It’s time to Rebundle the REC
Restrict the use of RECs for market-based Scope 2 emissions accounting to within-grid purchases
Match production and consumption of energy on an hourly basis
Use the GHG Protocol’s residual mix accounting for any surplus/deficit within any given hour
Thanks for reading WattCarbon’s Newsletter! Subscribe for free to receive new posts. Learn more at www.wattcarbon.com
Unbundled RECs are a moral hazard
Among the most deplorable habits of greenwashers is the procurement of unbundled Renewable Energy Credits (RECs). In places like Texas, favorable economics encourage renewable energy deployment, but neither the state energy office nor the grid operator particularly care if the generated electrons are renewable or not. As a result, RECs from these projects are sold separately to offtakers looking to burnish their green credentials.
When RECs are unbundled, the environmental benefits of renewable energy are disassociated from the actual energy delivered. Unbundling explains how a company that has operations in Florida can purchase RECs from a West Texas wind farm and call itself “net-zero.” Gallingly, the WRI’s Greenhouse Gas Protocol explicitly allows this practice under the “market” based Scope 2 emissions methodology.
Similar greenwashing shows up in utility Green Energy programs where “100% renewable energy” is provided to customers based on aggregate purchases of RECs with no particular basis in the actual timing of the energy delivered to the grid. In theory, it would be possible to deliver “100% clean energy” to a customer simply by purchasing RECs from solar farms in July.
The case against RECs
It is no surprise then that unbundled RECs are generally treated with scorn amongst the naysayers of renewable energy. The puritanical sorts suggest that now-favorable economics of renewables makes RECs irrelevant, or that the only true path to impact is through a direct purchase from a renewable energy facility. Renewables opponents argue that RECs distort energy economics and give renewable energy an unfair advantage.
Why RECs are Critical to Energy Decarbonization
The fact of the matter is that a path to 24/7 Carbon Free Energy (CFE) is the best chance we have to reduce the massive carbon footprint of our grid. And while the PPA route is great for those with the resources to negotiate bilateral contracts and take on the risks of energy markets, for most companies that are trying to reduce their Scope 2 emissions, RECs are still the most viable option.
How to do this right
1) Keep RECs Local
One thing we know for certain is where renewable energy is generated and consumed. In the United States, electricity generally stays within its local balancing authority. So if you use electricity in a particular location and you buy RECs associated with renewable energy production that feeds into the same grid, you can more or less assume that you are using the same energy that was produced. Of course, you are only using a fractional share of that electricity because it gets mixed with all of the other sources of generation, but for the purposes of accounting, there is a 1-1 relationship. If you live in West Texas and you buy RECs from West Texas, you are likely acquiring the environmental attributes of energy you actually use. But if you live in Florida, you will need to acquire RECs from the balancing authority in Florida that actually serves you energy.
2) Match Consumption and Generation to the Hour
But location is only half of the matter. When the energy is produced is also critical. If you purchase a REC from last year to offset consumption from this year, the impact is tenuous at best. But zooming in even closer, if you purchase RECs that are generated from overnight wind energy to offset consumption that happens during the day (or vice versa if you are purchasing solar RECs), you are doing very little to actually help decarbonize the grid.
24/7 matching of RECs to consumption is the best way to achieve net-zero Scope 2 emissions. For large organizations able to procure energy through PPA contracts, the RECs are already bundled to the energy, so this happens as a matter of course. But for companies that rely on unbundled RECs to meet net-zero goals, 24/7 matching has proven impossible to date.
3) Get Started with Hourly Carbon Accounting
The transition to 24/7 accounting requires analyzing existing clean energy purchases for time and locational attributes. Most companies that currently purchase RECs are flying blind because their carbon accounting tools are optimized for annual reconciliation. That’s why we’ve developed models that turn existing REC purchases into hourly production profiles and integrated hourly emissions from the grid so that they can take the first step towards 24/7 CFE.
