The system of guarantees of origin at its limits?
Knowledge about the origin of electricity and the associated greenhouse gas emissions is an important pillar of the energy transition. Guarantees of origin (GoOs) are now the central instrument in Germany and Europe for proving electricity from renewable energies as part of electricity labeling. According to Article 19 of the EU Directive 2018/2001 (RED II), when providing proof to end customers, GoOs should serve to ensure that the origin of electricity can be guaranteed “in accordance with objective, transparent and non-discriminatory criteria” . GoOs can be traded not only within the EU, but also in other countries. This is because GoO trading and electricity trading are independent of each other. There is no physical link between generators and consumers of GoOs, i.e., neither a physical line needs to be present, nor does the GoO need to be cancelled at the hour of generation. Thus, regardless of actual pipeline connections or imports and exports of electricity, Icelandic and Norwegian GoOs, for example, can be exported to the EU. This means that the renewable property of a MWh produced from hydropower in Norway in the summer can be cancelled for electricity consumed in Germany in the winter of the same year. A large part of the GoOs used in Germany for electricity labelling come from Norwegian hydropower .
The above-mentioned directive as well as bilateral agreements explicitly state that EU member states and participating third countries must prevent double counting of energy from renewable sources. Recently, however, double counting of renewable electricity certificates of origin in Iceland became known, which is why the managing transnational institution AIB (Association of Issuing Bodies) imposed an export ban on Icelandic GoOs .
A legal opinion commissioned by the Austrian electricity company Verbund is also reported to have found evidence of double counting of Norwegian green electricity .
How does the GoO system work and how could double-counting of GoOs occur in Iceland? Is similar double marketing possible in Norway and other countries? And what impact could this have on the German market? We will explore these questions in this article.
The GoO system faces growing challenges in Germany and Europe in an increasingly renewable energy system. New EU regulations, e.g., for green hydrogen labelling and corporate sustainability reporting, could change the role of GoOs from simply labelling energy volumes to end users to a system that incentivizes the expansion of renewable energy. This is done by imposing new requirements for simultaneity, additionality, and spatial coherence. For example, the generation and consumption of a HCN must occur in the same hour, from a newly or additionally built plant in the same control area. In our publication series “Sustainable Guarantees of Origin”, you will find basic information on the GoO system in Germany, analyses of the growing challenges, as well as possible solutions for an end-to-end digitalized, sustainable GoO system.
Guarantees of origin – a market-based mechanism
In recent decades, advancing climate change has led to increased political and societal will to replace fossil fuels with renewable energy. Since all electrical energy fed into the power grid is mixed and makes physical proof of the origin of individual amounts of energy impossible, various systems of trading Guarantees of Origin (GoOs) have emerged. In the European area, there is a cross-state, uniform system in which GoOs can be traded and which is administered by the AIB . A GoO is the institutionally secured proof that a unit of electrical energy (by default one megawatt hour, 1 MWh) originates from a specific form of production, usually from a renewable source. In this way, environmentally friendly green electricity can be both proven and additionally remunerated . This remuneration arises from the possibility for electricity producers to sell their generated GoOs. This is intended to provide investment incentives for renewable energy. Companies and private electricity providers can acquire virtual certificates for electricity from renewable sources via the GoO system and record them in their balance sheets, even if this would not be possible due to the actual electricity mix in the local grid. Companies can thus achieve their sustainability goals as well as advertise sustainably generated products. Private individuals can select green electricity tariffs with an electricity provider of their choice in this way.
Trading in GoOs is independent of the physical flow of electricity. There is a separate market for GoOs with its own pricing, in addition to bilateral trading relationships and “over-the-counter” trading, which is independent of trading in electricity volumes. Key is that certificates can be traded within the entire GoO market. For example, GoOs can be imported into Germany from countries within the European Economic Area, which includes Iceland and Norway. Purchasing GoOs does not imply that the electricity purchased from the grid is actually green, nor that there must be a physical line connection between the GoO buyer and seller. To ensure that the sum of GoOs generated does not exceed the sum of GoOs purchased, each certificate may only be cancelled once for electricity labelling purposes, after which it loses its validity.
