The Renewable Energy Market: RECs vs. Offsets

U.S.A.

Here in the U.S., there are two green markets.

1. The market for Renewable Energy Certificates (RECs)

2. The market for Carbon Offsets – also called VERs (Voluntary Emissions Reductions) or CRTs (Carbon Reduction Tons).

Okay.  Now that we’ve got the nomenclature down, let’s dive into detail.  In literal terms, both are pieces of paper.

REC 2     carbon offset cert.

A REC is a tradable energy commodity that exists as proof that 1 megawatt hour (MWh) of electricity was generated from a renewable energy source.

A REC essentially represents the legal rights to the environmental benefits correlated with renewable energy generation. What are these benefits? Well, each 1 MWh of renewable energy reduces the need for 1 MWh of nonrenewable, or brown, energy – thus leading to a reduction of greenhouse gas emission. RECs are vital to track renewable energy generation. Once an electron from green energy is delivered to an interconnected power grid, that electron becomes indistinguishable from any other electron, including those generated through brown energy.  RECs are independently audited and certified by third party groups such as Green-E, and each REC is assigned a unique identification number to avoid double-counting. After the green energy is fed into the electrical grid, the accompanying REC can be sold on the open market.  RECs can be bought and sold along with or separately from the electricity itself.

A carbon offset signifies the destruction of a quantity of greenhouse gas (GHG) emission that occurs as a result of some project. This destruction is typically measured in metric tons of carbon dioxide. The emission reduction can then be sold to enable the purchaser to claim the GHG reduction as their own.   A carbon offset basically “offsets” an emission taking place somewhere else.  Renewable energy is one of many possible offset project types.  A carbon offset is also a commodity, but slightly more complex as it is based on variance from some assumed baseline.  This can be complicated as the baseline may be hard to ascertain.

Who’s buying these things?

Utilities.  Government Agencies. Nonprofits.  Green Building Professionals. Businesses.

In 2008, Starbucks (SBUX) set an objective of purchasing Green E-Certified Renewable Energy Certificates (RECs) equivalent to 50% of the electricity used in all stores operated in the U.S. and Canada.  This goal was achieved in 2010.  Since then, SBUX has been working towards purchasing Green RECs equivalent to 100% of the electricity used – globally – by 2015.   This past year in 2013, SBUX purchased 7.6% more RECs than in 2012, equivalent to 54.9% of its global electricity used.

Reusable-coffee-tumbler-2-150x150

…And on an entirely separate note, as I mentioned yesterday on Twitter (@SustainbInvestr), SBUX has just released its annual holiday promo.

All you have to do is buy the tumbler pictured to the right ($30) and, in exchange, you will get free coffee (as many times as you wish per day) for an entire month.

You do the math.  This is green in more ways than one.

2 thoughts on “The Renewable Energy Market: RECs vs. Offsets

  1. Great post, Sustainable Investor, in that it clearly distinguishes between RECS and Carbon Offsets–something that is a challenge to do for the lay person. I’d add one other cadre of buyer of Carbon Offsets–green minded individuals. These are usually small purchases, done to offset the emissions associated with one’s flight or car trip. But they do add up. Reforestation (i.e. planting of trees) is a very popular Carbon Offset project.

    Liked by 1 person

  2. We may be at the point where consumers and investors are willing to support sustainable companies, as part of their utility equation. This will set business upside down!!!!

    Like

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