Carbon Offsets vs Renewable Energy Credits (RECs): What’s the Difference?

Carbon Offsets vs Renewable Energy Credits (RECs): What’s the Difference?

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Grace Smoot

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Carbon offsets and Renewable Energy Credits (RECs) are two ways to reduce carbon emissions to mitigate climate change and ensure a sustainable planet for future generations. Although the two are often used in the same discussion, they are not mutually exclusive. To make informed decisions about carbon reduction, we must identify the differences between the two. So we had to ask: What’s the difference between carbon offsets and renewable energy credits (RECs)?

Carbon offsets are investments in environmental projects that reduce carbon emissions elsewhere to compensate for your carbon footprint. Renewable Energy Credits are certificates that allow you to claim that the electricity you use came from a renewable resource with low or zero carbon emissions. 

In the fight against climate change, how can we tell the difference between carbon offsets and RECs? Below we will define both terms, identify the key advantages and differences of each, explore how they operate and what impact they have on carbon emissions, and discuss why they are important in the fight against climate change.

How Are Carbon Offsets and Renewable Energy Credits Defined

Carbon offsets and RECs are two sustainability tools that can help individuals and organizations lower their carbon footprints. And although they are often used in the same conversation, they are not interchangeable terms. Each is used to accomplish specific, and very different, tasks.

What Does the Dictionary Say About Carbon Offsets and Renewable Energy Credits

Carbon offsets are a way to reduce carbon emissions beyond what we each can achieve through individual actions. They are measured in tons of carbon dioxide (CO2) equivalents and are bought and sold through international brokers, online retailers, and trading platforms. 

Carbon Offset: a way for a company or person to reduce the level of carbon dioxide for which they are responsible by paying money to a company that works to reduce the total amount produced in the world, for example by planting trees”

Oxford Dictionary

Carbon offsets play a crucial role in reducing our carbon footprint, the amount of CO2 emissions associated with an individual or an entity and one of the ways we measure the effects of human-induced global climate change. But offsets are not the only available tool. Renewable Energy Credits (RECs) are another option to reduce CO2 emissions. 

Renewable Energy Credit: a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation”

United States Environmental Protection Agency

RECs are the currency of the renewable energy market, which allow you to claim that the electricity you use came from a renewable resource (i.e. solar, wind, hydro, geothermal, or biomass) with low or zero-greenhouse gas emissions. For example, a corporation that has been mandated to generate a minimum level of energy from renewables can buy RECs instead of developing their own renewable sources or purchasing renewable energy from another provider. 

RECs act as an accounting or tracking mechanism for renewable energies as they are incorporated into the power grid. Because we cannot distinguish energy generated from renewables and that produced by other sources, some form of tracking is required. 

What Are the Differences Between and Advantages of Carbon Offsets and Renewable Energy Credits

Both carbon offsets and RECs represent ways in which we can mitigate carbon emissions and global warming. But they are also different methods of climate action with different environmental impacts, making it important to understand their differences.

The following are the 4 main differences between carbon offsets and Renewable Energy Credits:

  • Unit of measure: Carbon offsets are measured in metric tons of CO2-equivalent whereas RECs are measured in megawatt hours (MWh) of renewable electricity
  • Purpose: Carbon offsets address direct and indirect carbon emissions by verifying global emissions reductions at additional, external projects whereas RECs address the indirect carbon emissions associated with purchased energy
  • Source: Carbon offsets are sourced from a variety of projects that avoid or reduce carbon emissions (i.e., renewable energy, energy efficiency, carbon sequestration, and direct CO2 removal) whereas RECs are sourced from renewable electricity generators (i.e., solar, wind, geothermal, hydropower, biomass power plants)
  • Additionality: Additionality is required for verified carbon offset projects but not for RECs

The following are key advantages of carbon offsets:

  • They address both direct and indirect carbon emissions
  • They can be purchased from a variety of projects including direct CO2 capture, renewable energy, energy efficiency, and carbon sequestration
  • Additionality is guaranteed

The following are key advantages of Renewable Energy Credits:

  • Supports the renewable energy market
  • Certified proof that you are using renewable energy without having to install the required infrastructure (i.e. solar panels)
  • They can be uniquely numbered, tracked, and retired in the tracking system to prevent someone else from claiming it

How Do Carbon Offsets and Renewable Energy Credits Impact Your Carbon Footprint

Choosing either carbon offsets or RECs is great if you are looking to lower your carbon footprint. Knowing their similarities and differences is important when making a decision of which to use. 

