Have you ever walked into a store and spotted a sign stating that the company is “100% powered by renewable energy”? Sustainability and environmental stewardship are becoming more popular in the corporate world, and many businesses are scrambling to “green” their image. But how do these companies actually go about achieving a 100% renewable status? Some have on- or off-site energy renewable generation, as exemplified by Apple’s data center in Maiden, North Carolina. Others make investments, purchase renewable energy directly, or buy carbon offsets. But one of the most popular options is to buy renewable energy credits, or RECs. One REC typically represents one megawatt-hour (mWh) of energy, which is enough energy to power 350 houses for one hour. RECs are sold by utilities and energy producers, and are bought by individuals and businesses.

Electricity from renewable energy sources can be broken down into two parts: (1) the physical electricity, and (2) the added “environmental and non-power” characteristics of the renewable energy (“Renewable Energy Certificates (RECs)”). These two parts can be sold separately in an energy market, and represent the two main types of RECs:

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 http://ilsr.org/wp-content/uploads/2014/03/Screenshot-2014-03-27-11.45.01.png

As shown in the graphic above, bundled RECs include these environmental characteristics as represented by the green circle labeled “Energy”, whereas unbundled RECs separate the environmental characteristics from the physical energy, shown by the grey circle labeled “RECs”. From now on, when I talk about “RECs”, I will only be referring to unbundled RECs.

Why can the environmental or renewable characteristics of an amount of energy be separated from the energy itself? When energy is generated in any type of facility, be it a wind farm, a solar array, or a coal power plant, it is dispersed by a local utility into an electrical grid, where it is used to power nearby homes and businesses. When you turn on the light or watch TV, it is impossible to tell where that energy has come from, or even whether it is renewable or not, since all the energy from nearby facilities has already been mixed together before being delivered to you. When an individual or a business buys a REC, they are buying the rights to the environmental characteristics of an amount of renewable energy, rather than the energy itself.

If there are so many ways for companies to support renewable energy, then why are RECs so popular? RECs are attractive to businesses because they are cheap, flexible, and come with short-term contracts. Also, since renewable energy depends on natural resources like the sun and wind, some regions are simply less suitable for renewable energy generation than others. With RECs, companies can support renewable energy without paying for the transportation of actual electricity, which comes in handy in locations where the local energy utility doesn’t draw on many renewable energy resources. Since RECs don’t include the costs for transporting energy, they are a lot cheaper than buying physical electricity. In general, REC prices range from $1-$10 per mWh, as compared to $35-$50 for a mWh of physical wind energy and $125-$200 for a mWh of physical solar energy.

So far, RECs sound great – they allow businesses to support renewable energy production, at very low risk, even if it’s not right in their backyard. RECs are fundamentally a good idea, and have played an important role in the past two decades in spurring environmental involvement in the corporate sector. However, the problem comes when companies use their purchase of RECs to make claims about their overall energy use. Remember this photo?

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In my most recent blog post, “Skiing Sustainably, and Why it Matters”, I briefly mentioned RECs in the context of ski resorts. In this image, Copper Mountain is buying RECs for wind power and claiming that the resort is therefore 100% wind powered. This would be fine if RECs acted like carbon offsets – that is, if every REC you purchase would create a given amount of renewable energy, produced with zero carbon emissions, which would offset the carbon emissions you created by using the equivalent amount of electricity from fossil fuels. However, RECs do not offset carbon emissions or make the company that buys them renewable-energy powered.

Real carbon offsets must generate new renewable energy projects. That is, the revenue that a renewable energy company receives by selling a REC must be enough to create a project that wouldn’t have been pursued without the REC. In the vast majority of cases, REC revenue goes towards projects that would have been built anyway, and is not nearly enough to influence the “build vs. don’t build” decision. REC prices are very low and volatile, and don’t provide enough funds for energy companies, who are looking for a high, guaranteed revenue stream. While REC revenue can be helpful to renewable energy companies and can help with maintenance and side costs, it rarely creates new projects. Because of this, RECs do not add renewable energy to the electrical grid, and therefore RECs are not the same as carbon offsets.

While RECs can make a company look good, they don’t give the company permission to claim that they are 100% renewable energy powered (or any other percent). Treating RECs as carbon offsets or as an equivalent to buying actual renewable energy is incorrect, and this has many implications for today’s large REC-buying companies as well as our entire economy as our world moves towards a more sustainable energy future. One large company that buys a lot of RECs is Intel Corporation. The EPA simultaneously lists Intel at the top of its 100% Green Power Users list and as the largest REC purchaser in the U.S. Each year, Intel buys over 3.1 billion kWh of RECs, which cover almost 90% of its domestic electricity use.

Let’s think back to that hypothetical “100% renewable energy powered” sign.

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http://www.rotzy.com/photos/geehsien

Before I knew about RECs, seeing those signs definitely made me think positively about the company that was making the claim. Hey, if a company is spending money and effort to be green, then I might as well buy that extra banana or notebook or t-shirt to support them, right? But when a company is making that 100% renewable claim, and is really buying RECs to meet that goal, they’ve given me a false impression. Environmental advertising is fine, as long as the claims that a company makes are backed up by real action. In the case of RECs, consumers are often misled. We are what we repeatedly do, and if the companies from which consumers regularly buy are portraying images and media about being “100% renewable”, this could lead consumers to believe that our economy is in much better shape in terms of reducing carbon pollution and demonstrating environmental stewardship than it actually is.

As public awareness of the risks and consequences of climate change increases, it is becoming increasingly important for the corporate sector to fully incorporate sustainability into its business plan. Environmental stewardship is something to strive for because individual consumers look to the companies they support for guidance in this muddled world of mass media and miscommunication. Businesses and corporations are also some of the biggest energy consumers, and the movement of these companies towards more sustainable energy practices can make a huge impact on our economy’s energy use. RECs are pretty complex, but understanding what they are and what they aren’t can help us look at the energy claims made by large companies a bit more critically. Many companies are doing the right thing, but many aren’t, and until corporate sustainability is fully transparent and substantiated in concrete action, we’ve got a lot of work to do.

*Cover image is from http://blogs.denverpost.com/thebalancesheet/files/2012/04/00123941_H75716301.jpg