Companies ‘overstating climate benefits’ of purchasing renewable energy certificates

Launched in publisher Springer Nature’s ‘Nature Climate Change’ journal this month, the research paper assesses the real-world emissions benefits of businesses purchasing renewable energy certificates (RECs). RECs are known as Renewable Energy Guarantees of Origin (REGOs) in some markets.

RECs are sold by those who own or operate renewable electricity generation projects, serving as evidence that a certain amount of renewable electricity has been generated. Businesses often purchase RECs equivalent to either their entire electricity demand or a portion of their demand, without changing their electricity supplier. In this way, they can “offset” any of their electricity use which is not directly met with renewables. Current international emission accounting standards permit companies to state that the emissions associated with their REC purchases are zero.

The new research paper warns that the emissions associated with RECs are rarely zero, meaning that businesses are overestimating and overstating the climate benefits of REC purchases.

It provides an analysis of the emissions disclosed by 115 companies between 2015 and 2019. All companies assessed are medium or large, and have set targets approved by the Science-Based Targets Initiative (SBTi) to reduce their emissions in line with the Paris Agreement, covering their scope 2 (power-related) emissions in absolute terms. These companies collectively reported a 31% reduction in Scope 2 emissions within this timeframe, attributing the majority of their progress (two-thirds) to REC purchases.

The researchers have calculated that a 10% reduction in Scope 2 emissions by these companies is the level of progress that is likely to have been achieved in reality. This pace of reduction is aligned with neither of the Paris Agreement’s temperature pathways. A 2C-aligned reduction would have been at least 14.8%, and a 1.5C-aligned reduction would be around 28.8%.

RECs are unlikely to come with no emissions footprint for a range of reasons, the paper explains, drawing on other recent research in this field. For example, businesses can buy unbundled RECs in one area and apply them to their energy use in another geographical location within the same region, making their context-specific environmental impact difficult to measure. They can do this and retail SBTi verification.

RECs are also not a major source of revenue for wind and solar developers as they once were, with direct Power Purchase Agreements (PPAs) and other sources of public and private sector capital now proving more fruitful. As such, buying RECs does not guarantee that new generation capacity will be added. There is also the ever-present risk of double-counting.

The researchers are concerned that, with business use of RECs as part of efforts to meet SBTi-aligned targets being “the norm rather than the exception”, the private sector believes that it is doing enough to support the renewable energy transition – but this is unlikely to be the case.

The paper is coupled with a short policy briefing, outlining recommendations for changes in legislation, regulation and the approach taken by investors.

Policymakers could, the briefing states, require those selling RECs to provide evidence of emissions reductions and additional generation to buyers. Steps could then be taken to ensure that evidence is comparable and robust, thus limiting the creation of “ineffective” RECs. Policymakers would need to work closely with regulators and the creators of accounting standards to bring about these changes.

Should these changes be implemented, it would be easier for investors to support only the sellers and buyers of effective RECs, thus achieving their own climate targets.

The mind Googles

The publication of the paper comes less than three months after Google confirmed that it is working to “fully develop and widely deploy” a tool that will enable governments, businesses and energy system operators to track renewable electricity generation and consumption in real-time.

These so-called ‘Time-Based Energy Attribute Certificates’ (T-EACs) could help to avoid many of the key issues in measuring the true environmental benefits of RECs, Google argues, improving data quality and enabling a more agile approach. Unlike RECs, they would come with a timestamp of either one hour or a half an hour, rather than a whole year.

T-EAC trials are underway with Google in North America, South America and Europe. Google is also supporting non-profit EnergyTag in its development of an international standard for the certificates.