There are three main ways for electricity consumers to account for the electricity they consume and the associated emissions. First, companies can account for the location-based electricity mix in their balance sheet. This reports the actual physical composition of the electricity in the consumer’s local power grid. Second, companies can account for their electricity consumption and emissions on a market-based basis and have GoOs cancelled for this purpose. Only if the entire amount of electricity is covered by cancelled GoOs can it be marketed as green electricity. Third, companies can use market-based accounting, but not buy guarantees of origin for their electricity. In this case, since the renewable origin of the electricity (evidenced in the form of GoOs) is separate from the physical electricity, a different electricity mix must be accounted for in the balance. This electricity mix, called the residual mix, is calculated from the local electricity mix, the quantities of electricity imported and exported, and the number of GoOs issued, cancelled, and expired. In Norway, the residual mix for market-based balancing contains only 15% renewables, significantly less than the locality-based electricity mix, which contains 99% renewables. A detailed calculation of the Norwegian residual mix is presented in the Norwegian Electricity Disclosure . In Germany, the residual mix is calculated slightly differently due to the Renewable Energy Sources Act (EEG). Here, the ENTSO-E energy carrier mix is used, adjusted by EEG-subsidized as well as GoO electricity .
Thus, for a market-based quantification of indirect emissions from purchased energy in corporate reporting according to the Greenhouse Gas (GHG) Protocol, only electricity products can be accounted as 100% renewable, for which 100% GoOs have been cancelled. In the context of the “Agenda European Green Deal”  proclaimed by the EU Commission and the “Sustainable Finance Strategy”  with the “Corporate Sustainability Reporting Directive” (CSRD) , “Sustainable Finance Disclosure Regulation” (SFDR)  and the EU taxonomy , new regulations will be imposed on companies.
Double marketing in Iceland – market-based vs. location-based emissions accounting
Iceland produces 100% of its electricity from renewable energy sources and exports approximately 79% of the GoOs issued for this purpose to the EU (see Figure 1) . However, there is no physical exchange of electricity – Iceland and the EU have no grid connection to each other . In Iceland, however, despite this export of GoOs, the country’s three major aluminum smelters, which consume about 63% of Iceland’s electricity, advertise green aluminum, produced with renewable energy . Here, the companies base their statements on the physical electricity mix in the Icelandic power grid, which in fact comes exclusively from renewable sources.
The indirect emissions caused by aluminum production are thus quantified using the location-based method, rather than the market-based method described above. As can be seen in Figure 1, this accounting of green electricity in the local grid while the Icelandic aluminum smelters sell GoOs to Europe results in double marketing of GoOs . For the green electricity produced (19 TWh), which is also used by the aluminum smelters as an argument for green production (12 TWh), in the form of guarantees of origin somewhere in Europe (e.g., Germany) can also be used for this argument (15 TWh). Here, however, in the context of market-based balancing. This represents classic double marketing, in this case of GoOs for 8 TWh of electricity. This double marketing ultimately led to an export ban of Icelandic GoOs by the AIB in April 2023 .
However, this export ban was withdrawn by the AIB in the beginning of June, as the Icelandic authority Landsnet was on track to implement the requirements .
Norway – a similar case?
The disclosure of Iceland’s double marketing has now brought Norway into focus. As in Iceland, the local electricity mix in Norway contains almost entirely electricity from renewable sources, mainly hydropower. At the same time, Norway exports 79% of the GoOs it generates to Europe  and has energy-intensive industries such as aluminum, cement, chemicals, and paper production. In addition, electricity consumption is high in the residential and service sectors, as almost all buildings are heated with electricity .
Due to Norway’s membership in the AIB’s GoO trading system, all Norwegian companies are required to have GoOs cancelled through their electricity supplier if they wish to market the electricity and products produced with it as green. That these additional costs are unpopular with many Norwegian companies was also evident in Norway’s deliberations to withdraw from the GoO trading system in 2021. This plan was supported, for example, by Norway’s largest aluminum producer and electricity consumer, Norsk Hydro .