Soon, WattCarbon will enable “One Click to Net Zero” purchasing of hourly RECs and other demand-side energy resources to enable the procurement of specific quantities of carbon free energy. It will be possible for any company to reach true net zero and to have the data to prove it to stakeholders and regulators.
A Massive Rollback is at Stake
Companies that are today spending millions of dollars trying to do the right thing stand the risk of being accused of greenwashing because the renewable energy industry relies on outdated accounting practices. Specifically, a REC is quantified as a unit of production (one megawatt-hour) instead of production during a particular time interval. This outdated practice opens up opportunities for critics to cast doubt on the legitimacy of clean energy procurement and weaken renewable energy standards.
WattCarbon supports the work of Energy Tag to develop and implement standards for hourly REC timestamps. These new standards allow the REC market to track and sell the attributes of renewable energy on a time and locational basis. Tech-forward REC registries like M-RETS are creating the infrastructure to generate and retire RECs within existing frameworks, but also stamped with time and locational attributes.
Our Planet is Counting on Us
The carbon budget for the planet is nearly exhausted. There are many vectors that will yield emissions reductions, but few are more attainable today than clean energy. Collectively, buildings represent 35% of annual emissions. Procuring carbon free energy to match consumption on a 24/7 basis will drive deeper and more widespread investments in energy decarbonization than any other strategy. Now is the time to act!
Thanks for reading WattCarbon’s Newsletter! Subscribe for free to receive new posts. Learn more at www.wattcarbon.com.
It is interesting reading articles like this where there is zero acknowledgement of the market's history or its capacity to be more precise, or to be less "greenwashing" as stated above. Realistically consumers had almost zero ability to choose how their power was generated to meet their demand 20 years ago. Some reports as recently as 2018 suggest that nearly 20 percent of US electricity consumers still only have access to renewable electricity supply through the unbundled REC supply pathway. The numbers are even larger when you consider how certain retail products are assembled by suppliers. Why is that so many US consumers can't access renewable energy? It is because state policy largely restricts consumers from buying or investing in more local sources.
This acknowledgement was front and center in how the market developed. It was viewed as an acceptable trade off that if a company in Florida couldn't source renewables directly in Florida, that allowing them to pull out of circulation generation from West Texas was an acceptable means to help scale the market, bend the technology cost curve down, and hopefully build a business case across the US that renewables wasn't something in the future, but something that was possible today. Showing that demand was present played and continues to play a significant role in building the clean energy future.
The market's use of instruments like RECs to track and trace generation to consumption is an elegant solution, where the tendencies of people to try and track physical power in practice is next to impossible. I would say that the Bloomberg article cited in this article above and the criticisms of RECs and market-based accounting are actually more than just a critique that the market needs to shore up the alignment of generation to consumption on a geographical or temporal basis. What the authors in the Bloomberg article are actually saying is that they do not believe US consumers should be able to choose how their power is generated and through those choices reflect it on their emissions balance sheet. That perspective is antithetical to almost every practical approach to decarbonizing the electricity sector. The power sector is fundamentally based on contractual delivery of power to consumers. It is how utilities do it, and increasingly how individual customers can do it as well. The question of how much responsibility a consumer should have for other generators and the emissions they cause on the grid was partly reflected in the requirement of dual reporting between market-based and location-based accounting. The Bloomberg article gets wrong that companies only account for their emissions using market-based accounting. Companies are required to report both location and market-based emissions.
Certainly, there is and should be a time for bringing more granular alignment to the market around where and when your power is generated in relation to consumption. But I would caution throwing the current system and approaches under the bus entirely until there is a clear runway ahead for doing the more granular alignment. At least authors of articles should acknowledge the reasons for why RECs are allowed to be bought within the US market and why annual matching has been accepted as a legitimate. Are these practices without deficiencies? No, but they were clearly necessary to get to this point so we can discuss how to be better moving forward.