Renewable Energy Credits (RECs) Explained: All You Need to Know

Renewable Energy Credits (RECs) Explained: All You Need to Know

By
Grace Smoot

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Renewable Energy Credits (RECs) could play a role in lowering the global average concentration of carbon dioxide in our atmosphere, which now registers at over 400 parts per million because they incentivize the switch to renewable energy. So, we had to ask: What are RECs really, and could they help us mitigate climate change?

Renewable Energy Credits (RECs) bolster the renewable energy market by incentivizing renewable energy generation. RECs reduce your own carbon emissions and are cost-effective; however, they often lack additionality and also may have intermittent energy production problems associated with renewable energy.

Keep reading to find out all about what Renewable Energy Credits (RECs) are, how they work, how effective and efficient they are, what their pros and cons are, and what the best ones are. 

At the end of the article, we’ll also share with you how RECs can help mitigate climate change and what better alternatives to them are. 

The Big Picture of Renewable Energy Credits (RECs)

Renewable Energy Credits (RECs) are the currency of the renewable energy market in North America, representing the attributes of renewable energy that are generated and delivered to our power grid. They are measured in megawatt hours (MWh) of renewable electricity and target scope 2 emissions, or the emissions associated with purchased electricity. 

REC: 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 a specific type of Energy Attribute Certificate (EAC), which is physical documentation that proves 1 megawatt-hour (MWh) of renewable energy has been added to the energy grid. EACs go by different names in different regions of the world. RECs simply refer to EACs in North American markets.

What are renewable energy credits (RECs)Renewable Energy Credits (RECs represent the attributes of renewable energy that are generated and delivered to our power grid. They are physical documentation that proves 1 megawatt-hour (MWh) of renewable energy has been added to the energy grid. They target scope 2 carbon emissions, the emissions associated with purchased electricity. 
How do renewable energy credits (RECs) workRECs act as an accounting or tracking mechanism for renewable energies as they are incorporated into our power grid. Since renewables have a lower carbon footprint than fossil fuels, your carbon footprint decreases as you use RECs.
How effective and efficient are renewable energy credits (RECs)RECs are effective because they reduce your own carbon emissions and bolster the renewable energy market. However, they often lack additionally.
RECs are efficient because they are cost-effective and increase the efficiency of the power grid.
However, they also may have intermittent energy production problems generally associated with renewable energy.
What are the 6 pros of renewable energy credits (RECs)RECs reduce your own carbon emissions
RECs bolster the renewable energy market
RECs are cost-effectiveRECs promote the decentralization of our energy supply
RECs are a low-maintenance method of carbon emission reduction
RECs are environmentally friendly 
What are the 4 cons of renewable energy credits (RECs)RECs often lack additionally
RECs do not guarantee carbon avoidance
RECs occupy an oversaturated market
RECs may have intermittent energy production problems associated with renewable energy
What are the best renewable energy credits (RECs)The best RECs are offered by Terrapass, ClimeCo, and South Pole which all help advance the renewable energy market. In addition, 3Degrees supports solar energy projects in Uganda and the US, and Native Energy invests in various renewable energy projects across the US.
How can renewable energy credits (RECs) help mitigate climate changeRenewable energy carbon credits specifically help mitigate climate change because they bolster the renewable energy market, which reduces the demand for fossil fuels and subsequently reduces carbon emissions.

What Are Renewable Energy Credits (RECs)

Renewable Energy Credits (RECs) are the currency of the renewable energy market in North America, representing the attributes of renewable energy that are generated and delivered to our power grid. They are measured in megawatt hours (MWh) of renewable electricity and target scope 2 emissions, or the emissions associated with purchased electricity. 

RECs can come in two forms:

  • Bundled: The REC is sold together with the energy associated with it. 
  • Unbundled: The REC has been separated from the physical electricity it represents. 

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. 

How Do Renewable Energy Credits (RECs) Work

RECs act as an accounting or tracking mechanism for renewable energies as they are incorporated into our power grid. When renewable energy enters our power grid, it consists of electrons that cannot be traced to any specific source. But RECs are a way to track when and where renewable energy is generated, who it is sold to, and who is using it. 

RECs also 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.

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.

Related: Are you interested in learning more about the big picture of renewable energy credits (RECs)? Check out the full article here: “What Are Renewable Energy Credits (RECs) and How Do They Work? The Big Picture

How Effective and Efficient Are Renewable Energy Credits (RECs)

In terms of effectiveness, renewable energy credits (RECs) reduce your own carbon emissions and bolster the renewable energy market. However, they often lack additionality.

In terms of efficiency, renewable energy credits (RECs) are cost-effective and increase the efficiency of the power grid. However, they also may have intermittent energy production problems associated with renewable energy.

RECs are effective at mitigating climate change because they:

However, RECs can also lack effectiveness because additionality is not guaranteed. Renewable energy projects are already in high demand and would have been built regardless.