While in Iceland the electricity consumption and advertising behavior of the three largest companies were sufficient to conclude that there was nationwide dual marketing of green electricity, the situation in Norway is more complex. Norway has a significantly higher total volume of generated and cancelled GoOs, and almost eight times higher electricity consumption than Iceland. The share of individual large consumers in total electricity consumption is much lower in Norway than in Iceland.
However, based on Norway’s aforementioned GoO net export ratio of 79%, it can be seen that only 21% of the GoOs issued in Norway for electricity labelling remain in the country and can be cancelled there.  Due to the overproduction of electricity in Norway, 21% of GoOs correspond to about 23% of domestic electricity consumption. For example, since the electricity consumption of the entire Norwegian manufacturing industry is over 47% , only just under half of the industry would be allowed to advertise green products (and would have to cancel all of the country’s GoOs to do so).
The largest electricity consumers and the lack of domestic GoOs.
Based on our analysis of the energy consumption and advertising behaviour of Norway’s five largest individual electricity consumers, dual marketing of GoOs appears highly likely. All five are global raw materials companies with relevant shares of their electricity-intensive production in Norway. The combined electricity consumption of these five companies in Norway in 2021 was approximately 30 TWh, 21% of Norway’s total electricity consumption. At the same time, all five companies massively advertise sustainable business strategies, green end products, and electricity from Norwegian hydropower. Also, based on a local calculation of emissions according to the GHG Protocol, the companies report very low Scope 2 emissions. The GHG Protocol is a widely used standard for emissions accounting. Norwegian renewable energy in the form of hydropower is thus central to all five companies – for corporate reporting and public advertisement.
The companies’ preference for location-based emissions accounting using the physical mix of electricity in the Norwegian grid is likely due primarily to the fact that market-based emissions accounting would be significantly worse for the companies. The GHG Protocol allows for accounting of purchased electricity, both market-based via GoOs and via the local physical electricity mix. As described above, the share of renewable energy in Norway’s residual mix is 15% and the share of renewable energy in the local electricity mix is 99%. The magnitude of this difference is due to the almost exclusively renewable physical electricity mix in Norway on the one hand, and the country’s high GoO export rate on the other.
Regardless of the reporting guidelines of the GHG Protocol, the location-based accounting of emissions described above is rule-breaking from AIB’s perspective as soon as the electricity consumed is otherwise accounted for in a market-based manner. The AIB has made this clear in its press release on Iceland . Since Norway participates in European GoO trading, the five Norwegian companies under consideration must also comply with these requirements.
All five companies investigated use location-based emissions accounting and explicitly state that they use 100% electricity from renewable Norwegian hydropower. For there to be no double marketing, a market-based emissions accounting of the companies would also have to demonstrate 100% renewable energy. Market-based this can only be achieved by the companies covering all their electricity consumption with GoOs. Although the companies do not make any statements in this regard, it is possible to check mathematically whether, given the high export rate of Norwegian GoOs, sufficient GoOs are available there at all for electricity accounting.
In 2021, GoOs for 29.4 TWh of electricity were cancelled in Norway , with the remainder exported or forfeited. In order not to include double-counted green electricity, the 30 TWh of electricity consumption of the five Norwegian companies mentioned above would have to be covered by GoOs for 29.4 TWh. This is obviously not possible. The fact that such a discrepancy is already evident in a sample of five companies indicates double marketing of green power similar to Iceland.
What impact would a further export freeze have on Germany?
If double marketing of GoOs were to be officially proven in Norway, an export ban would have to be discussed as in the case of Iceland. Should there be an export ban of Norwegian GoOs by the AIB, this would have an impact on the other member states of the trading system, including Germany. Since Norway has the highest market share of European GoO supply at 20% , an export ban would significantly reduce supply across the market area and lead to an increase in GoO prices. Since in Germany almost half of the certificates of origin come from Norway  and Germany is the largest importer of Norwegian certificates, Germany would also be most affected by an export ban. The same scarcity effect would result from a possible proactive exit of Norway from the GoO trading system . In both cases, GoO trading could provide an additional investment incentive for the addition of green power generation capacity, beyond the purpose of electricity labelling. In the past, GoO trading was “not a measurable driver of investment decisions” due to low market prices .
