What is the difference between purchasing offsets and purchasing Renewable Energy Certificates (RECs)?
Companies looking to reduce their net-emissions often compare two financial products: Renewable Energy Credits (RECs) and Carbon Offsets. While both are intended to demonstrate a company’s efforts to reduce their carbon and greenhouse gas emissions, offsets and RECs are fundamentally different and not interchangeable.
Offsets
Offsets, or verified emissions reductions, compensate for the greenhouse gas emissions a company produces elsewhere. They are produced from external projects and are subtracted from an organization’s emissions to determine the net-organizational emissions, balancing a company’s direct and indirect emissions.
The market for carbon offsetting is driven by compliance and voluntary demand; compliance demand is created by government regulated caps on the total carbon dioxide emissions a company is allowed to emit. Voluntary offset demand is driven by consumer demand. Companies investing in their ‘green’ reputation may purchase offsets without being legally obligated to do so.
Offsets can be categorised as either project-based or nature-based. Project-based offsets like carbon-capture are man-made projects that remove carbon emissions from the atmosphere whereas nature-based offsets are natural sinks of net-emissions that occur naturally.
Purchasing nature-based offsets is controversial because the climate models on which we determine the carbon reductions necessary to avoid future climate catastrophes have already accounted for present and future natural sinks. Therefore, while purchasing nature-based offsets does reduce CO2 overall, the impact is not necessarily measurable.
Another type of ‘offset’ is the carbon credit. Carbon credits are purchased from governments and every carbon credit represents the right to emit one tonne of carbon dioxide. Companies pay for carbon credits to balance their emissions output with potential emissions removal in order to become net-zero. The controversy around purchasing carbon credits to offset emissions lies in the variable price. The global inconsistency in price means that the real impact of greenhouse gas (GHG) emissions aren’t necessarily covered by the market carbon price in some regions. For example, carbon credits are much more expensive in Europe than in Asia, so an organisation vying for a cheaper ‘green’ strategy may purchase carbon credits at a fraction of the price necessary to cover the actual cost of their GHG emissions, and still call themselves “green”.
The larger problem with offsets overall is the lack of traceability. Many offsets sold to consumers cannot be directly traced back to the source. Without transparency, stakeholders are prone to buy into carbon reduction and offsetting schemes that may do little to reduce the concentration of carbon in the atmosphere. However, if researched and verified by the customer, purchasing offsets can be a legitimate approach to reducing net-emissions.
RECs
Another way for companies to showcase their commitment to sustainable practices is to purchase Renewable Energy Credits (RECs). RECs are always purchased from renewable energy generation projects. Every kilowatt of renewable energy produced is associated with a credit that can be bought and sold.
Companies powered by energy from the grid have no say in where their energy comes from. Coal-fired power plants, nuclear power plants and renewable energy power plants all feed electrons into the grid system which are then distributed to energy consumers.
However, by purchasing RECs, companies that are powered from the grid can claim the renewable attributes of those renewable energy kilowatts purchased via RECs because they are directly supporting a particular solar farm or wind farm that is feeding more green energy into the grid.
Moreover, RECs allow companies of every size to directly support renewable energy projects. A single REC represents 1MWh of renewable energy, which makes supporting renewable generation accessible to smaller companies.
But the current system of RECs is not the perfect solution. Today, most RECs lack a crucial time element and the ability to track the purchased kilowatts back to their source.
Time-bound RECs are objectively better for the climate because they ensure companies are claiming the kilowatts from the renewable energy at the time it is produced and pumped into the grid.
Why is this important? Most companies report their power consumption on an annual basis, and are only concerned that their overall electricity consumption in a given year is matched with their overall purchase of RECs. However, many companies are still operating at night, or at other times when variable renewable energy generation doesn’t cover their electricity consumption. Unless they are storing excess renewable generation in batteries, these companies are reliant on fossil fuels for at least some of their power, and should not claim to be 100% green. With time-bound RECs, their reliance on fossil fuels cannot be easily hidden from the public in their annual reports.
Finally, companies that purchase RECs need to be able to provide traceable proof of their sustainability commitments. Many well-intentioned companies are being accused of greenwashing because they can’t track their RECs back to the source. Though these companies have taken steps to reduce their GHG emissions, their inability to prove it leaves their reputation marred.
That’s why real-time energy tracking technology is crucial. Today, many companies report their energy consumption and emissions manually, which can take months or even years to accurately report. With real-time tracking through innovative technologies, companies can demonstrate and improve their sustainability positions, helping to manage regulatory and stakeholder expectations.
The race to zero emissions
When evaluating offsets against RECs it is obvious that one will move us toward a zero-emissions world much faster.
While offsets remove GHG emissions from the atmosphere, RECs work to prevent those emissions from existing in the first place and create demand within the renewable energy market. Companies would be wise to choose trackable, transparent instruments to transform their sustainability strategies into reality.
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