You asked Mike Jackson, CEO and co-founder of Village Green Energy, all your REC and carbon questions. So read his answers and for the next few days, feel free to follow up with any comments or questions as Mike will be checking in to respond to all your posts.
Let me step back for a second and be sure we're all on the same page about what a Renewable Energy Certificate is and what a carbon offset is – if you're already familiar with these definitions, you might want to skip down to the questions below.
A Renewable Energy Certificate (REC) is the environmental property rights to 1 megawatt-hour (MWh) of electricity produced by a renewable generator.
That's a pretty intimidating sounding definition! But it's actually not too bad – it just means that the owner of the RECs from a wind farm, solar panel, or other renewable generator is the one who can claim to be powered by renewable energy from that generator. Purchasing RECs helps to support renewable energy generators, and in some cases (see question #3 below) forces new renewable energy onto the electricity grid.
The main purchasers of RECs are electric companies who are required by state laws called Renewable Portfolio Standards (RPS) to buy a certain percentage of their electricity from renewable sources. For example, in Oregon, the electric companies are required to be 25% renewable by 2025. If an electric utility sold 100 MWh of electricity in 2025, it would need to buy 25 RECs.
Other purchasers are voluntary consumers, like businesses and households who want to power their offices and homes with renewable energy. These purchasers look at their monthly or annual electricity bill and buy RECs to match their use and support an equivalent amount of renewable energy.
A carbon offset is a little bit different. A carbon offset represents a reduction in the total amount of carbon dioxide in the atmosphere, usually expressed in tons or pounds of carbon dioxide.
Individuals and businesses purchase carbon offsets to neutralize their impact on global warming. So if a business consumes electricity produced from fossil fuels, drives around a fleet of trucks, and heats their offices with natural gas, they purchase carbon offsets to fund projects that remove an equivalent amount of carbon dioxide from the atmosphere.
The main examples of carbon offsets are:
- Forestry projects: planting trees or saving trees from logging helps to store carbon in tree trunks rather than in the atmosphere.
- Methane projects: Methane, the gas that comes out of your cooking stove, is actually a very potent greenhouse gas – about 20 times more potent than carbon dioxide. Methane is also released from animal waste and landfills, and many methane carbon offset projects collect this methane to prevent it from entering the atmosphere. In most cases, the methane is burned, a process that turns it into carbon dioxide. Because carbon dioxide is not as severe a greenhouse gas, burning each molecule of methane is the equivalent of reducing 19 molecules of carbon dioxide.
- Renewable energy projects: It is possible to calculate the carbon emissions from coal and natural gas power plants that are displaced by a new renewable generator. The Environmental Protection Agency's Power Profiler can tell you how clean your local electricity mix is and what the carbon impacts of new renewable projects on your grid would be.
Q1: I know in the REC and carbon offset world, "additionality" is an important thing. However, it's somewhat of a fuzzy concept to me. How does it work and how is it measured? Thanks! (by MagdalenaC)
A1: Additionality is the key thing to look for when purchasing a REC or carbon offset. I'll tailor this section to carbon offsets – a discussion of additionality and RECs can be seen in question #3.
A carbon offset is additional if your purchase causes 1 ton of carbon dioxide to be removed from the atmosphere. And most importantly, if you or someone else didn't purchase the offset, the carbon reduction would not occur.
In some cases, additionality is hard to measure – the sophisticated regulators of the European carbon market and the Kyoto Protocol constantly debate how to determine additionality. Here are a few of the pitfalls:
- Many carbon offset projects are profitable even if they don't sell offsets – offsets just make the project more financially attractive.Let's use the example of collecting methane from cattle waste. Methane is actually a very valuable resource that can be used to heat buildings and fuel natural gas power plants. If a project collects methane and then sells it or uses it onsite, in many cases it makes money.
Here's where the gray area is. Let's say that a methane capture project has a payback period of 8 years, and with the sale of carbon offsets, the project payback is 6 years. Is this additional? Some people might invest in a project with an 8 year payback while others wouldn't. Not surprisingly, it's very difficult for regulators or a voluntary carbon offset company to set uniform standards that ensure that these projects are guaranteed to be additional.
- Some carbon offsets result in reductions in one place, but are counterbalanced by emissions increases elsewhere.Let's take the example of forestry projects here. Let's say that a carbon offset project protects a large tract of forest from logging. The people protecting the forest then sell the avoided carbon emissions as an offset.
This is a problem called “leakage” in the climate community.
The problem here is that nothing has been done to control demand for timber. The trees saved in this protected forest might simply cause more trees to be cut down in another forest – meaning that there was actually no net reduction in total carbon dioxide emissions, just a reduction in one location.
- Some carbon offset projects need to be monitored for decades or centuries to ensure they are permanent.
Let's take again the example of forestry projects. Let's say that a project plants trees on a large plot of land and sells the carbon stored by the trees as an offset.
