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Clean Energy 101: The REC Market

Amid a drumbeat of expert studies calling for urgent climate action, underscored by increasingly frequent extreme weather events and natural disasters, people across the United States are looking for ways to support the clean energy transition. Renewable energy certificates (RECs) are one way that an individual or business can use their buying power to support renewable energy development.

However, RECs can be purchased separately from electricity from a renewable source — via an instrument known as an unbundled REC — and critics have accused corporations of using unbundled RECs for greenwashing. So how do RECs work, and do they result in real progress toward decarbonization? In this article, we’ll cover the basics of RECs and RMI’s approach to ensuring they lead to real-world emissions reductions.

What Is a REC?

A renewable energy certificate (REC) is a market-based certificate representing one megawatt-hour (MWh) of renewable power generated and delivered to the grid. RECs were created to help finance new renewable energy projects and accelerate the clean energy transition.

Any individual or business in the United States can purchase a REC. Homeowners and renters may choose to pay an additional fee on top of their monthly utility bill to purchase RECs equivalent to their monthly energy use, or some portion of it. Companies can purchase them to reduce the greenhouse gas (GHG) emissions impact of their operations — for instance, to limit the impact of energy-intensive data centers.

The Greenwashing Dilemma

RECs have played an important role in funding clean energy development, particularly in past years when the cost of renewable power generation was not as competitive with the cost of fossil fuel power. Unfortunately, paying for RECs does not mean the energy powering a home or business comes directly from a renewable source. The credit only represents one new renewable MWh generated and added to the power grid somewhere — even if that power source is hundreds of miles away — while power plants closer to home keep burning gas, coal, or oil to keep washing machines and server rooms spinning.

The disconnect between clean power generation and the electricity actually used by the REC purchaser makes it difficult to account for the total climate impact of a REC. Some critics have said they play a role in corporate greenwashing, because it’s difficult to verify that purchasing RECs today leads to direct GHG emissions reductions in homes and businesses. Currently, the REC market lacks transparency about where the renewable energy projects will be built, which could allow a large industrial operation to claim progress toward “carbon neutrality” without confirming that electrons from solar or wind power flow through its wires.

Measuring Real-World Impact

REC markets can indeed be a force for reducing real-world emissions impact if funding is directed to areas of our national grid that are lagging in renewable energy development. RMI’s RE Emissions Score approach is designed to eliminate the subjective nature of the REC market by measuring the real-world impact of renewable energy procurement for any purchaser, regardless of location or industry. The quantitative approach we are developing compares market and location-based reporting practices to evaluate the impact of renewable procurement tools like RECs alongside the impact of direct energy purchases or on-site generation (i.e., rooftop solar panels). Unlike more qualitative methodologies, the RE Emissions Score’s data-driven approach enables corporations to prove their energy usage is providing a net benefit to electricity grids.

The solution is ideal for large electricity customers, such as cryptocurrency miners, data centers, manufacturing facilities, and commercial real estate owners, who are searching for ways to measure their decarbonization progress. In partnership with Energy Web Foundation, we announced a first trial of applying the RE Emissions Score approach to decarbonizing Bitcoin mining in early May 2022.

Defining the Path Forward

RMI is advancing the RE Emissions Score as a solution to ensure renewable energy purchases play a vital role in building our nation’s path to a safer climate future. An initial public consultation period to refine and improve the approach is now open, and businesses are encouraged to weigh in with feedback on how the score can be most effective in helping them meet their climate goals and in accelerating real-world emissions reductions.

Learn more here.