Due to large-scale double marketing of green power produced in Iceland, the AIB banned the export of Icelandic GoOs in April 2023. Similar to Iceland, there are Norwegian companies that account for indirect emissions based on location. A legal opinion reportedly found evidence of double counting of Norwegian green electricity . In a sample study of advertising messages and company reports from large Norwegian electricity consumers, we also found evidence of double counting of green electricity.
To date, the AIB has not announced any measures against possible double counting of green power from Norway. However, after the Iceland case, consistent action against Norway seems obvious. An export ban of Norwegian GoOs would severely tighten the supply on the European market. Especially with great risks for the largest European importer of guarantees of origin, Germany.
On the one hand, an export ban on Norwegian GoOs would probably lead to a noticeable price increase for green electricity in this country. On the other hand, high GoO prices could also provide an additional investment incentive for the expansion of green power generation capacity in Germany and other European countries. However, this would require the lifting of the “double marketing ban” under §80 EEG, according to which no GoOs are issued to EEG-subsidized generation plants. EEG subsidies are generally claimed for new plants during the first 20 years of operation.
Addressing the double marketing of green power is of great importance for the energy transition in the different sectors of the energy system. For example, according to the “Delegated Act”  on RED II, the production of hydrogen with electricity from grid purchases has the option of labeling it as “green”, provided the electrolyser is located in a bidding zone whose electricity mix consists of at least 90% renewable energy. To the extent that the electricity mix can be calculated using the location-based method, there is a risk here that electricity volumes marketed as green electricity using GoOs will be counted twice.
Overall, a stricter approach against double marketing of green electricity may offer the opportunity for the GoO system to leave behind its reputation of “ecological indulgence trading” , , ,  and instead contribute measurably to the success of the energy transition in the future.
Outlook and possible improvements of the GoO system
In order for the GoO system to effectively contribute to solving the challenges of a changing, increasingly renewable energy system, we believe a comprehensive revision is necessary. A key step in this regard is to standardize emissions accounting and renewable energy advertising guidelines across Europe, either uniformly location-based or uniformly market-based. In this way, GoO double marketing could be reliably detected and prevented. At the same time, we believe that an analysis of the status quo across Europe is necessary to detect any double-marketing cases in other countries and to provide a basis for the transformation of the GoO system.
Physical constraints such as the maximum possible transmission capacity should also be considered. In addition, the coupling of GoOs to traded electricity volumes should be simplified. Currently, there is the possibility to have the “optional coupling” noted in the GoO according to § 30a of the Herkunfts- und Regionalnachweis-Durchführungsverordnung (HkRNDV). In doing so, e.g., in a Power Purchase Agreement (PPA), electricity quantities can be generated, transferred, and cancelled together with GoOs coupled to them. However, since this requires a complex audit by an environmental expert, it is rarely used today.
In the Europe-wide electricity grid, generation and consumption of physical electricity must always be balanced. The GoO system should reflect this temporal and spatial coupling of generation and consumption, rather than allowing electricity for one consumption period to be colored green with GoOs generated at other locations at other times. End-to-end digitized, near-real-time electricity labeling makes this coupling possible. A higher temporal resolution of GoOs than the current one month as well as a shorter balancing period than one calendar year achieves that for each consumed unit of “green electricity” a quantity-equivalent feed-in of electricity from renewable sources can actually be proven, e.g. within one hour. The certificate size of 1 MWh would have to be reduced accordingly to enable operators of small power plants to prove the renewable nature of the electricity fed into the grid via the GoO system. In an automated, digitalized GoO system, generation and consumption of green electricity can be recorded and assigned to each other via smart meters, for example. In the InDEED project, an energy industry data platform was developed that enables a high-resolution, transparent, and tamper-resistant allocation of generation and consumption. To demonstrate that the platform can make a real contribution to the energy transition, a practical implementation is currently being carried out in the course of a pilot test.
The content presented here was developed in the InDEED project. The research project is funded by the German Federal Ministry of Economics and Climate Protection (BMWK) (funding codes: 03EI6026A and 03EI6026B).
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