A problem comes if there is a fire or disease that wipes out the trees in this plot of land 20 years later, or if the offset funders lose interest in the project and allow logging to resume. In this case, actually no permanent carbon reductions have occurred, meaning there has been no real impact on controlling climate change.
It's doubtful that the carbon offset provider that sold you these offsets is going to call you up in 20 years and give you back the $100 you paid them today. I would encourage consumers to look for ways that providers ensure the long term permanence of the projects.
Q2: I'll insert my own follow-up here: How Can I Ensure that My Carbon Offsets are Additional? (by Mike Jackson himself)
A2:There is one way to ensure that your purchase of a carbon offset reduces an equivalent number of emissions – that is to buy carbon permits out of regulated carbon markets, like the European Emissions Trading Scheme (ETS).
Here's how this would work. The ETS is a cap and trade system. What this means is that the regulators decide how many tons of carbon can legally be emitted, and then regulated entities like power plants, refineries, and manufacturing facilities can buy and trade permits to emit carbon.
Let's use simple round numbers to illustrate. Let's say the ETS issues 100 permits to allow 100 tons of carbon dioxide to be emitted. The power plants, refineries, etc. would buy and sell these permits, and at the end of the day, 100 tons would be emitted. If you as a voluntary customer purchased 5 permits, then the regulated entities would only have 95 permits between them. As a result, only 95 tons would be emitted and you would have reduced emissions by 5 tons.
Village Green Energy will begin offering carbon offsets in September, when the first legally binding carbon trading system begins in the United States. The program is called the Regional Greenhouse Gas Initiative (RGGI) and will regulate carbon in the northeast of the United States. We will help our customers buy carbon permits out of this market, thereby reducing the number available to the regulated polluters, and ensuring that our offsets guarantee additionality.
Q3: Do you know if the purchases of RECs by individuals through companies like Village Green Energy has resulted in the construction of new renewable energy plants? In other words, has your company been successful so far, and if so, do you have any statistics to quantify its success? (by dana1981)
A3: This is a great question, and basically asking whether or not RECs are additional (see question #1).
The simple answer is that not all RECs are created equal – some REC purchases do cause new renewable energy to be generated, while others do not.
The way we see it at Village Green, there are three types of RECs in the marketplace:
- RECs purchased from generators located in states where the electric companies are required to buy renewable energy (called RPS states);
- RECs purchased from generators located in non-RPS states;
- RECs that will be generated in the future are sold today to help finance the initial construction of a project.
1) RECs from RPS States - Additional
At Village Green, we believe that buying the first category of RECs ensures additionality, and we only sell this type of REC. Over on the Village Green website, we have a little slide show to help explain how this works, but I'll also explain it in words.
When we use our customers' money to buy RECs from a wind farm for example, that wind farm continues to sell their electricity to the local electric companies, but now these electric companies can't count the wind farm towards the renewable goals. This means that new generators must be built in order for the electric companies to meet their renewable requirement.
2) RECs from Non-RPS States – Not Additional
Now let's look at RECs purchased from non-RPS states. In these states, the electric companies don't need to replace your REC purchase with new renewables. If say, the Kansas electric utility is 5% renewable and you bought out 2%, the electric companies would simply become 3% renewable and not replace your purchase. Your REC purchase has provided funds to wind farm and solar panel owners in Kansas, but there's no guarantee they will invest those funds in new renewable projects rather than say, an addition to their house!
Be sure to read question #5 on certification to see how many REC providers are able to get away with this!!
3) Future RECs – Sometimes Additional
The last type of REC is to sell the RECs a wind farm will produce for the next 10-15 years today, and use those funds to actually help build the project. In some cases these projects are additional, because they do provide much needed funds that help overcome the initial upfront cost. However, these projects run into the same problem I outlined in question #1(a) – wind farms make money even if they don't sell RECs. The sale of RECs simply reduces the payback period of a project. One question to ask providers of these types of future RECs is how they evaluate these projects to justify whether one project is additional while another is not.
Q4: Which states currently use a Renewable Energy Certificate (REC) system, or something equivalent? (by dana1981)
RECs were created to help electric companies comply with state laws called Renewable Portfolio Standards (RPS). Currently 26 states, and Washington, DC, have these laws on the books. I've included a map of all of these states below, and you can check back on the most recent states, with information about the specific goals here.
Q5: What certification programs or labels exist for RECs and carbon offsets? How do they differ? Which ones actually mean something and which ones are hooey? (by jessg)
A: There are a large number of certification and tracking systems for RECs. I'll highlight the main ones in this section. Unfortunately, I must admit to not being an expert of carbon offset tracking systems and standards – Village Green has avoided selling carbon offsets to date because of many of the concerns of additionality highlighted in question #1.
Green-e Energy is the most widely used and well known tracking system for Renewable Energy Certificates. Green-e is mostly focused on ensuring that RECs are not double-counted – they require certified REC retailers to provide an audited report of their inventory so that a REC retailer doesn't sell the same REC to two different people. Green-e has also developed rules surrounding the vintages of RECs – ensuring that a REC sale must be met with RECs produced recently. They have also set rules regarding what technologies count as renewable and how new a generator must be to qualify.
