Evaluating the environmental effects of CHP: when replacing grid power

Estimating the environmental effects of CHP has always been complicated by the need to compare its performance with that of the overall generation mixture, both fossil-fuelled and otherwise. Here, Mikako Kokitsu guides readers through the use of two types of emissions factors.

Combined heat and power (CHP) has been installed and used for many years as a highly efficient energy supply system to fulfill electricity and thermal energy needs in a range of applications around the world. As environmental issues, particularly those of climate change caused by greenhouse gases (GHG), become a pressing global concern, the importance of CHP as an effective means to reduce emissions is more pronounced than ever.

However, despite CHP’s significant contribution to the reduction of CO2 emissions, calculation of its effects can result in preventing further dissemination of CHP. This is because, when an inappropriate calculation method is used, there is a risk of under-estimating the effects of CHP and even, in some instances, estimating erroneously an increase in CO2 emissions as a result of installing a CHP system. Proper estimation of the benefits of CHP will be vital in encouraging more businesses to install CHP systems.

This article has been prepared to examine CHP’s contribution to reducing CO2 emissions from power generation, and to present a logical calculation method in quantifying its effects.


Considerable debate surrounds he calculation of CO2 emissions as a result of the use of the two emission factors. They are:

  • All Fuels Average Emission Factor (AEF) ” used to calculate emissions from power consumption
  • Marginal Emission Factor (MEF) ” used to estimate reduced amount of CO2 emission as a result of lower power consumption.

The core of the issue is to define methods to calculate the effects of CHP installations which, as a result of replacing grid power, reduce emission of CO2. A distinct differentiation must be made between these factors (AEF and MEF) and they should be used in an appropriate manner.

AEF ” emission factor to calculate CO2 emission

CO2 emission by consumption of a fuel is calculated as follows:

Emission amount (kg CO2) = emission factor of a fuel (kg CO2/MJ, kWh, etc.) x energy consumed (MJ, kWh, etc.)

In the case of electricity, however, CO2 is not emitted at the point of use. Rather, it is emitted in the process of power generation. The power on the grid is usually generated by a mix of fuels ” some CO2-emitting plants such as oil, coal, and natural gas-based thermal power plants, and non-CO2-emitting power sources such as nuclear, hydro, and renewables. As a result, when we calculate CO2 emission by the use of grid power, we use the All Fuel Average Emission Factor, or AEF. Therefore, CO2 emission by an electricity user is estimated as follows;

CO2 emission volume (kg CO2) = AEF (kg-CO2/kWh) x power consumed (kWh)

This is the generally accepted method and AEF is the factor used for estimating the volume of CO2 emission. CO2 emission of grid electricity is not accounted for on the demand side, rather on the generation side.

AEF is obtained by dividing the total CO2 emission volume from thermal power plants connected to the grid by the total power supplied through the grid including those that are free of emissions, indicating average CO2 emission per kWh of power on the grid. It is a simple calculation of the total CO2 amount that is distributed to all consumers in proportion to consumption of the grid power.

AEF (kg CO2/kWh) = total CO2 emissions from all thermal plants on grid (kg CO2) / total power supplied to grid from all sources* (kWh)

*including those free of CO2 emissions

Now, faced with the problem of climate change associated with CO2 emissions, we now have to look at how emissions can be effectively reduced. One way of achieving this objective is to reduce power and energy consumption. Then, how can you calculate the reduced amount of emission resulting from reduced consumption of grid power?

Because grid power is supplied from different sources, reduced CO2 emissions must be estimated by multiplying emission factors that are affected by the change in operational profile. In doing this, we must remember that reduced power consumption cannot be proportionally translated into reduced power output for each plant, as the operational profile of plants varies. Making an estimation by using AEF, however, means that all power sources are equally reduced in their operations (Figure 1). This is not in keeping with the facts and results in a false estimate.

Figure 1. Change in power output and CO2 emission reduction by AEF
Click here to enlarge image


MEF ” emission factor to calculate reduced CO2 emission

Generally, those plants whose operational load is responsive to demand fluctuation are called ‘marginal plants’ (Figure 2). To calculate the amount of CO2 emission reduced as a result of lower power consumption, the emission factor for these plants must be multiplied by the reduced power consumption. The factor used here is called the marginal emission factor or MEF. The reduced emission amount is obtained by the following calculation:

Figure 2. Change in power output and CO2 emission reduction by MEF
Click here to enlarge image

Emission reduction (kg CO2) = MEF (kg CO2/kWh) x electricity conserved (kWh).