Carbon Offsets Renewable Energy Credits
How are carbon emissions reduced Purchasing carbon offsets funds carbon emission reduction projects, which either prevent CO2 from entering the atmosphere or remove it once it’s already there. RECs create new energy from lower or zero-carbon sources, rather than from traditional fossil fuels. 
Impact on own carbon emissions Purchasing carbon offsets does not directly reduce your carbon footprint.  Purchasing RECs directly reduces your carbon footprint.
Impact on global carbon emissions Carbon offsetting mitigates the problem, but it doesn’t work at the core issue of reducing overall CO2 emissions. RECs allow you to purchase renewable energy, but it is not a guarantee that carbon emissions are avoided.
Environmental benefits Carbon offsets improve air quality and protect ecosystems. RECs are non-polluting, low-maintenance, promote the decentralization of our energy supply, and create green jobs.
Overall effectiveness in reducing carbon emissions Carbon offsetting is effective if projects are additional, permanent, meet certain key criteria and project standards, and do not engage in greenwashing. Market oversaturation and cheap prices limit REC effectiveness. RECs are also not additional.

How Do Carbon Offsets and Renewable Energy Credits Reduce Carbon Emissions

The goal of both carbon offsets and RECs is to reduce carbon emissions in order to mitigate climate change.

  • Carbon offsets: Offsets can represent direct or indirect emission reductions. Purchasing carbon offsets funds carbon emission reduction projects which either prevent CO2 from entering the atmosphere or remove it once it’s already there.
  • Renewable Energy Credits: RECs represent indirect emission reductions. Purchasing RECs supports renewable energy generation from a low or zero-emissions resource. 

When you hear the words “carbon offset”, think about the term “compensation”. Offsets represent the reduction, avoidance, destruction or sequestration of the equivalent of a ton of carbon in one place to “offset” an emission taking place somewhere else. Carbon offsets are designed for situations where emissions are impossible to reduce because you can use the funds to reduce emissions in other areas. 

When you hear the word “REC”, think about the term “renewable energy”. RECs can reduce the demand for “dirty”, fossil-fueled energies by bolstering the renewable energy market. RECs represent the creation of renewable energy to be supplied to our power grid. For example, if you consume 100 MWh per year, then you should purchase 100 RECs to ensure that all of the electricity you use is sourced from renewable energy sources.

What Impact Do Carbon Offsets and Renewable Energy Credits Have on our Own Carbon Emissions

One of the best ways we can aid in the fight against global climate change is to reduce our carbon footprint. And to do this we first have to reduce our own carbon emissions. 

  • Carbon offsets: Purchasing carbon offsets does not directly reduce your carbon footprint.
  • Renewable Energy Credits: Purchasing RECs directly reduces your carbon footprint. 

One of the main limitations of carbon offsetting is that carbon offsets do not directly reduce your own carbon emissions, it only makes others reduce their carbon footprint to compensate for your carbon footprint. Coupled with direct measures of emission reductions, such as reducing individual energy use and consumption, offsetting can be more effective. 

RECs directly reduce your own carbon emissions. When you purchase a REC, you source your energy from renewable resources rather than from fossil fuels. Since renewables have a lower carbon footprint than fossil fuels, your carbon footprint decreases as you use RECs.

