Last year, participating on a decarbonization-focused panel at an event in London, I fielded a an audience question from a participant who worked for a mid-size, UK-based company struggling to build a culture of climate accountability - not just how to comply with current reporting standards and the looming implementation of the E.U.’s Corporate Sustainability Reporting Directive (CSRD) - but how to make the company’s investment in sustainability impactful and meaningful.
I asked about the company’s emissions sources, particularly its electric usage. “A lot,” he answered, “We use quite a lot actually.”
To my right, another panelist, a co-founder of one of the largest carbon accounting companies in the E.U. cut off my next question.
“No problem there, mate,” he said, “We’ll buy you renewable certificates equal to your electric load.” He clapped his hands together twice, as though dusting off the CO2, “That’s sorted. On to the next thing.”
I sat back, stunned. Was it possible that in 2023, supposed sustainability experts were still preaching that buying up some renewable energy credits makes the carbon impact of a company’s energy use disappear into, well, thin air?
“Actually,” I said, leaning forward and swiping the mic back, “It’s not quite that simple.”
To be perfectly clear, under prevailing frameworks, buying and retiring renewable energy credits, (typically referred to as “RECs” in the United States, and guarantees of origin (GOs) in Europe) from a market or from a broker can meet the regulatory requirements for green energy use. It is a method companies use widely to report zero or reduced emissions from the use of electricity. A well-sourced article published last June in the Washington Post elegantly explained why the current practice of purchasing RECs usually does not actually mean that the purchaser is consuming green energy. Essentially, a company can often buy commoditized RECs for relatively little money, while actually continuing to draw power from emitting resources. This often leads to inflated claims of emissions reductions and significantly reduced climate impact.
In my former work as an energy regulatory attorney and then as co-founder of a climate tech firm, I saw numerous cases of major facilities consuming energy that was imported directly from natural gas and coal plants across the regional transmission system. In these cases, companies trying to be more sustainable relied upon a marketer that purchased and delivered energy from specific fossil fuel generators on the company’s behalf, but then “turned it green” by buying RECs that were created by renewable generators in completely different parts of the country, and even during entirely different years. These companies were often, and unknowingly, served by an energy mix that was significantly dirtier than their local grids, but they were able to write down their emissions by retiring the purchased RECs, in many cases even claiming to be 100% renewable. This is essentially what my co-panelist was telling the audience to do: go buy whatever energy is available and low cost in your region, but then purchase some RECs on the market. Easy, cheap, sorted.
The only problem: there may be little to no emissions reductions as a result, even if the company can now claim zero emissions from electricity.
This outcome is driven by a structural mismatch between environmental certificates like RECs and the data required to accurately understand emissions. As explained in a recent blog post by CX Associates, RECs, as we know them today, were not designed to measure carbon emissions or the carbon footprint of an individual utility or company. Rather, the purpose of RECs was to increase the viability of renewables development by creating a certificate that had value independent of the value of the electricity being produced. Because utilities were required by state renewable portfolio standards to retire a certain number of RECs annually, developers could count on an additional revenue stream from RECs when assessing the financial viability of renewable projects. By all accounts, RECs have helped support the development of the renewable energy market and the increase in renewable energy we’ve seen over the past few decades, as well as the attendant drop in the cost of renewables over that period. When the demand for RECs increases, elevated REC prices can promote additional resource development. But RECs are blunt instruments when it comes to identifying the true carbon footprint of purchased electricity in a specific location and charting the course for decarbonization.
Today, focused, effective action is needed to reach the emissions reductions goals of the Paris Accords. To meet science-based decarbonization targets, it is critical that companies are not just paying to allocate renewable certificates, but are focused on empirically reducing their emissions. In order to do that, it is necessary to identify the time, place, and source of electric emissions that each entity is responsible for causing. This is because electric power is consumed at the same time it is produced, and must come from generators that are physically tied to the same regional grid as the consumer.
Does this mean that RECs are useless for driving decarbonization?
Not necessarily. A standard REC contains sparse information. It must identify a renewable generator that created one megawatt hour (MWh) of electricity, the type of fuel used by that generator (e.g. wind, solar), and the year in which that unique MWh was generated. If each REC were to also include information about the day and hour that the MWh was produced, an entity could match specific RECs – and therefore the output of specific renewable generators – to their own load. This would demonstrate that each MWh that entity consumed was directly supplied by a renewable MWh produced at the same time, and from a generator that could actually deliver the power to the customer’s location.
This hourly tracking of emissions, whether using RECs or other tools, is known as 24/7 Carbon Accounting, and the Greenhouse Gas Protocol is currently considering updates to the corporate standards that could utilize this higher quality reporting, potentially including the use of granular, time-aware RECs or other granular certificates.
As I explained to the gentleman who posed the question to the panel, climate accountability goes beyond better reporting. Granular, 24/7 data, whether using RECs or other tracking tools is critical to meeting the actual goal: reducing the climate impact of human activity. Rather than blindly painting brown electric power green with unspecified REC purchases, granular data enables us to identify where and when a company has emissions hot spots, and then choose from a wide range of options to make every dollar return the greatest possible impact.
If midday air conditioning at corporate headquarters is disproportionately driving the carbon footprint, we can model the comparative cost and efficacy of energy efficiency improvements, a new high efficiency heat pump, or installation of solar generation that would operate during the hot spot. On the other hand, if the hot spot is on the production line during the night shift, driven by a high-carbon nighttime grid mix, then we might look at operational solutions to shift load to other times, or consider the purchase of a block of power from a wind farm or hydro facility that may be able to operate during the high-carbon period - which purchase could be tracked and verified using granular, time-aware RECs.
Fortunately, awareness of the need for 24/7 reporting and analytics is increasing. Yet, it is often pointed out that there simply are not enough carbon-free megawatt hours for everyone to be 100 percent renewable on a 24/7 basis. This is unquestionably true, and will remain true until we have a fully decarbonized grid. However, 24/7 analytics enable us to intelligently move down that path, select efficiency and operational solutions where available, and help create market signals to incentivize the right investment in additional renewable resources that can be available where – and when – they are needed.
Today, NZero’s technology provides answers to questions we once thought impossible to ask about our vast and complex system of energy and consumption.
