In the clean energy transition, no element has perhaps been subject to more love-hate emotional ups and downs than renewable energy certificates (RECs). They are at once celebrated for their role supporting massive investment in expanding wind and solar capacity that decarbonizes the power grid, while also being derided for potentially not living up to that very promise.
More generically known as energy attribute certificates (EACs) — including guarantees of origin (GOs) in Europe and I-RECs elsewhere around the world — EACs (including the North American REC) represent the environmental attributes of one megawatt-hour (MWh) of renewably generated electricity.
RECs are one of a growing number of book-and-claim examples in the energy transition. Others include green steel and sustainable aviation fuel. In sectors where you have a blended commodity — metals, fuels, electrons — book-and-claim approaches allow the market (i.e., buyers) to send economic signals to suppliers that they want the greener version of “the thing.” By definition, however, this means that the green attributes and the physical commodity become disentangled, which creates some thorny issues down the line, as we’ll discuss shortly.
RECs as proxy for emissions, meet the EIC data foundation
Companies procure renewable energy (and the RECs that go along with it) for a variety of reasons. But undoubtedly, one of the most prominent is decarbonization. Because renewable energy is essentially synonymous with emissions-free energy, being “powered by renewable energy” helps a company reduce its scope 2 electricity emissions and move closer toward a net-zero target.
In this sense, the REC has served as a convenient proxy for emissions reductions. Yet as the market is recognizing, there are many shades of gray. Yes, a REC remains the foundational “proof of purchase” for green power. But how that REC translates into emissions reductions varies, sometimes greatly.
For example, consider three common scenarios:
- Purchasing unbundled RECs from older, existing wind or solar farms: allows a company to claim green power that's already on the grid, with little to no actual change in grid emissions.
- RECs bundled with a power purchase agreement (PPA) that gets a new wind or solar farm built in a region of the power grid already rich with renewables: building more solar where there’s already solar curtailment or more wind where there’s already surplus wind energy adds new renewable capacity to the grid, but doesn’t have a strong decarbonization impact because it’s “competing” with other renewables
- RECs bundled with a PPA that gets a new wind or solar farm built in a coal-heavy region of the power grid: could displace massive amounts of carbon pollution from the overall system, resulting in substantial positive impact.
Until recently, the market has treated all of these RECs as equally “good” and fully fungible. The latter part of that statement remains true. One REC will always equal 1 MWh of renewable generation (notwithstanding initiatives to develop more-granular versions of RECs).
The important question now is what degree of avoided emissions does a given REC represent?
The distinction is akin to buying shares on the stock market. Sure, you might own 10 shares each of companies X, Y, and Z. But what are those shares worth? What is their value? It will vary by company.
Similarly, If RECs equal “shares” of green electricity, we need a way to also translate each given share into an accurate, quantified amount of avoided emissions. We need to know what each REC is “worth” from a decarbonization standpoint.
To do that, we propose emissions impact certification (EIC). An EIC approach provides the data foundation that translates REC proxies into quantified climate impact companies can claim on their GHG balance sheet. Whereas 1 REC equals 1 MWh of green electricity generated, an EIC approach translates those MWh of clean energy into tons (or other defined quantity) of reduced, avoided, or captured CO2e. It is a metric fundamentally rooted directly in the emissions themselves, rather than a proxy for emissions. Here we’re talking about it in the context of renewable energy procurement and the associated avoided emissions, but the EIC approach can be applied much more broadly (which we’ll explore in future articles).
If RECs are shares, EIC calculates the dollar value
Despite feeling the heat in recent media coverage, RECs (probably) aren’t going anywhere anytime soon, nor should they. 1 MWh of wind or solar generation is still, after all, 1 MWh of wind or solar generation. They are “shares” of green power.
And just as the shares of company X might have different dollar value than the shares of company Y, the RECs from one renewable energy project might have different emissions reductions impacts from the shares of another project. An EIC approach calculates the “dollars” that translate REC shares into quantified emissions values.
How? With impact accounting, such as that proposed by nonprofit WattTime. Thanks to advancements in marginal emissions datasets, as well as increasingly sophisticated and user-friendly energy and carbon management software platforms, we’re able to easily quantify the avoided CO2e of a given MWh of green power on both a locational and temporal basis.
Although EIC in name is new, the data certification ideas behind it are not. Data providers from a wide variety of sectors, including energy, have certified their datasets to certain quality and other standards. We’re now applying that approach to the emissions impact of renewable energy and related markets.
The GHG Protocol’s guidance for Scope 2 accounting already allows companies to optionally report the avoided emissions associated with their renewable energy procurement. EIC bridges the gap, making those avoided emissions discrete and actionable on a company’s net-zero balance sheet.
This unlocks powerful opportunities for companies and their emissions-reduction and/or net-zero targets. Instead of using RECs as an imperfect proxy to reduce their scope 2 emissions, the RECs remain proof of ownership of green power. Meanwhile, EIC data can in tandem be minted as NFTs, remain linked to their REC sources, and allocated against a company’s induced emissions.
In other words, we retain the integrity of book-and-claim accounting systems, while supercharging it with accurate, quantified impacts. Companies can stop guessing “how good” a given REC is. They can stop worrying if they’re having genuine impact helping to move the world toward true net-zero or if they’ve unwittingly invested in hollow greenwashing that leaves them exposed.
RECs + EIC are a superhero duo for the next era of the energy transition
Tabors Caramanis Rudkevich (TCR) and other white papers have shown that “carbon matching” is the most effective method for high-impact renewables procurement. But HOW do companies do that in practice?
EIC offers the ready-made solution that makes carbon matching actionable. An EIC approach is built in the language of kg of CO2e, rather than MWh of green power. EIC data thus become the currency of carbon matching. They enable implementation of the impact-centric renewables procurement strategies firms like TCR identify as the most effective.
From there, the opportunities are manifold. For just three of many examples:
- Companies can accurately and defensibly calculate their net-zero position, taking into account the true benefit of renewables procurement.
- Investment can be easily parsed and allocated against sources of scope 3 emissions, such as how automakers are increasingly interested in balancing the emissions of their customers’ EV charging.
- EIC liberates corporate decarbonization siloes, creating a seamless approach that can extend beyond renewables procurement to other interventions on the demand side.
We’ll explore this and much more in forthcoming articles in this series.
This article originally published July 27, 2023 and was revised September 06, 2023 to reflect updated thinking around the emissions impact certification approach.