What Impact Do Carbon Offsets and Renewable Energy Credits Have on Global Carbon Emissions

Every year we pump over 36 billion tons of CO2 into the atmosphere, fueling climate change. This causes temperature and sea-level rise, melting of sea ice, changing precipitation patterns, and ocean acidification. Carbon offsets and RECs aim to reduce global emissions and mitigate these negative environmental effects.

  • Carbon offsets: Carbon offsetting mitigates the problem, but it doesn’t work at the core issue of reducing overall CO2 emissions. 
  • Renewable Energy Credits: RECs allow you to purchase renewable energy, but it is not a guarantee that carbon emissions are avoided. 

In comparison to our 36 billion tons of CO2 emissions, carbon offsets for only ~1 billion tons of CO2 have been listed for sale on the voluntary market. Meaning that only about 0.8-1% of our annual CO2 emissions are offset.

RECs do not curtail energy from fossil fuels or limit their production. They simply bolster the renewable energy market and increase renewable energy supply to the power grid. 

So far, neither carbon offsets nor RECs have been successful in curtailing global carbon emissions. The COVID-19 pandemic triggered the largest decrease in energy-related carbon emissions since World War II, a decrease of 2 billion tons. However, emissions rebounded quickly at the end of 2020, with levels in December ending 60 million tons higher than those in December 2019. This indicates that the earth is still warming at an accelerated rate, and not enough is being done to implement clean energy practices. 

Illustration of annual CO2 emissions globally
Our World in Data: Annual total CO2 emissions

What Are the Environmental Benefits of Carbon Offsets and Renewable Energy Credits

Using carbon offsets and RECs can reduce our consumption of fossil fuels (i.e., coal, oil, and natural gas) which, in turn, reduces our carbon footprint. But their benefits go beyond reducing your overall carbon emissions to balance off your personal carbon footprint. They also come with various environmental benefits.

Carbon offsets can reduce overall CO2 emissions, leading to improved public health and healthier ecosystems. Offsets can reduce the instances of asthma, respiratory allergies, airway diseases, and lung cancer caused by carbon emissions. And healthy ecosystems have been linked with cleaner air, water, and food

RECs generate environmental benefits associated with the fact that the energy was produced via renewable resources without burning fossil fuels. Renewable energy has environmental benefits because it is sustainable, meaning that the energy sources are in infinite supply and we can keep harvesting them for many years to come. The renewable energy sector supplied approximately 12 million jobs globally in 2020, and jobs continue to increase as we start to realize just how beneficial renewable energy is for our environment. 

How Effective Are Carbon Offsets and Renewable Energy Credits in Reducing Carbon Emissions

Carbon offsets and RECs can be effective at reducing carbon emissions if certain criteria are met and if they are used correctly.

  • Carbon offsets: Different offset projects have different effectiveness rates, and carbon offsetting is effective only if projects are realized, additional, permanent, meet certain key criteria and project standards, and do not engage in greenwashing
  • Renewable Energy Credits: Market oversaturation and cheap prices limit REC effectiveness. RECs are also not additional.

Direct CO2 removal is the most effective category of offsets followed by renewable energy, energy efficiency, and carbon sequestration. But most importantly, carbon offsets must be realized in order to be effective. When offsets do not get realized they do not offset any carbon, and we don’t reduce any emissions. A main problem with carbon offsets is that the number of sellers on the voluntary carbon market exceeds the buyers by about 600-700 million tons. Meaning that only about 300-400 million tons of CO2 offsets actually get realized. 

The more that RECs are in demand, the more renewable energy must be generated. The more renewable energy that is generated, the less reliant we can be on fossil fuels. But the main problems with RECs are that the market is oversaturated due to the thundering success of the renewable energy market, and that RECs are so cheap to buy that they are not a big enough revenue source to make a difference on a large power project. RECs are not additional because most projects receiving REC revenue now would have been built regardless. In short, we should think of buying RECs as supporting renewable energy rather than curtailing fossil fuels.

