Clarifying RECs and Carbon Offsets

Many of us are confused about the difference between RECs and Carbon Offsets. They are both good tools to cut greenhouse gases (GHGs). They both represent new market mechanisms to clean our air and to mitigate the effects of global climate change.

Environmental Market Mechanisms

RECs = 1 MWh

VER / CRT = 1 Metric Ton of Carbon

They are parallel and related, but distinct, environmental markets — the market for Renewable Energy Certificates (RECs) and the market for Voluntary Emission Reductions (VERs), also known as carbon offsets.

RECs

First off, RECs only focus on electricity. A renewable energy certificate represents 1 MWh of renewable energy, be it solar, wind, geothermal, etc. A REC represents the environmental attributes of clean power. So when you buy a REC, you are buying the rights to claim that you are using clean power even if the REC comes from an energy source very far away. For instance, you might buy wind RECs from the Midwest, or solar RECs from California or New Jersey to offset your electricity emissions in Vermont or Maine.

The carbon offset value of a REC can vary. For instance, a REC that is offsetting one utility’s power mix in the coal-rich Midwest might cut carbon more than a REC offsetting another utility’s rather clean power mix, say in California. So when you buy RECs you can offset your own emissions (kilowatt-hour by kilowatt-hour)… but the amount of carbon being offset can be quite different depending on the type of RECs you buy.

REC prices depend on a number of factors, including the technology, the vintage (year in which it was generated), the volume purchased, the region in which the generator is located, whether they are eligible for certification, and whether the RECs are bought to meet compliance obligations or serve voluntary retail consumers. REC prices in compliance markets are much higher than in voluntary markets. Voluntary RECS are in the 50 cent – $2 range, compliance more like $40 – $50.

There are three categories of RECs in California:  Categories 1, 2, and 3. Category 1 RECs are from bundled resources. Category 2 RECs are from firming/shaping resources. Category 3 RECs are unbundled. There are three compliance periods through 2020… noted by the phasing out of unbundled resources.  California ushered in “tradable RECs” (TRECs) in 2010. California utilities can use these to achieve up to 25% of their Renewable Portfolio Standard… that drops to 10% in 2017.

So who is really green? Who gets the green bragging rights?

If the RECs are unbundled and sold separately, then the purchaser of the RECs has bought the legal right to the renewable attributes they represent. This means that the energy originally associated with the RECs can no longer be considered renewable or to originate from a renewable source. For example, if homeowners were to sell the RECs associated with the energy generated from their rooftop solar PV installations, then those homeowners cannot legitimately claim to be using renewable power in their homes. Only the purchaser of the RECs can make that claim.

Carbon Offsets

Carbon offsets are more finite. A carbon offset – known as Voluntary Emissions Reductions (VERs) or Carbon Reduction Tons (CRT)… represents a metric ton of carbon regardless of its source. And carbon offsets must be verified. Climate Action Reserve is a leading verifier of RECs, be they from forestry projects, methane capture, etc.

Offsets also face strict rules, including the requirement that “the emission reduction credited be real, permanent, verifiable, and most importantly, additional to a business-as-usual scenario.” This “additionality requirement” is central to ensuring that the ton you emit is really offset by a new action to reduce carbon. RECs, however, are not subject to this additionality requirement. In contrast, RECs can come from “business as usual” renewable resources… those that are already built or those that are in compliance markets where the RPS has already been met, and whose owners seek to recover some development costs through the sale of RECs.

The question of Offsets vs. RECs is not a question of better or worse. Offsets and RECs are simply different players in a similar game. Both represent the environmental benefits of certain actions that can help mitigate climate change and reduce reliance on fossil fuels.