Shining a Light on the RECs vs. Carbon Offsets Controversy
by Jeremy Elton Jacquot, Los Angeles on 01.24.08
On January 8, the Federal Trade Commission hosted a workshop to scrutinize the market for carbon offsets and RECs (Renewable Energy Certificates); the overarching aim was to discuss consumer protection issues and the validity of related advertising claims. It's no big secret that as the market for carbon offsets has surged over the past few years, so has the number of prominent greenwashing cases - many of which have received coverage here and in more mainstream publications like BusinessWeek.
The FTC, which has consistently adopted a "soft" regulatory approach to this issue, has yet to update its environmental advertising guidelines, the Green Guides, which it last did 10 years ago. The hearing, whose ostensible purpose was to solicit recommendations for updating the FTC's guidelines, exposed a longstanding rift in the environmental and business communities: the perceived discrepancy between RECs and carbon offsets.
Tim Stumhofer, an environmental policy analyst at Climate Clean, is one of many who views RECs as being merely a poor man's substitute for carbon offsets. The claim that RECs and carbon offsets are one and the same, he argues, is fundamentally wrong: Unlike carbon offsets, RECs do not help bring additional renewable energy capacity online and don't necessarily encourage the further building of renewable energy capacity.
As he saw it, the FTC's workshop - whose outcome we won't know for some time - showed that there were two competing lobbies over the RECs as offsets issue: a coalition of U.S. and international energy firms that support RECs on one hand, and a diverse international array of offset aggregators, brokers and developers represented by organizations such as the International Emission Trading Association (IETA) which support offsets.
Stumhofer believes the FTC is likely to adopt a more REC-friendly position - in response to pressure from the energy lobby - when it eventually updates its guidelines. This "softer" approach to the RECs vs. offsets debate would allow the FTC to largely sidestep the issue, he argues.
As a firm believer in the concept of additionality - basically, would the proposed renewable energy project have happened under "business as usual" conditions - he explained that offsets would only gain the upper hand through: "public perception (from closer press scrutiny of REC financial figures); possible consumer fraud lawsuits testing deceptive marketing statutes; and perhaps most importantly a thriving domestic offset market built around regional climate schemes such as the Regional Greenhouse Gas Initiative, AB 32 in California, the Western Climate Initiative, and possibly a national cap-and-trade scheme down the road."
"Growth and development of a robust compliance-driven offset market portends expansion of policy learning," he said. "I believe this will orient businesses toward quality additional offset-based carbon neutral programs." Having completed his studies at the London School of Economics - where he was well positioned to witness the deliberations of the UK on offsets - he has long been a REC skeptic, attributing their popularity stateside to their lower price and their role as an entrenched market mechanism to allow companies to meet U.S. Renewable Portfolio Standards.
He credits Enron for being one of the first major U.S. businesses to bring REC schemes to market in the mid-1990s; large REC retailers such as the Bonneville Environmental Foundation and Sterling Planet helped speed up their retail commercialization. While the REC market was beginning to grow in the U.S., the EU, as a Kyoto participant, sought to steer its offsets towards the Clean Development Mechanism (CDM) standard. As a result, RECs as offsets became a "non-starter" in Europe.
"Not only has this had the effect of bringing the practice of offsetting closer to the European population and policymakers, but in contrast, as a non-Kyoto ratifier and thus not subject to nationally binding carbon constraints American "carbon neutralizing" practice has grown up around domestic climate policy, most notably its hallmark component: the national patchwork of statewide RPSs and of course the market tool often used to meet these targets, RECs," he went on to elaborate.
Despite the U.S. market's failure to properly rein in some of the more inscrutable and dishonest practices by providers and businesses alike, Stumhofer, who works with Climate Clean to advise firms on their carbon offsetting strategies, sees the business community steadily shifting towards offsets as policy officials and environmentalists question the efficacy of RECs:
"What you do see is simultaneous growth in both markets, with some firms buying both RECs and offsets to offset different business units and sectoral emission responsibilities. We have seen examples of companies switching from RECs to offsets, but have also witnessed corporate buyers insisting that the two are for their purposes identical goods and thus have gone with cheaper RECs. I foresee the latter trend changing as a savvy press corps hungry for the next greenwash scoop sends a clear signal to corporations that making carbon neutrality claims based on REC purchases represents a serious brand liability."
Even highly rated U.S. providers like NativeEnergy, a competitor of Climate Clean, have acknowledged some of the flaws of RECs and begun to offer alternatives to their customers. NativeEnergy has led the way in innovation with its "forward" or "future" RECs - in a move to repackage its existing RECs to more closely resemble offsets; there are some concerns, however, that these could raise a whole new host of regulatory issues, as they would pass on to consumers a level of risk usually reserved for investors.
The RECs vs. offsets issue remains a controversial one and one that deserves much more scrutiny, both in the press and in the policy setting. For another take on the recent FTC hearing, we recommend you check out Adam Stern's take and, for some more background, an overview of additionality and the offset market here and here.
Via ::The New York Times: F.T.C. Asks if Carbon-Offset Money Is Well Spent (newspaper)
See also: ::Greenwash Watch: Little Green Lies, ::CO2nned? Carbon offsets under the spotlight
Ban them all. This is a waste of gov't time.
I agree - ban them all right now.
Additionality is the toughest test. In effect the buyer is asking, did I cause a reduction in CO2 emissions that would not have taken place anyway.
LiveCooler, which I lead, offers an offset that is created by donating CFLs to low-income families. Creating an offset from hundreds of CFLs has some advantages and disadvantages.
An advantage is that the offset buyer has a real sense that a CFL bulb installation project is truly being started and taking place as a result of my purchase. Whereas with RECs and clean energy based offsets, the projects often have to be started months or years in advance.
Of course a disadvantage to LiveCooler's approach is that it is not cost effective to go back and check that each CFL is still in use the way you can with a wind turbine.
Perhaps, like with a portfolio of stocks, a diversity of clearly defined options is the right approach.
One data point for those skeptical of RECs. Last week, a firm I wok closely with had to abandon plans for a 10+ MW wind farm because they could not find an offtaker of the projects RECs. Only the sale of above market REC prices would have delivered a risk adjusted return on investment that compared to traditional energy production. No RECs, No wind farm. I'd like to see business week report on that. Enjoy your coal America.
Tondi:
Am I to understand that prevailing REC prices were insufficient to bridge the financing gap necessary to get your wind project “in the ground?” If so, is your point that RECs need to be sold at higher prices to affect change? It seems to me that this line of argumentation supports the conclusion reached in Ben Elgin’s “Little Green Lies” BusinessWeek story referenced above. That is, RECs anecdotally sell for very little in the larger scheme of wind or solar finance and may do little/nothing in influencing project development.
The follow-up point I am more interested in, even in the face of anecdotes where REC receipts have made a substantive difference, is that the consumer is left with *anecdotes*! As REC accredidation standards (e.g., Green-e Energy) do not systematically ensure RECs produce “additional” beyond "business-as-usual" emission reductions, in my eyes it is disingenuous to call them “carbon offsets” or make “carbon neutrality” claims based on their purchase.
Perhaps it would be more helpful to think of the REC/offset difference as follows: RECs *potentially* stimulate clean power production, whereas offsets reduce GHG emissions.
Cheers,
TS