which separates and sells it as a certificate.
Since tracking information is provided for all quantities, it can also comply with international standards such as RE100.

Reference: "RE100" initiative aiming to achieve 100% renewable energy

Tracking is discussed separately below.
Regarding the question of why the environmental value of electricity generated under the FIT belongs to the state and not to the power generation company, under the FIT, when electric power companies purchase renewable energy electricity at a fixed price, the state (or more accurately, the Organization for Cross-regional Coordination of Transmission Operators (OCCTO), a state-designated organization) collects the purchase costs from the public as a levy, and the environmental value is also considered to be established through the burden borne by the entire public, so the system is such that it belongs to the state, not the power generation company.

Non-FIT non-fossil certificate (with renewable energy designation)

Although not subject to the FIT system, this certificate certifies the environmental value of electricity generated from renewable energy sources (e.g., post-FIT sources, large-scale hydroelectric power plants, etc.).
With the consent of the power generation company, tracking information will be provided and used to prove that the electricity is derived from renewable energy.

3. Non-FIT non-fossil certificate (no renewable energy designation)

This is a certificate that certifies the environmental value associated with electricity generated from sources that are not renewable but do not use fossil fuels, such as nuclear power generation.
This certificate does not provide tracking information and is not suitable for proving renewable energy use.
It does not comply with international standards such as RE100, so caution is advised when using it.

The Importance of Tracking

To recap, the first thing that can become a tracking-enabled non-fossil certificate is the FIT non-fossil certificate.
This means that tracking will be mandatory for all certificates from 2021 onwards, making it fully compliant with international standards such as RE100.
Secondly, there is the Non-FIT Non-Fossil Certificate (with renewable energy designation), and from August 2021 onwards, it will be possible to provide tracking information with the consent of the power generation company.
On the other hand, non-FIT non-fossil certificates (without renewable energy designation) are clearly distinguished from other certificates in that they do not have tracking and do not comply with international standards.

Non-fossil fuel certificates with tracking will include detailed information such as the type of power source, the name of the power plant, and the date of generation.
This is often a prerequisite for complying with international disclosure standards such as RE100, Carbon Disclosure Project (CDP), and the Science Based Targets initiative (SBTi), and the credibility of reporting, particularly for global companies, depends on whether or not they comply.
Tracking clearly indicates attributes such as "at which power plant" and "when" the electricity was generated as evidence of the certificate, and serves as proof of the actual use of renewable energy, rather than simply a numerical reduction in CO2 emissions.
Furthermore, the reality is that the presence or absence of tracking information is often the deciding factor in audits and third-party reviews.

How to purchase a Non-Fossil Certificate

There are three main ways to purchase a Non-Fossil Certificate. Here we will explain in more detail the features and points to note for each method.

JEPX market trading (auction method)

The acquisition will be made through a bidding process via the Japan Electric Power Exchange.
The auctions will be held regularly every month, and prices will be determined by the balance of supply and demand.
Participants are mainly electricity retailers and large-scale consumers, and purchasing results are made public, making prices highly transparent. However, participation in the trading requires prior registration, and participants must understand the trading unit and bidding rules.

Negotiated transactions

This is a method of purchasing electricity by negotiating directly with retail electricity companies.
In some cases, non-fossil fuel certificates are incorporated into long-term power purchase agreements (PPAs), allowing companies to procure energy in line with their medium- to long-term decarbonization strategies. While private transactions may allow procurement at prices lower than the market, they require individual coordination with the counterparty regarding contract terms and certificate issuance dates.
While there is a high degree of freedom in contracts, it is essential to check the validity of certificates and whether tracking is supported.

Secondary acquisition (resale)

This is a method of transferring an already obtained certificate from another business operator.
This may be easier than obtaining a certificate through an auction or private transaction, but you should pay attention to the year of issue, expiration date, and whether or not it has tracking information.
Older certificates or non-tracking certificates may not meet your requirements, especially if you are aiming to comply with international standards.
Therefore, it is important to carefully check the certificate's attributes when purchasing.

Benefits and points to note

merit

Below we summarize the main benefits of introducing non-fossil certificates.
By understanding the background and effectiveness of each benefit, you will be able to clarify the best way to use it and the steps to consider it for yourself.

Can be used to reduce Scope 2 emissions

The GHG Protocol's Scope 2 Guidance clarifies that when Energy Attribute Certificates (EACs) that meet the Scope 2 Quality Criteria are used, the emissions factor for that electricity can be treated as zero in market-based accounting.
Therefore, by properly retiring (voiding) tracking, renewable, non-fossil fuel certificates , companies can calculate their market-based Scope 2 emissions as net zero.
The quality standards required in this case include matching market boundaries for supply areas, matching the time (vintage) of generation and usage, and preventing double counting in billing.