Our view at Village Green is that Green-e is a necessary first step, but not sufficient to ensure that RECs are in fact additional. Protection against double-counting of RECs is crucially important – at Village Green we are both Green-e Energy certified for the RECs we sell to businesses and also provide a bi-annual report to all of our members that outlines all of our REC sales and purchases.
The problem is that Green-e makes no distinction between RECs generated in different states. As I discussed in question #3, RECs from states where electric companies are required to be renewable are additional, while purchases from states where these laws don't exist are not. Therefore, a company could sell only RECs from a state like Kansas and receive the same certification as Village Green, even though the impact of our RECs is drastically different.
Regional Tracking Systems
The industry trend now is moving towards creating online tracking systems for RECs. Each REC will be created with a unique serial number and transferred between the accounts of the generator, REC retailer, and ultimate consumer. A customer of Village Green could then log in to the tracking system website, type in the serial number of the RECs they purchased, and verify that they were as Village Green promised.
This system ensures that no double counting occurs and is the way that many electric companies will verify that they have met their RPS goals. Our view at Village Green is that these systems will make the accounting services provided by Green-e obsolete in the next few years.
Right now these tracking systems are regional – a map of them is provided below, along with a very brief description of each one.
Bird, Lori and Lokey, Elizabeth, “Interaction of Compliance and Voluntary Renewable Energy Markets”, National Renewable Energy Laboratory, October 2007.
WREGIS - Western Renewable Energy Generation Information System
REC tracking system that covers Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah, Washington, Wyoming, some of New Mexico, Montana, Texas, and South Dakota as well Baja California (Mexico), British Columbia, and Alberta.
PJM-GATS - Generation Attribute Tracking System
REC tracking system that covers all or parts of Delaware, Indiana, Illinois, Kentucky, Maryland, Michigan, New Jersey, North Carolina, Ohio, Pennsylvania, Tennessee, Virginia, West Virginia and the District of Columbia.
M-RETS - Midwest Renewable Energy Tracking System
REC tracking system that covers all or most of Iowa, Manitoba, Minnesota, Montana, North Dakota, South Dakota, and Wisconsin.
ERCOT - Electric Reliability Council of Texas
REC tracking system that covers most of Texas.
NEPOOL-GIS - New England Generation Information System
REC tracking system that covers all or most of Connecticut, Maine, Massachusetts, New Hampshire, Vermont, Rhode Island.
Q6: What's the difference between your RECs and the RECs you get from other folks? (by stins)
A: I think I've answered this question in question #3 previously, but I'll just summarize briefly here. Village Green only purchases RECs from states where electric companies are required to buy green power. This means that our customers' purchases must be replaced by building new renewable generators.
As far as I can tell, Village Green is the only REC provider that holds themselves to this standard. Most REC providers will still buy and sell RECs from non-RPS states because they can purchase the RECs for cheaper and still receive Green-e certification since Green-e does not make this crucial distinction.
Q7: Why should a person buy your Renewable Energy Certificates vs purchasing Stocks or ETFs for Renewable Energy Businesses? Both are ways to put money into green energy, why should I donate when I can invest and possibly get a return on it? (by mattress)
A: Very interesting question - I think there are benefits to both approaches.
You're correct to point out that you can earn a return on an investment in renewable energy companies (though of course you can also lose money!). And large scale investments by large companies and start-ups will drive the cost of these technologies down and speed the transition to renewable energy.
That said, unless you have an investment portfolio the size of Warren Buffett's, your purchase of stock in a publicly traded renewables company will probably not have a noticeable impact on a company's stock price to increase the likelihood they will succeed.
Purchasing RECs, no matter how small, does have a measurable impact if the RECs are additional. Purchasing RECs helps to create demand for renewable energy, which in turn encourages the businesses you might invest in through your ETF to pursue opportunities in building new capacity.
I think the takeaway in either case is that no individual is going to be able to solve the problem alone – the key to transitioning our country to renewable energy is through individual action combined with grassroots organizing. If you invest in renewables companies or buy RECs you can make a small impact, but if you convince 5-10 of your friends do the same, you can really begin to magnify the movement towards change.
Q8: Are you Green-e certified? (by jihad)
A: Yes, Village Green's RECs for business customers are certified by Green-e. We have chosen not to pursue Green-e certification for residential customers because we want to provide our customers the ability to choose which specific generators supply their RECs. Giving customers this choice actually disqualifies us from being Green-e certified. To maintain transparency, Village Green issues a bi-annual report to all its customers that summarizes every REC bought and sold over the previous 6 months.
Thanks everyone for reading and for the questions. Feel free to email me or post in this thread with any more that come up!
Like this interview? Digg it.
Edited by stins - Fri, 11 Jul 2008 20:19:16 GMT
Edited by stins - Sat, 12 Jul 2008 00:35:04 UTC