Understanding Renewable Energy Certificates

Renewable energy certificates are a vital tool for offsetting a company’s carbon footprint, but there is still plenty of confusion about how best to use them.We caught up with Steve McDougal, Executive Vice President of Marketing and Business Development for 3Degrees Inc., and asked him to shed some light on the subject.

GT: What is a renewable energy certificate (REC)?

SM: A REC is proof or verification that a one megawatt-hour of renewable energy has been created and delivered to the grid. Power is traded like a commodity, undifferentiated from fuel sources, and a REC is like a claim check that corresponds to electricity generated from renewable resources. It’s purchased separately, however, so the buyer of that REC knows that they’re funding, or helping fund the generation of the same amount of renewable energy going into the grid as what they pull out of the grid.

GT: Who uses RECs?

SM: RECs are used by a variety of organizations. They’re used by utilities to meet state government renewable energy compliance regulations; they’re used by organizations on a voluntary basis to meet sustainability goals and by green building professionals to earn Green Power Credit points towards LEED green building certification.

GT: What kind of premium could a buyer expect to pay for energy from a renewable source?

SM: For a voluntary buyer purchasing a REC that is sourced from anywhere in the United States, the premium is about 1 percent.

GT: How do RECs help companies reach their sustainability goals?

SM: While businesses may do their best to reduce their electricity usage, at the end of the day, all organizations still need electricity to operate. Unfortunately, there is a significant environmental impact associated with the electricity that they use. The purchase of RECs mitigates this impact, while helping improve the profitability and return on investment of renewable energy projects and therefore motivating more of those projects to go forward.

GT: How do I know if I want to use a REC or a carbon offset?

SM: If you want to “green” your electricity, RECs are the way to go. But they are not meant to be used as a carbon offset for Scope 1 or Scope 3 greenhouse gas emissions, primarily because RECs are not a precise way to measure greenhouse gas emission reductions. They’re a proof of a megawatt hour of clean electricity, and you can use them to determine the amount of greenhouse gas emissions that would have been released if fossil fuels were used to generate your electricity. But they are not designed to balance out the greenhouse gas emissions or mitigate the environmental impact of energy use other than electricity. Everything else outside of electricity use, from driving your car to burning some natural gas to putting another log on the fire, that’s what you want to use carbon offsets for.

GT: How do you demonstrate value/metrics for those who buy these credits?

SM: The U.S. Environmental Protection Agency’s calculator provides one look at the environmental impact RECs can have. You can enter the amount of megawatt hours that you’re buying and it will convert it to a measure that shows the amount of greenhouse gases that would have been generated using traditional electricity generation. It then tells you how these greenhouse gas emissions correspond to the amount of greenhouse gases produced annually by an average car, or absorbed by an acre of forest in a year. Many companies also measure themselves by setting a percentage goal and increasing the amount of RECs they use over time.

GT: Can REC’s totally offset a company’s carbon footprint?

SM: One should always look at RECs as a complement to energy efficiency and conservation efforts, realizing that it’s not one or the other. The best approach is to say, ‘We’re going to reduce our energy use, costs and environmental impact as much as possible,’ using energy efficient technologies and conservation. But even if we do our best, we will still use some electricity from the grid, which will have an environmental impact. And a comprehensive environmental sustainability effort can mitigate this impact by supporting the generation of the same amount electricity from renewable energy sources as the electricity you use from the grid.

Steve McDougal is Executive Vice President of Marketing and Business Development for 3Degrees Inc. and a member of NAEM’s Affiliates Council. You can hear him speak more about renewable energy credits during the upcoming webinar “Understanding the Business Value of Renewable Energy Certificates” Jan. 13 from 1:00-2:15 p.m.

About NAEM Staff

The National Association for Environmental Management (NAEM), is a non-profit professional association that empowers corporate leaders to advance environmental stewardship, create safe and healthy workplaces, and promote global sustainability. As the largest network for environmental, health and safety (EHS), and sustainability decision-makers, we provide peer-led educational conferences and an active network for sharing solutions to today’s corporate EHS and sustainability management challenges. Visit NAEM online at www.naem.org.

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