RECs are efficient at reducing carbon dioxide (CO2) emissions because they:

However, RECs can also lack efficiency because they share some of the overall problems associated with renewable energy including intermittent energy production, geographic limitations, and ever-fluctuating quantities of energy.

Related: Are you interested in learning more about how effective and efficient renewable energy credits (RECs) are? Check out the full article here: “How Effective and Efficient Are Renewable Energy Credits (RECs)? Here Are the Facts

What Are The 6 Pros and 4 Cons of Renewable Energy Credits (RECs)

Renewable energy credits (RECs) reduce your own carbon emissions, bolster the renewable energy market, are cost-effective, promote the decentralization of our energy supply, are a low-maintenance form of carbon emission reduction, and are environmentally-friendly.

However, RECs often lack additionality, do not guarantee carbon avoidance, occupy an oversaturated market, and may have intermittent energy production problems associated with renewable energy.

Related: Are you interested in learning more about the pros and cons of renewable energy credits (RECs)? Check out the full article here: “Renewable Energy Credits (RECs): All 6 Pros and 4 Cons Explained

What Are the 6 Pros of Renewable Energy Credits (RECs)

RECs have various pros that go beyond simply reducing carbon emissions, they also contribute largely to the advancement of the renewable energy market.

6 Pros of Renewable Energy Credits (RECs)Quick Facts
#1: RECs reduce your own carbon emissionsWhen 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.
#2: RECs bolster the renewable energy marketRECs represent the creation of new renewable energy to be supplied to our power grid. They can reduce the demand for “dirty”, fossil-fueled energies and increase the demand for renewable energies, bolstering the market.
#3: RECs are cost-effectiveRECs certified by Green-e®, the governing body that tracks and retires certified RECs in North American markets, cost approximately $8 per REC,  which is cheaper than direct carbon capture ($250-$650 per ton) and reforestation ($50 per ton). 
#4: RECs promote the decentralization of our energy supplyRECs draw renewable energy from various geographic locations, so the grid can distribute power from multiple plants. This decentralization in turn reduces peak time usage and decreases the likelihood of power outages.
#5: RECs are a low-maintenance method of carbon emission reduction With RECs, the purchaser does not have to maintain any renewable energy infrastructure, making them a low-maintenance form of carbon emission reduction that can incentivize the switch to renewables even more.
#6: RECs are environmentally-friendly RECs are sourced from renewable energy sources, which each come with their own set of environmental benefits. Biomass is less environmentally-friendly than the other 6 renewable energy sources.

What Are the 4 Cons of Renewable Energy Credits (RECs)

Understanding the drawbacks of RECs is important when implementing this strategy on a large scale in order to mitigate climate change.

4 Cons of Renewable Energy Credits (RECs)Quick Facts
#1: RECs often lack additionalityRECs are often not additional because most projects receiving REC revenue now would have been built regardless.
#2: RECs do not guarantee carbon avoidanceRECs bolster the renewable energy market and increase renewable energy supply to the power grid, but they do not curtail energy from fossil fuels or limit their production. RECs allow purchasers to write off their carbon emissions without requiring them to reduce their current emissions.
#3: RECs occupy an oversaturated marketOne main problem with RECs is that the market is oversaturated due to the thundering success of the renewable energy market, and RECs are now so cheap to buy that they are not a big enough revenue source to make a difference on a large power project. 
#4: RECs may have intermittent energy production problems associated with renewable energyBecause RECs are sourced from renewable energy, they also share some of the same drawbacks as renewable energy. Different renewable energy sources are abundant in different regions of the world, and some are only generated at certain times of the day.

How Could you Offset Your Own Carbon Footprint With Renewable Energy Credits (RECs)

Unbundled RECs have seen rapid growth in the past decade, increasing from 19.8 million MWh in 2010 to 86.4 million MWh in 2020, and they are now the most common form of green-power procurement in the voluntary market.

Because RECs are cost-effective and directly reduce your carbon emissions, they are predicted to make up an increasingly larger share of this market.

Renewable Energy Credit (REC) CompanyQuick Facts
TerrapassTerrapass offers RECs that support renewable energy projects such as wind and solar farms.
South PoleSouth Pole offers RECs that support renewable energy projects including geothermal, small hydropower, and solar.
ClimeCoClimeCo’s RECs are sourced from a variety of renewable energy resources and can be purchased on a commercial or wholesale basis anywhere in the US.
3Degrees3Degrees offers RECs that support renewable energy projects including solar projects in Uganda, Kentucky, and Massachusetts. 
Native EnergyNative Energy offers RECs that support wind, solar, wind/ solar hybrids, landfill gas, small-scale hydro, and biomass renewable energy projects across the US.
Act CommoditiesAct offers Renewable Energy Quota Certificates (REQCs) for purchase on the mandatory market and Energy Attribute Certificates (EACs), which includes RECs, for purchase on the voluntary market.
Bonneville Environmental FoundationBonneville Environmental Foundation offers RECs that support wind and solar renewable energy projects. They also offer stacked RECs. 
Anew EnvironmentalAnew Environmental offers RECs that support renewable energy projects such as wind and solar farms.
GO2 MarketsGO2 Markets offers wind, solar, biomass, hydro, thermal, and geothermal RECs dependent on the geographic location of your energy consumption.
Related: Are you interested in learning more about the best renewable energy credits (RECs)? Check out the full article here: “Best Renewable Energy Credits (RECs)

