Renewable energy credits, offsets? What does it mean?

Renewable energy credits, offsets? What does it mean? by ddelcourt

April 2, 2008, 2:51 am
Filed under: Uncategorized

Lately I’ve been asked by numerous groups of people, from friends to reporters about whether or not I support carbon offsets. In the process of answering these questions, I’ve found that most of people do not understand the nuances of carbon offsets, the risks and rewards, and/or the difference between a carbon offset and its sub-category the renewable energy credit (REC).

First, a carbon offset defined at the broadest level is: a financial tool designed to help reduce the total amount of CO2 in our atmosphere. When you and I purchase an offset, it goes to funding a project that (in theory) reduces the greenhouse gas we emit today or emitted in the past.

Secondly, offsets originate primarily from three types of projects.

1. Industrial energy efficiency projects: In this case offsets are direct subsidies to an entity retrofitting, upgrading or installing equipment to reduce their total energy use. In layman’s terms, a large factory wants to install all new lighting and machinery, but fears it will be too expensive without additional capital. They work with a third party (like the EPA) to certify the equipment they install will reduce the plant’s total energy, therefore the total emissions, and allocate the number of offsets that corresponds to the difference in carbon emitted before and after the equipment installation.
2. Carbon absorption projects: Here an organization plants trees, grows algae or other organic material (could be artificial I suppose?) which absorb greenhouse gases from their surroundings. This of this as the re-forrestration rather then rain forest clearing. The principle issues which arises is whether these projects are accurately measured. Questions regarding the albedo effect (albedo = the level of reflection/absorption of the sun’s rays by an object), or on the subject of additionality (additionality = whether the project would have happened regardless of the subsidy, e.g. trees replanted after hurricane Katrina are not additional).
3. Renewable energy credits: REC’s are subsidies that go to renewable energy producers (wind, hydro, solar, etc) to cover the gap between the cost of producing the energy and the price at which the electricity grid purchases the energy (this is a flat rate set by the government and power distribution companies). In this case the reasoning is, that every unit of energy produced from a renewable source corresponds to a unit of energy that does not have to be produced from a traditional fossil fuel source. One of the largest issues with REC’s in the U.S. is that there is no single certifying body, and REC’s from power installations can be falsely or poorly measured.

Which of these offset sources is the most reliable? None are perfect, each having its flaws. Furthermore, the entire offset market within the U.S. is traded on a voluntary, unregulated market, which leaves room for error and dishonesty.

However, if we have to choose, I feel the REC’s provide the most advantage for the consumer and the environment. Each REC corresponds to a unit of energy and therefore reduces the energy demanded from traditional fuel sources, while simultaneously increasing the amount of renewable energy supplied.

Finally, do I really support offsets in general? Yes, but only after purchasers have actively reduced their individual energy demand and done everything possible to reduce wasteful energy behavior. Offsets are not indulgences for our eco-sins. They are not a permit to pollute, license to drive a gas guzzling car or permission act carelessly with our earth’s precious resources and environment. Offsets are simply a way of raising awareness, helping develop a consumer mindset of eco-friendly action and a method of funding alternatives to the status-quo dirty energy. Offsets are only a compliment to the larger solution of responsible actions, environmental awareness and significant government intervention.

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