Bearing in mind the difference between the two factors, it is important to note that calculations using the two methods reveal completely opposing results. Shown below is a case study made in Japan in calculating the difference in emission amounts using the two different factors.

A trial calculation was made on an imaginary energy installation supplied with 1 kWh grid power and 3.6 MJ thermal energy by a natural-gas-fired boiler with an energy efficiency of 80%. Assuming the energy supply for this installation was replaced by CHP, CO2 emission was calculated using AEF, with generation efficiency of 36.9% and waste heat utilization rate of 30%. As shown in Figure 3, CO2 emission volume was increased. (Note: efficiency factors used here are average conventionally accepted figures.)

Figure 3. Calculating reduced CO2 emissions by CHP using AEF
Click here to enlarge image

With the same assumptions, when reduced amount of CO2 emission was calculated using MEF of thermal power, which is the marginal capacity in Japan, reduced emission amount was greater as shown in Figure 4. This is the logical conclusion of the calculation based on the rationale behind the MEF and the realized reduction of grid power generation.

Figure 4. Calculating reduced CO2 emissions by CHP using MEF
Click here to enlarge image

Japan has an institutional framework of using AEF for calculating emissions by businesses. However, in the absence of the framework for calculating reduced emissions, MEF is not legally defined as the official calculation method. Because of this, businesses cannot help but use AEF as the ‘authorized figures disclosed by regulators’ in calculating reduced emissions. Given this backdrop and the use of AEF as the official method, the estimated emission saving turns to a positive figure as a result of installing CHP, contrary to the realized reduction of emissions. Such a state of affairs has brought about a problematic situation in which businesses switch to grid power from CHP.

It is critical, therefore, to adopt an appropriate calculation method in promoting CHP and renewable energy sources. However, given the complex nature of the grid power sources and supply infrastructure, specifying MEF itself requires an enormous amount of work, thus AEF becomes an easy option to the calculation of the effects of reduced grid power consumption.

The comparison of the two calculations above reveals that the use of the two different factors presented opposing results. For a reasonable assessment of emission reductions, the proper emission factor must be employed, otherwise the result would be detrimental to alternative power sources including CHP and renewables. This has been a subject of a considerable debate within the energy industry in Japan.


In the international arena, it is considered reasonable to use MEF in calculating contribution to reducing CO2 emissions from grid power, including that of CHP.

MEF is generally calculated in the following manner. It is estimated that reduced power consumption has effects on both operational profile and plans for construction of new power plants. Power sources whose operation is affected by reduced power demand are defined as ‘operating margin’ (OM), and sources whose construction plans are affected by reduced power demand are called ‘build margin’ (BM). MEF is obtained, therefore, by incorporating these two margins into what is known as ‘combined margin’ (CM).

Operating margin (OM)

Power plants that supply electricity to the grid are classified into two types ” baseload and load-following. OM plants and base-load plants are usually lowest-cost plants that are operated at maximum levels and are not responsive to load fluctuation, such as nuclear, reservoir hydro, and coal-fired plants. Although reservoir hydro is responsive to demand changes, it is not an operating margin plant because of its position as a ‘must-run’ capacity which must be operated at the maximum throughout the year due to its almost zero cost for operation.

Intermittent plants such as wind and continuous hydro are not included in OM plants. OM plants, therefore, in most cases, are thermal power plants ” see Figure 5.

Figure 5. Image of annual load profile of power plants
Click here to enlarge image


Build margin (BM)

BM represents plant capacity which is subject to delays and cancellations due to capacity demand decreases, but certain BM plants are immune to these changes because of policy priorities and other reasons. Because of this immunity, high policy priority power sources such as nuclear or renewables would not be affected by reduced power demand and their construction would be implemented as scheduled, affecting, instead, other electricity sources on the grid.