How Can Renewable Energy Credits (RECs) Help Mitigate Climate Change

Climate change is a severe and long-term consequence of fossil fuel combustion. Renewable Energy Credits (RECs) can help mitigate climate change because they increase the market for renewable energy and incentivize the switch away from traditional fossil fuels, which emit billions of tons of carbon every year. Atmospheric carbon can remain in circulation for tens of thousands of years and exacerbate the negative effects of climate change.

How is Climate Change Defined

Climate change is arguably the most severe, long-term global impact of fossil fuel combustion. Every year, approximately 33 billion tons (bt) of CO2 are emitted from burning fossil fuels. The carbon found in fossil fuels reacts with oxygen in the air to produce CO2

Climate change: changes in the earth’s weather, including changes in temperature, wind patterns and rainfall, especially the increase in the temperature of the earth’s atmosphere that is caused by the increase of particular gasses, especially carbon dioxide.

Oxford Dictionary

Atmospheric CO2 fuels climate change, which results in global warming. When CO2 and other air pollutants absorb sunlight and solar radiation in the atmosphere, it traps the heat and acts as an insulator for the planet. Since the Industrial Revolution, Earth’s temperature has risen a little more than 1 degree Celsius (C), or 2 degrees Fahrenheit (F). Between 1880-1980 the global temperature rose by 0.07C every 10 years. This rate has more than doubled since 1981, with a current global annual temperature rise of 0.18C, or 0.32F, for every 10 years. 

As outlined in the 2015 Paris Climate Agreement, we must cut current GHG emissions by 50% by 2030 and reach net zero by 2050

How Do Renewable Energy Credits (RECs) Generally Help Mitigate Climate Change

Levels of carbon in our atmosphere that cause climate change have increased as a result of human emissions since the beginning of the Industrial Revolution in 1750. The global average concentration of carbon dioxide in the atmosphere today registers at over 400 parts per million. RECs can help prevent these levels from increasing even more.

When you hear the word “REC”, think about the term “renewable energy”. RECs represent the creation of renewable energy to be supplied to our power grid. RECs can reduce the demand for “dirty”, fossil-fueled energies by bolstering the renewable energy market. 

RECs that are certified by verified third parties and are a part of renewable energy projects that are carried out until the end of their lifespan have the best chance of reducing carbon emissions and therefore mitigating climate change. 

When we reduce CO2 emissions we also slow the rate of global temperature rise, which in turn minimizes the effects of climate change. 

How Do Renewable Energy Credits (RECs) Specifically Help Mitigate Climate Change

Renewable energy carbon credits specifically help mitigate climate change because they bolster the renewable energy market, which reduces the demand for fossil fuels and subsequently reduces carbon emissions.

Renewable energy is important to meet Paris Climate Agreement targets because it reduces our dependence on fossil fuels, which produce carbon that can remain in our atmosphere for tens of thousands of years.

What Are Better Alternatives to Renewable Energy Credits (RECs)

If used correctly, renewable energy credits (RECs) can provide environmental, economic, and social benefits 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 this method be a guilt-free way to reduce carbon emissions. 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. Instead, RECs must be used in conjunction with direct carbon reduction measures. 

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 carbon footprint:

Reduce your travel carbon 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 carbon 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 fewer 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 GHG 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.

Because the market for RECs is oversaturated and they do not curtail fossil fuel production, RECs alone will not be enough to reduce global carbon emissions significantly. Reducing individual energy use and consumption are better alternatives to RECs. 

Related: Are you interested in learning why reducing your carbon footprint is so important? Check it out in this article here: “4 Main Reasons Why Reducing Your Carbon Footprint Is Important

Final Thoughts

Renewable Energy Credits (RECs) help reduce carbon emissions by incorporating more renewable energy into our energy grid and reducing demand for fossil fuels. They reduce your own carbon emissions, bolster the renewable energy market, are cost-effective, and increase the efficiency of the power grid. However, they often lack additionality and also may have intermittent energy production problems associated with renewable energy.

The top RECs are those offered by companies whose renewable energy projects are verified by recognized standards. But although RECs can instigate meaningful change, they should not be seen as the only solution to climate change. In the long term, they fail to reduce CO2 enough to mitigate climate change for future generations. 

When used in conjunction with direct CO2 reduction measures, RECs can be much more effective. We should reduce our own carbon footprint as much as possible first, and only then choose RECs.

Stay impactful,

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