Why Are Both Carbon Offsets and Renewable Energy Credits Important to Fight Climate Change

Carbon offsets and RECs are important to fight climate change because they are both ways to reduce your carbon footprint. Reducing your carbon footprint is important because it mitigates the effects of climate change, which has a positive cascade effect on public health and plant and animal diversity. In addition, this boosts the global economy and leads to innovative, more environmentally-friendly solutions.

However, carbon offsets and RECs should not be used as a Panacea for climate change. Relying on offsets solely is impractical because there aren’t enough carbon sinks to offset every ton of CO2 produced from our collective human activities. And relying on RECs solely is impractical because they are so cheap that they have become irrelevant to the financing and investment decisions of the power industry.

In the long term, direct methods of carbon footprint reduction are much more effective. Reducing your household, travel, and lifestyle carbon footprint can go a long way in the fight against climate change!

What are Better Alternatives to Carbon Offsetting and Renewable Energy Credits

If used correctly, carbon offsets and RECs can provide environmental, economic, and social benefits that go beyond reducing carbon emissions. They have the potential to instigate meaningful environmental change and begin to reverse some of the effects of climate change. 

However, we can’t let these two methods be a guilt-free way to reduce carbon emissions. Carbon offsets and RECs must be used in conjunction with carbon reduction measures until the industry has time to invest, develop, and refine more sustainable innovations. 

These reduction measures don’t have to involve drastic changes either. Actions that may seem small can have a big impact because those small changes add up! You can reduce your carbon footprint in three main areas of your life: household, travel, and lifestyle. 

Reduce your household footprint:

Reduce your travel footprint:

  • Walk or bike when possible: The most efficient ways of traveling are walking, bicycling, or taking the train. Using a bike instead of a car can reduce carbon emissions by 75%. These forms of transportation also provide lower levels of air pollution.

Reduce your lifestyle footprint:

  • Switch to Renewable Energy Sources: The six most common types of renewable energy are solar, wind, hydro, tidal, geothermal, and biomass energy. They are a substitute for fossil fuels that can reduce the effects of global warming by limiting global carbon emissions and other pollutants.
  • Recycle: Recycling uses less energy and deposits less waste in landfills. Less manufacturing and transportation energy costs means less carbon emissions generated. Less waste in landfills means less CH4 is generated.
  • Eat less meat and dairy: Meat and dairy account for 14.5% of global greenhouse gas emissions, with beef and lamb being the most carbon-intensive. Globally, we consume much more meat than is considered sustainable, and switching to a vegan or vegetarian diet could reduce emissions. 
  • Take shorter showers: Approximately 1.2 trillion gallons of water are used each year in the United States just for showering purposes, and showering takes up about 17% of residential water usage. The amount of water consumed and the energy cost of that consumption are directly related. The less water we use the less energy we use. And the less energy we use, the less of a negative impact we have on the environment.

Final Thoughts

In short, carbon offsets are not the same thing as RECs. Carbon offsets represent the avoidance or removal of CO2 from the atmosphere via verified projects. RECs are certified proof that energy was created from renewable resources rather than from fossil fuels. They are not a guarantee that any particular amount of fossil fuel electricity generation was avoided. And they are also not a guarantee that any particular amount of carbon emissions was avoided. 

Both are tools in our sustainability toolbox that can be used to reduce carbon emissions and mitigate climate change. But we should not rely on either or both to be a cure-all for our environmental problems. Direct measures of carbon emission reduction are much more effective in reducing emissions both in the short term and the long term.

Stay impactful,

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Grace Smoot

Grace loves to research and write about all things related to climate action and sustainability. She holds a Bachelor’s of Science degree in Environmental Biology and works as an environmental Survey Technician. Outside of work, she loves to work out, play soccer, and take her dog for long walks.

Did you know that the internet is a huge polluter of the environment? But fortunately not this site. This site is powered by renewable energy and all hosting-related CO2 emissions are offset by three times as many renewable energy certificates. Find out all about it here.

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