Driving the supplier energy transition with tax credit transferability
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Published February 22, 2025
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Challenge
Reducing Scope 3 or supply chain emissions is critical to reaching global climate and energy goals. Like many consumer goods companies, our client’s Scope 3 emissions accounted for a strong majority of its overall greenhouse gas (GHG) footprint. In addition to setting robust clean energy and operational emissions targets, our client formalized a 2030 Scope 3 emissions reduction target in alignment with global standards.
There are many pathways to reduce supply chain emissions, and high-impact initiatives can be costly at scale. The company sought to achieve its ambitious Scope 3 target in the most ROI-positive manner possible by leveraging its in-house energy procurement expertise and a network of familiar clean energy providers.
Based on these goals, our team identified that tax credit transfers could be harnessed to tangibly reduce Scope 3 emissions while yielding a comparatively higher return on investment (ROI) and return on carbon (ROC) than other initiatives. However, our client faced several barriers to set up an effective program:
The team had little insight into the investment required (dollar per metric ton of CO2) for various Scope 3 initiatives. Combined with internal politics, there was disagreement about which Scope 3 strategies struck the right combination of cost effectiveness and emissions reduction.
Although the company had an existing relationship with a retail energy developer and already made direct investments in regional clean energy assets, it was unclear how to finance a program to make those resources available to suppliers.
Our client was unsure how to implement an energy transition program and collect and account for varying sources of emissions data across its tens of thousands of suppliers.
Unlike traditional energy procurement approaches like RECs or VPPAs, our client was dedicated to procuring clean energy in the supplier’s region, keeping the clean energy attribute and electrons bundled. Embracing such a regional approach complicated scaling.
Our client’s supplier network included companies of all sizes and levels of maturity. The company struggled to balance providing direct, educational support to small and medium suppliers with targeting larger, more mature suppliers with greater GHG impact.
The team had little insight into the investment required (dollar per metric ton of CO2) for various Scope 3 initiatives. Combined with internal politics, there was disagreement about which Scope 3 strategies struck the right combination of cost effectiveness and emissions reduction.
Although the company had an existing relationship with a retail energy developer and already made direct investments in regional clean energy assets, it was unclear how to finance a program to make those resources available to suppliers.
Our client was unsure how to implement an energy transition program and collect and account for varying sources of emissions data across its tens of thousands of suppliers.
Unlike traditional energy procurement approaches like RECs or VPPAs, our client was dedicated to procuring clean energy in the supplier’s region, keeping the clean energy attribute and electrons bundled. Embracing such a regional approach complicated scaling.
Our client’s supplier network included companies of all sizes and levels of maturity. The company struggled to balance providing direct, educational support to small and medium suppliers with targeting larger, more mature suppliers with greater GHG impact.
Given the company’s large tax burden and existing relationship with a well-established retail energy developer, tax credit transfer transactions emerged as an opportunity to boost ROI and amplify the impact of transitioning supplier energy portfolios to cleaner sources. The consumer goods company engaged Earth Finance to integrate these two concepts and explore how financial mechanisms like tax credit transferability can accelerate supplier energy transitions.
Over the course of 2 years, our team worked with the consumer goods company to quantify the emissions reduction potential of a supplier energy transition program, develop a viable financing and partnership structure for the tax credit transfer transaction, engage pilot suppliers, and create a detailed implementation plan. Here’s a closer look:
1) Scope 3 reduction and cash flow modeling. To quantify the size and scale of the opportunity, we used product LCA data and CDP Supply Chain data from 500+ of our client’s suppliers to model the emissions reduction potential of a supplier energy transition program under various clean energy purchasing scenarios. We also modeled the accounting, tax savings, and cash flow implications of purchasing discounted tax credits from the retail energy developer to determine the volume of clean energy that could be made available to participating suppliers.
2) Regional prioritization and demand aggregation. We then aggregated potential demand across multiple suppliers to identify regions optimized for larger, longer-term clean energy contracts. Integrating factors like deregulated versus regulated energy markets, permitting timelines, and administrative burden for new clean energy assets, our team prioritized regions for supplier energy transition program pilots.
3) Supplier engagement strategy development. Next, we created program participation guidelines and supplier engagement materials to help our client cater to large corporations with mature energy programs and small enterprises with minimal expertise. For smaller or less mature participating suppliers, we developed the language and content for 6 educational videos to provide them with a clean energy primer.
Part of this workstream also involved clarifying how different suppliers measured and reported Scope 2 emissions (our client’s Scope 3 emissions) and hypothesizing the best GHG accounting methodology going forward.
4) Tax credit transfer partnership and framework creation. To support the company’s supplier energy transition program, we worked with its preferred retail energy developer to create a novel tax credit transfer partnership framework. This also entailed working with both stakeholders to identify viable existing clean energy assets in the developer’s portfolio and locations for new facilities based on aggregated supplier demand. Once we negotiated a mutually agreed upon framework, we facilitated supplier feedback sessions to uncover barriers to entry, desired outcomes, and program implications.
Below is a closer look at how the financing partnership was structured and the financial and energy benefits it offered to our client and its suppliers:
Project outcomes
Our consumer goods client now has a viable framework for not only implementing a robust supplier energy transition program but also financing and accelerating it through the creative use of tax credit transferability. They moved from a position of misalignment on the best way to tackle Scope 3 emissions to having hundreds of millions of dollars of tax credit transfer transactions in its queue to explore with full buy-in from the finance department.
Following this project, the team was fully equipped to:
Collaborate with Finance to operationalize tax liability toward propping up a supplier energy transition program.
Implement supplier incentivization initiatives such as preferential payment terms and credit backstopping to help suppliers get paid sooner.
Leverage its market position to aggregate demand and provide more clean energy access to smaller suppliers.
Empower its suppliers to contract directly with its preferred retail energy developer.
Support direct decarbonization of the grid in areas where it operates.
Realize direct Scope 2 emissions reductions through the strategic regional placement of new clean energy assets.
Streamline data collection and communication processes with suppliers, setting the stage for long-term partnerships.
Key wins
$100M+ transactions
Tax credit transfer transactions in the queue for exploration
500+ suppliers
Product-level supplier emissions data integrated into modeling
30M+ MT CO2
Tons of CO2 that could be saved from full program implementation
50+ pilots
Suppliers identified as potential tax credit transfer pilot projects
Our client’s new supplier energy transition program, amplified by tax credit transferability, has potential to help the company reduce its category 1, Scope 3 emissions by up to 15% by 2030, putting them well on their way toward meeting their ambitious near-term goal.
Moving forward, the company is considering how to modify and scale this framework across territories with different clean energy sources, regulatory atmospheres, permitting processes, and more. However, the fundamentals remain the same – for our client, creative use of tools like tax credit transferability has unlocked their ability to finance high-impact, ROI-driving initiatives that directly empower suppliers and yield tangible emissions reduction benefits.
Interested in exploring how tax credit transferability can support your climate and nature initiatives, or how to finance your commitments more broadly? Our team specializes in identifying novel pathways to finance and scale high-impact initiatives.