One good example of such high priority capacity in Japan is nuclear as witnessed in the Long-term Primary Energy Supply/ Demand Outlook. The outlook, currently being revised, projects power demand in 2020 and 2030 in which capacities of nuclear and hydro would remain the same despite the expected decline of the country’s power demand as a result of stringent energy conservation measures as well as measures for promoting CHP and renewables ” see Figure 6.

Figure 6. Projected power output in 2030 in Revised Long-Term Primary Energy Supply/Demand Outlook (Source: Advisory Committee for Energy, METI)
Click here to enlarge image


Combined margin (CM)

CM is the combination of OM and BM. Appropriate combination of the two margins is determined on the basis of supply/demand situation of the grid, power conservation measures, types and capacity of the grid;

CM = wBM + (1 ” w)OM, where, (0<w<1);

w is determined by taking into account such factors as status of grid, types of projects, and installed capacity, etc.


Climate change poses one of the greatest threats to mankind in achieving sustainable development of the world. The enormity of the challenge is unprecedented in that addressing the issues of climate change requires concerted efforts on a global level. While governments establish various regulatory regimes and policy initiatives including emission trade, environmental tax, vehicle fuel standards, emission reporting mechanisms, and others, businesses are charged with the task of managing and controlling greenhouse gas emissions. Other stakeholders, including investors and energy users, have become increasingly selective about businesses on the basis of their environmental actions.

It is essential, therefore, that when implementing various initiatives creating economic value, a proper evaluation and calculation needs to be conducted so that the amount of CO2 emission reductions is assessed in a just and reasonable manner.

It is precisely against this backdrop that we need to assess the potentials of CHP and renewable energy sources and to promote their dissemination to replace conventional centralized energy systems based on fossil fuels. To this end, it goes without saying that governments and regulatory authorities should demonstrate their initiatives to establish methods for proper evaluation of emissions.

Mikako Kokitsu is with the Commercial and Industrial Energy Business Unit,
Osaka Gas Co., Ltd, Osaka, Japan.
Email: m-kokitsu@osakagas.co.jp

International frameworks and initiatives for reducing CO2 emissions


Kyoto Protocol (CDM)

ࢀ¢ In CDM, a mechanism for reducing emissions, basic perspectives are described to calculate effects of the measures that realize reduced power consumption on the grid.

ࢀ¢ CDM uses MEF for calculation and the combined margin is adopted. Details of MEF calculations for grid power reduction projects can be found at https://cdm.unfccc.int/methodologies/Tools/EB35_ repan12_Tool_grid_emission.pdf

GHG Protocol

ࢀ¢ Guidelines are presented for calculation of factors for estimating effects of reduced grid power for CO2 reductions.

ࢀ¢ Its position is to use marginal factors for calculating and it refers to combined margin.



ࢀ¢ No specific calculation methods have been presented on measurement of CO2 reduction projects in the region.

ࢀ¢ In EU-ETS, all CO2 emissions from thermal power plants are measured at each plant. CO2 emission associated with user’s consumption of power is not counted. There are no issues associated with emissions factors in looking at grid power. As a result, incentive measures were taken to allocate emissions quotas on CHP greater than other facilities. Those measures, however, are now being criticized as insufficient.

US DOE Energy Act 1605b

ࢀ¢ A mechanism is in place for businesses to report their emissions, reduced emissions by initiatives, and reduction targets.

ࢀ¢ Reduced emissions by reduction initiatives can be calculated using a thermal energy emission factor.

https://eia.doe.gov/oiaf/1605/pdf/EIA1605_ Instructions_10-23-07.pdf


ࢀ¢ No guidelines are available for calculating reduced emissions

ࢀ¢ Businesses with emissions of GHG over the specified levels are obliged to report to the government on the basis of the Law concerning the Promotion of the Measures to Cope with Global Warming. Reports made by businesses are publicly disclosed. Major local governments such as Tokyo and Osaka require separate reporting, the rule of which is locally stipulated.

ࢀ¢ The above mechanisms have been established for the purpose of calculating emissions, and therefore, CO2 emission by use of grid power is calculated on the basis of AEF.

ࢀ¢ Because of the absence of regulations and guidelines for calculating the amount of reduced emission, calcu lations made by MEF are not taken into account. This has resulted in adversely affecting operations and installation of CHP and other energy-saving systems.

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