Renewable Energy Certificates may overstate corporate environmental efforts

The reliance of many major companies on a certain type of highly scrutinized energy credit could be an indicator that the private sector is far behind efforts to limit contributions to climate change, according to new research.

The research, published in early June in the journal Nature Climate Change, focuses on renewable energy certificates (RECs), which are documents that show that a certain amount of energy has been generated using renewable methods like wind or solar. 

The research found that many companies would have far larger carbon footprints without the credits, which many environmental experts consider to be ineffective.

“In my opinion, [RECs are] always misleading, because in a physical sense, they are not using renewable energy,” said Anders Bjørn, a postdoctoral fellow at Concordia University and the lead author on the study.

The difference once RECs are removed creates a major discrepancy, putting many companies behind goals meant to meet the Paris Agreement. The agreement, adopted in 2015, is an international treaty among 192 countries and the European Union that seeks to significantly reduce greenhouse gas emissions in order to keep global temperature levels from rising by more than 1.5 degrees Celsius. 

Companies purchase RECs so that they can cancel out a portion of their carbon emissions. This practice comes from the Greenhouse Gas Protocol, an initiative that provides the primary standard by which companies estimate their emissions. Through this method of emissions accounting, companies are able to significantly reduce the carbon emissions they report without making significant changes to their operations.

April 23, 202203:54

Companies have embraced markets such as carbon credit programs and RECs that allow them to show that they are taking steps to reduce their environmental footprints. Many of these programs rely on a cash-for-credit system, where a company pays money for a credit created to represent the generation of green energy. Offsets represent emissions reductions, whereas RECs represent use of renewable electricity.

Bjørn’s research looked at the Science-Based Targets initiative (SBTi), which helps companies abide by emissions targets and follow the current Greenhouse Gas Protocol. Through the SBTi, over 1,000 companies have made commitments to achieve net-zero emissions.

In theory, RECs are meant to increase the amount that companies invest in renewable energy sources. However, a large body of previous research has indicated that RECs do not actually work this way, according to Michael Gillenwater, a REC researcher and executive director and dean of the Greenhouse Gas Management, a nonprofit organization that focuses on environmental impact accounting.

“All the research has pretty unambiguously shown that [the REC market] does nothing,” Gillenwater said. “It’s basically ineffective in terms of influencing renewable energy investment or generation.”

Although RECs are meant to create investments that would drive the creation of new wind and solar farms, little if any renewable energy actually seems to be created, because, as Gillenwater explains, “REC certificates just aren’t worth enough.”

The study coming out of Concordia University shows just how far off companies are from Paris Agreement carbon emissions targets when the amounts offset by RECs are removed. By current measurements, 68% of the 115 companies analyzed in the study have lowered their emissions enough to align with the 1.5°C goal. But the study found that when RECs are excluded, only 36% of companies meet the target.

The study focused only on Scope 2 emissions, which are the emissions related to the purchase of electricity. According to the study, although the companies allegedly reduced their Scope 2 emissions by 31%, these companies had actually only reduced emissions by 10% when RECs are excluded.

“The widespread use of RECs raises doubt on companies’ apparent historic Paris-aligned emission reductions, as it allows companies to report emission reductions that are not real,” the researchers said in the study.

The Greenhouse Gas Protocol is set to revise their standards later this year. The researchers advocate for a change to how emissions are reported that includes a more nuanced understanding of RECs.

“We are aware there is growing concern about companies using low-impact instruments to reduce their market-based scope 2 emissions, from an emissions accounting point-of-view, without driving real-world change,” the SBTi said in a statement to Bloomberg. “This is an issue that extends beyond the SBTi, and we feel that the best solution involves revised accounting principles and guidance for all users.”

Shannon Lloyd, one of the researchers, emphasized that the problem is not the companies, but the system itself. 

“In my mind, the call for this paper shouldn’t be, ‘Let’s point fingers,’” Lloyd said. “The call should be, ‘Let’s figure this out.’”