RECs and Carbon Offsets

If you’ve paid any attention to public discourse on global climate change and actions that may help to reduce greenhouse gas emissions, you’ve probably heard of renewable energy credits (RECs) and carbon offsets. What are they exactly, what has been Williams’ approach to them, and what should that approach be?

The first question, while complicated, may be the easiest of those to answer. A renewable energy certificate (REC) represents the environmental attributes of a megawatt of electricity generated from a renewable source, and can be purchased separately from the actual electricity. The purchase of RECs is intended to promote demand for renewable energy and encourage the installation of new facilities. The revenue earned from selling a REC provides additional income to the developer of a renewable energy project, and may make the project financially viable when it would not otherwise have been. The buyer earns the right to say that they are using ‘green’ electricity even though the REC’s may represent a wind project on the other side of the country.

Carbon offsets are environmental commodities that represent the reduction or avoidance of greenhouse gas emissions in one place in order to “offset” emissions in another place. Carbon offsets are intended to take advantage of the radically different (sometimes much lower) costs and practicalities of achieving greenhouse gas emission reductions in different locations. On a global level, it probably makes sense to execute the most efficient greenhouse gas reduction projects first, yet those projects are not necessarily geographically located where there is currently the desire and resources necessary to take action. The trading of carbon offsets at its best is a method of encouraging those efficient projects regardless of location.

When both carbon offsets and RECs function as they were ideally intended, some legitimate greenhouse gas reductions can be achieved at a relatively low cost. However, neither commodity market always functions as it was ideally intended. At their worst, they provide a feeling of taking action without any real results. RECs are often criticized for just allowing purchasers to buy their way out of their energy consuming sins rather than making a significant change in their own behavior. The current markets for RECs and carbon offsets are mainly voluntary and unregulated in the US. Purchasers are left to determine for themselves what makes a “good” REC or offset.

One of the keys to assessing the quality of a REC or offset is the idea of “additionality”. If the renewable energy or carbon reduction project would not have occurred without the sale of the REC or offset, then it is “additional,” and the resulting greenhouse gas reductions can be attributed to or counted by the purchaser of the REC or offset. The trick, of course, is how to determine what would have happened without the purchase of the REC or offset.

Clear ownership is another key aspect to determining the legitimacy of a REC or offset, and that can be a major issue in an unregulated market. Take RECs as an example. RECs are registered with a third party, which limits actual double selling, but there can be some disagreement about what a REC actual consists of. Purchasers of RECs generally believe they are purchasing all of the environmental attributes of the renewable electricity, including carbon reduction (they’re often purchasing them specifically to reduce their carbon footprint). Producers of RECs often still claim some or all of the environmental attributes of their electricity, even after the sale of the REC, thus causing double ownership of those environmental attributes, and throwing in to doubt whether the purchaser can legitimately claim any carbon reduction. Contracts and oversight can decrease that kind of double ownership, but it will likely remain a problem until the market is further regulated.

Williams has been purchasing renewable energy credits (RECs) since 2004. This first year’s purchase of renewable energy certificates was intended to provide clean energy (30,000 kWh) for the Kellogg House, the physical location of our Center for Environmental Studies. For the past 2 years, Williams has purchased 200,000 kWh, approximately 1% of the campus overall campus electricity purchase. Other institutions have purchased up to 100% of their campus electricity consumption.

Last June was the first time that Williams entered the carbon offset market. In an effort to reduce the environmental impact associated with travel to and from commencement and the operating of the campus during commencement weekend, Williams purchased 800 tons of carbon offsets. These offsets represented the greenhouse gas emissions reductions associated with the production of wind energy and the development of an anaerobic digester to produce electricity on a dairy farm from methane.

Williams’ greenhouse gas emissions reduction strategy thus far has been to focus on conservation projects on campus, while learning more about the REC and offset markets through these small purchases. As we refine our strategy to meet our ambitious GHG reductions targets, RECs and offsets may play a more significant role. Should Williams continue purchasing offsets and RECs? If so, should we increase or decrease the amount? If we can ensure with reasonable certainty that there are genuine greenhouse gas reductions from those purchases, is it better to spend our money there where there may be a greater “bang for the buck”, or should it be spent on the Williams campus on conservation projects that may also change long term behaviors and attitudes? There are often concerns about whether it’s right to essentially buy a way out of the problem – does that concern you? If Williams should develop a renewable energy project, such as installing solar energy technology on a new building, should we include potential income for sale of the RECs in our financial analysis?

Read A Consumers Guide to Carbon Offsets for more detailed information about carbon offsets and the a discussion of criteria that offset purchasers should examine. It also contains an explanation of the difference between RECs and carbon offsets.