When companies want to cut their electricity emissions, they have a few different options. They can install rooftop solar panels on their factories and stores. They can sign long-term contracts with developers to buy power from new solar or wind farms nearby. Or they can opt for a much cheaper, easier alternative — buying “renewable energy certificates,” or RECs.
With RECs, a company isn’t exactly buying clean energy. The renewable energy is being sold somewhere else, to someone else. The company is just buying the right to claim the environmental benefits — the emission reductions — that came from that energy production. The idea is that in buying RECs, companies are helping to make wind and solar projects economically viable and therefore displacing fossil fuel use.
But researchers studying the economics of renewable energy have been calling that central assumption into question for more than a decade, demonstrating that REC sales have little to no effect on whether or not wind and solar farms are built. The problem is, no one seems to be listening. A new study that was published in Nature Climate Change on Thursday shows that companies are increasingly relying on RECs to illustrate climate progress.
The authors analyzed the emissions data reported by 115 companies between 2015 and 2019 and found that during that time, the use of RECs increased from covering 8 percent of their total purchased energy to 27 percent.
Take H&M, for example. According to self-reported data, the fast-fashion retail giant’s electricity got 66 percent cleaner between 2015 and 2019. But those gains come almost entirely from RECs. If you look solely at how dirty the grid was at H&M retail, office, and factory locations around the world during that period, the company’s electricity-related emissions actually increased by nearly 30 percent.
The trend signals problems ahead for achieving climate goals. Collectively, the 115 companies reported a 30 percent reduction in electricity-related emissions. This appears to align with a trajectory laid out by the Science-Based Targets Initiative, a nonprofit that develops standards for corporate climate pledges, that would help prevent warming of more than 1.5 degrees Celsius. But about 20 percent of the companies’ reductions were attributed to the purchase of RECs. If you assume RECs aren’t actually affecting renewable generation, that means the companies really only reduced their power emissions by 10 percent — which just barely aligns with limiting warming to the “well below 2 degrees Celsius” target laid out by the Paris Agreement.
“We assumed that they had zero impact,” said Anders Bjørn, a postdoctoral fellow at Concordia University and the lead author of the study. “There might be some specific contexts where there could be an effect, but I think it’s so little in the big picture that we have faith in our assumption of globally, overall, zero percent impact.”
By contrast, some companies, like Apple and Walmart, are clearly driving some renewable development by entering into direct power purchase agreements with renewable energy producers. Corporate procurement of clean energy was responsible for about 10 percent of all new renewable power generation capacity added to the world’s electrical grids in 2021. Google has been trying to shift the norm even further. In 2020, it set a goal to run all of its operations on local renewable energy, 24 hours a day, seven days a week, by 2030.
But the new study shows that a significant proportion of large companies are still relying on RECs. The authors found that if companies keep buying RECs, they will drift further and further away from being aligned with the Paris Agreement. But that reality will be obscured if they are allowed to keep reporting their REC purchases as emission reductions. Part of the problem is that the Greenhouse Gas Protocol, an authoritative guide that lays out the do’s and don’ts of corporate climate action, condones the use of RECs. (The protocol was developed by the nonprofit World Resources Institute and the World Business Council for Sustainable Development.) That guide also provides the underlying framework for the Science-Based Targets Initiative and other corporate emissions disclosure systems.
“I think one of these organizations should really reconsider this assumption that anytime you buy a one megawatt-hour REC, it leads to the generation of one megawatt-hour of renewable energy,” said Bjørn.
Bjørn himself may help make that happen. In March, the Greenhouse Gas Protocol announced that it was assessing the need to issue “additional guidance” on its corporate greenhouse gas reporting standards. The organization hired Bjørn to “independently evaluate any gaps that may need to be addressed,” Pankaj Bhatia, its global director, told Grist. The protocol takes input about its emissions guidance “seriously and welcomes new studies on this topic,” Bhatia said.