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Demystifying Renewable Energy Credits
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by Richard Reis | 2008

RECs are a market-based device to allow people and corporations to benefit financially when generating energy from renewable energy sources—sources that do not emit global warming gases, principally carbon-dioxide (CO2). They also permit others to purchase these credits to offset their energy-intensive activities that produce global warming gases, such as air travel. Thus, RECs are a potential mechanism for reducing global warming.

Some of my recent experiences raised a number of questions about what renewable energy credits (RECs) are and whether they were effective in mitigating global warming.

To minimize our impact on global warming, my local congregation, the Washington Ethical Society, considered a company’s proposal to install a solar photovoltaic system. The company would retain system ownership, while the congregation would purchase its solar electricity for 20 years. The price, while higher than other market prices for electricity, would remain fixed during the 20 year contract. The solar-generated electricity would also yield RECs. The company would sell these RECs to partially offset the cost of the system.

I attended an informational meeting on global warming and the environment at the Silver Spring Unitarian Universalist Church. There, a representative from the county’s energy office urged attendees to use Compact Fluorescent Lamps (CFLs)and to buy RECs to compensate for the global warming gas emissions of the ordinary electrical energy they  use.    

RECs are a market-based device to allow people and corporations to benefit financially when generating energy from renewable energy sources—sources that do not emit global warming gases, principally carbon-dioxide (CO2). They also permit others to purchase these credits to offset their energy-intensive activities that produce global warming gases, such as air travel.  Thus, RECs are a potential mechanism for reducing global warming.

RECs help address an essential problem in our economy described in Garrett Harden’s seminal essay, “The Tragedy of the Commons” (Science, 1968). The problem applies as an individual buying electricity from conventional sources does not pay for its adverse effects. For example, most of the electricity in our area comes from coal. Its mining is very environmentally destructive. When it is burned to generate electricity, it produces local pollutants and global warming gases.

One REC is awarded based for each megawatt-hour (MWh), equivalent to 1000 kilowatt-hours, of renewable energy generated. The types of renewable energy allowed for these credits include solar, wind, biomass, and geothermal. It does not depend upon the infrastructure needed to generate this electricity. Each REC can be considered equivalent to about 1,350 pounds of carbon dioxide (CO2) not emitted, based upon federal Energy Information Office Reports.

Yet it is important to realize that RECs and carbon offsets are similar, but different. RECs come from electrical generators that emit no or less carbon than traditional generators, whereas carbon offsets can come from other sources. RECs can be used to claim that one’s electricity comes from no- or low-carbon sources.

Maryland power companies are required to meet renewable portfolio standards per the 2005 law as amended in 2007. Under this law they must either generate a portion of their electricity from certain renewable sources or purchase RECs from the open market.

 

The following scenarios illustrate the issues of selling and buying RECs and offsets:

In years past, John purchased 10 MWh of electricity from conventional sources. Those power plants emitted 10,000 pounds of carbon dioxide to supply that electricity. As a concerned environmentalist, John has a grid-tied solar electric system installed on his home. The system generates an average 10 MWh of solar electricity per year and allows him to harvest 10 RECs.  If each REC sells for $20 on the open market, each year John sells his 10 RECs for $200 to partially pay back the cost of his system.

 

Mary plans to fly from St. Louis to San Francisco to attend a Sierra Club meeting. She uses a tool such as the one on the NativeEnergy web site (www.nativeenergy.com) to learn that her round trip flight will generate the equivalent of 1.395 tons (2,790 pounds) of carbon dioxide per passenger—equivalent to about two RECs. As a concerned environmentalist, she buys the offset so that she can travel feeling that, on-balance, her trip does not contribute to global warming. Each of four other attendees also buys the same offset; all five purchase the equivalent of 10 RECs —the same number that John sold in one year.

 

What is wrong with this scenario?

The RECs added balanced the RECs removed from the market. Yet the five flights added the equivalent of 13,950 pounds of CO2 to the global atmosphere. The reality is that John cannot sell RECs and still “earn points” as an environmentalist; he also needs to conserve and use less electricity. Mary should know that her purchase of RECs might not fully offset the extra global warming of her trip.

There are other issues to consider. We can compare the embedded energy of conventional and alternative energy systems. This includes the energy to mine the materials, manufacture the components, and install the system. There may be environmental impacts of alternative energy installation and use. For example, wind generation may harm birds. In the recent book, Heat, How to Stop the Planet from Burning, author George Monbiot argues that air travel must be avoided to moderate global warming. Although a MWh of energy use avoided is at least as good for the environment as a MWh of alternative energy, RECs are not awarded for conservation. Finally, RECs should be certified by a third- party rater or verified through an audit.

Perhaps the worst example is a plan by California-based Planktos, Inc. to dump iron in the Pacific to generate RECs. As the Friends of the Earth notes, the plan lacks oversight, could harm the ocean, and would probably not work anyway.

Sequestration, another way to avoid carbon release when generating electricity from conventional sources, costs money. For example, a recent paper (Energy Engineering 2007, Vol. 104, No. 6, p. 15) estimates that carbon capture and sequestration adds about 5.44¢ per kWh to the cost of coal-generated electricity. To date, geological carbon capture and sequestration has only been tried with two relatively small demonstration projects.

Aside from using RECs, we can lessen the harm from coal and other non-renewable energy sources by having the government mandate renewable energy portfolios for utilities (as mentioned earlier), regulating mining and electrical generation, taxing carbon, conserving energy, and using tradable carbon permits. These and other possibilities are used locally and around the world to some extent.

RECs do their job when they provide an effective incentive for commercial alternative energy investments. For example, NativeEnergy of Vermont is a privately held energy company. It uses RECs to help finance Native American alternative energy projects, such as the Toksook Bay Alaska Native Village Wind Turbine. 

RECs have an important role to play in mitigating global warming, but like any accounting system, we need to be careful not to “cook the books” (and thus cook the planet) and not really reduce global warming gases.   This essay is not the final word on this important and multifaceted topic. I look forward to questions and comments.    

 

Richard (Rich) Reis is a professional engineer and principal of Conservation Engineering, as well as a long-time member of the Sierra Club. He can be reached at 301-325-8001 or rreis@verizon.net.

 

Rich thanks Cindy Paré and Dave O’Leary for reviewing this article and for their many helpful suggestions.

 

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