Reduced initial investment and quick implementation

Non-fossil certificates do not require the installation of physical facilities and can be implemented in a short period of time by standardizing purchasing and redemption procedures.
Generally speaking, compared to on-site power generation or off-site PPAs, it is less affected by constraints such as initial investment, construction time, and grid connection, making it possible to flexibly expand to multiple locations.

Meets RE100 requirements

RE100's technical requirements areMarket Boundaries and Time Alignment We are calling for the purchase and retirement of tracking renewable energy certificates in accordance with the guidelines.
For use within Japan, using a non-fossil fuel certificate with a renewable energy designation issued in the Japanese market increases the likelihood of reporting performance that meets the requirements.。

Prevents double counting and strengthens audit response

By properly retiring and invalidating certificates and keeping records of such actions, it is possible to prevent double counting of the same amount of electricity.
RE100 places emphasis on depreciation confirmation, and thorough depreciation confirmation is scheduled to become mandatory from 2026, which is also beneficial from the perspective of audit compliance.。

Strategic procurement is possible by taking advantage of market price transparency

JEPX's non-fossil value trading market publishes information such as upcoming events, bidding results, and contract price ranges.
This makes it easier to understand the timing and price range of procurement, allowing for streamlined budget management and strategy design for certificate procurement.。

Contribution to achieving policy goals

The use of non-fossil certificates is mandatory for retail electricity suppliers.Non-fossil fuel power source ratio of 44% or more by FY2030 It is believed that this will also contribute to achieving the policy objectives.
By allowing companies to price the value of non-fossil fuel energy sources through certificates, it has the effect of encouraging a shift in the energy mix through market mechanisms.。

Points to note (pitfalls in practice)

By organizing the system-related points to be aware of before purchasing Non-Fossil Certificates and the problems that tend to arise in the field of operation and reporting, it is possible to prevent problems and rework after implementation and reduce the burden of explanations both inside and outside the company. Below, we will also explain the issues and risks that are likely to arise when actually using Non-Fossil Certificates.

"No renewable energy designation" is unsuitable for claims such as RE100

It is important to note that tracking is not available for non-FIT (non-renewable energy designated) sources, including nuclear power, and therefore cannot be used in principle to advocate the use of renewable energy or to comply with RE100.

Consideration of time consistency (vintage)

The GHG Protocol requires that harmonization take place "as close as possible," and in practice, it is generally safe to align emissions for power generation within the same fiscal year (see: GHG Protocol Scope 2 Guidance）。

Consideration of geographical consistency (market boundaries)

RE100 is based on procurement and use within the same market, and additional requirements are imposed when crossing borders, so we believe it is safest to choose a Japanese market certificate for use in Japan.。

Managing the risk of double counting

To prevent multiple claims from being made for the same amount of electricity, records of ownership, transfer, and amortization of certificates and the retention of supporting documents must be kept.。

The need for dual reporting

The GHG Protocol requires disclosure of both location-based and market-based emissions, so even if the certificate reduces the market-based emissions, the location-based emissions must be disclosed separately using the system average factor (see: GHG Protocol Scope 2 Guidance）。

The future of evaluation (social debate)

Discussions regarding the effectiveness of using certificates are still ongoing, and SBTi has also published a summary of the issues and its views regarding the treatment of Scope 2. Future updates may affect reporting and communication, so it is necessary to continuously check the latest rules and trends in interpretation.。

Comparison with other Environmental Value Certificates

The table below compares the three certificates - Non-Fossil Certificates, Green Power Certificates, and J-Credits - side by side in terms of their scope, whether they include tracking, their compliance with international standards, and their main uses.
First, understand the overall picture, and then consider separating your own reporting objectives (such as calculating GHG emissions or complying with RE100) from communication objectives (such as communicating your brand or CSR), which should make it easier to select the certificate that best suits your situation.

The unique feature of non-fossil certificates is that they make the "willingness to contribute to decarbonization" visible in the market through trading of environmental value.
However, the degree of international acceptance varies depending on whether or not the energy is designated as renewable energy and whether or not tracking information is available, so it is necessary to make an appropriate selection depending on the purpose.

summary

Non-Fossil Certificates are a practical option to advance renewable energy procurement and greenhouse gas reporting at a realistic cost.
If you are not yet familiar with non-fossil certificates, we recommend that you first review the latest system changes and practical definitions in primary sources in light of your own assumptions (year of coverage, time alignment, regional market boundaries, etc.).
In particular, by reviewing the public documents of the Agency for Natural Resources and Energy, OCCTO, and JEPX, as well as the latest versions of the GHG Protocol and RE100 technical requirements, it will be possible to avoid misunderstandings about terminology and scope of application.
Based on this confirmation, by clarifying your company's objectives and constraints, you should be able to clarify the next procurement routes and operational design issues that you should consider.