To understand the difference between renewable energy certificates (RECs) and carbon offsets, we need to distinguish the different emission sources that any organization or individual could emit.
“Greenhouse gas emissions are categorized into three groups or ‘Scopes’ by the most widely-used international accounting tool, the Greenhouse Gas (GHG) Protocol. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company’s value chain.”
What are RECs and how do they work?
Renewable Energy Certificates represent a tracking mechanism for renewable energy sources (such as hydro, wind or solar) as the electricity generated from those sources enters the power grid. Considering that there is no way of distinguishing exactly what energy source your electricity comes from, purchasing RECs allow you to “certify” that your energy source is renewable.
Keep in mind that buying RECs is not equivalent to buying electricity. You purchase RECs alongside your regular electricity consumption because as mentioned previously, it is impossible to know precisely what energy source your electricity comes from.
A REC is produced when a renewable energy source generates one megawatt-hour (MWh) of electricity and delivers it to the grid. For example, if a wind power facility produces 5 MWh of electricity, they have 5 credits to either keep or sell. If you or your business buys those credits, you are buying the “renewable” aspect of the electricity from the wind farm or solar plant, and you can say that 5 MWh of your electricity use came from a renewable source.
The exchange of RECs is tracked and recorded on various regional registries, and building a currency backed by RECs will be the initial focus of our project.
RECs give you the flexibility to reduce your carbon footprint, if you don’t have the means or the ability to install solar panels or other renewable energy systems yourself. It also promotes wider adoption of the renewable energy market, as a purchase of a REC is a direct investment into further generation of more renewable energy sources.
RECs can be generated, from the following renewable energy sources:
- Biomass (organic plant and waste material)
RECs vs Carbon offsets
Carbon offsets are also known as voluntary emissions reductions (VERs), and have been tokenized as BCTs for the Web3 world.
There needs to be an important distinction made between carbon offsets and RECs. While both will reduce your carbon footprint, the purchase of a carbon offset will mainly impact your scope 1 or scope 3 emission and will combat your greenhouse gas emissions.
RECs, on the other hand, are directly related to electricity production, not greenhouse gas emissions. For every 1,000 kWh of energy produced by a renewable energy source (like wind turbines or solar panels) that is connected to the grid, one REC is also generated.
The overall generation of renewable energy (and by extension RECs) decreases the need for other sources of electricity, like coal, which emits carbon dioxide into the atmosphere when combusted. While more RECs overall lead to fewer greenhouse gases in the atmosphere, they aren’t directly connected to combatting emissions produced by your actions or habits elsewhere, like a carbon offset is.
A key difference also relies on the unit of measure. Carbon offsets are measured in tons of CO2 or CO2e (equivalent), whereas RECs are measured in Megawatt hours (MWh). RECs have different carbon impacts depending on the grid since each grid has a different fuel mix. The EPA created an interesting tool for viewing US data on this: https://www.epa.gov/egrid/data-explorer
To summarize the key differences between carbon offsets and RECs, they use different units of measures, metric ton of CO2 and MWh. Carbon offsets reduce GHG emissions, whereas RECs support renewable energy expansion. RECs can only target scope 2 emissions while carbon offsets can offset all 3 organizational scopes. Finally, RECs do not need to demonstrate any additionality, contrary to carbon offsets.
Links to our project, Power DAO:
- Discord — https://discord.gg/9EFAqVQm98
- Twitter — https://twitter.com/Power_DAO
- Website — https://power-dao.finance/