News Articles

img_278

The Missing Link? Green-e Attempts to Join the Voluntary Markets for RECs and Carbon Offsets in U.S.

Alice Kenny

The Center for Resource Solutions, a nonprofit group based in San Francisco, is working on a way to certify the carbon offsets associated with green energy sources. The Ecosystem Marketplace finds out about the new system.

The Center for Resource Solutions, a nonprofit group based in San Francisco, is working on a way to certify the carbon offsets associated with green energy sources. The Ecosystem Marketplace finds out about the new system. George Fletcher had a plan for battling global warming in his New York City suburb. He built solar panels on the roof of his Croton on Hudson Victorian house, expecting to recoup his initial $25,000 investment with carbon-free, cost-free energy from the sun. Contagion for his solution, he figured, would be limitless. "My goal," says Fletcher, "is to have Croton known as the Solar Village in the United States." His county of Westchester could then become the Solar County…his country the Solar Nation… Sure enough, curious neighbors gawked at his roof and news media shot photos of his home. Four years later, however, not a single village resident has copied him. And because he decided to move his family to a home on a street with less traffic, he never recouped his investment. Fletcher learned what pundits have long known. While many say they worry about global warming, few want to get involved in homegrown solutions. Built on this recognition, a market enabling people to invest in renewable energy projects without having to rebuild their roofs has blossomed. Concerned citizens now can help add renewable energy to the grid by purchasing renewable energy certificates, known as RECs. Over the course of the last decade, RECs have become as varied as ice cream flavors at a local Baskin Robbins. Consumers can purchase certificates generated by wind farms, solar installations, or other renewable energy sources, but in each case the RECs they buy represent the green benefits associated with a concrete unit (usually one megawatt hour) of green electricity added to the electrical grid. Notably, the voluntary market for RECs is starting to achieve what Fletcher and his roof could not: scale. More than half a million Americans purchased renewable energy certificates last year, creating the largest voluntary market to date for environmental certificates of any kind. Now, this market is beginning to converge with that for voluntary carbon offsets, a fact that has some cheering and others shaking their heads in concern.

Green-e's Big Gamble

According to industry figures, the purchase of RECs helped prevent hundreds of millions of pounds of greenhouse gas emissions since the market's inception. Really proving how many tons of greenhouse gas emissions were reduced as a result of the voluntary purchase of RECs, however, is a tricky business. Where Fletcher could simply look up at his roof and see the steps he had taken to battle climate change, those who purchase RECs must take a great deal on faith after handing over their money. Into this morass stepped the Center for Resource Solutions, a nonprofit group based in San Francisco that offers, basically, a green Good Housekeeping seal of approval for RECs. Certificates bearing the group's Green-e logo have been certified as meeting nationally accepted environmental and consumer protection standards in the United States. To push the market further still, the group is now working on developing a system that would also certify carbon offsets marketed to reduce carbon emissions. Since the Center for Resource Solutions is already the leading certifier of RECs in the United States, many view the organization's entry into the carbon offset certification business as a strong signal that the voluntary markets for carbon offsets and RECs are converging. Some say that joining these markets will increase their reach and impact, but others say it could destroy the voluntary carbon market's integrity. If Green-e's new certification effort for carbon offsets succeeds, "it would be a giant step forward, unleashing flow into the marketplace," says Michael Northrop, a program director focused on climate change for the Rockefeller Brothers Fund philanthropy. But if it fails, warns Mark Trexler, president of Trexler Climate + Energy Services, it could "impact the environmental integrity" upon which this market is built.

Similar But Different

The goals of renewable energy certificates and carbon reductions are so tightly interwoven that it can be hard to distinguish their individual threads. But to meet their objective of reducing greenhouse gas emissions so that the market they weave together will last, it is essential to suss out the unique qualities of each. At first glance, generating renewable energy would appear to reduce demand for nonrenewable energy no matter how or where the renewable megawatts are generated. Closer inspection reveals that absent strict regulations, it could just result in adding more energy to the grid. In contrast to RECs, carbon offsets' sole mission is to reduce greenhouse gas emissions. Instead of representing the somewhat amorphous green benefits associated with a unit of energy, carbon offsets represent a quantifiable reduction in greenhouse gases emissions. Examples include upgrading manufacturing plants and capturing methane emissions from dairy farms. Despite their differences, markets are blossoming that intermingle RECs and carbon offsets. TerraPass, for example, a for-profit company that markets Green-e certified RECs to consumers looking to offset their greenhouse gas emissions, mixes and matches sales of both. "Think about the market impact and businesses that are unlocked by codifying what's meant by green power," says Tom Arnold, chief environmental officer of TerraPass. His company, he adds, is anxious to see the Center for Resource Solutions' new standards written and hopes to be the first to use them.

Treading Carefully

Fueled by the demand for carbon-offset certification from TerraPass and others, the Center for Resource Solutions pulled together a large advisory group in June 2006. Members hail from government agencies, businesses and advocacy groups including Natural Resources Defense Council, World Resources Institute and Terra Choice, a Canadian-based Green-e-type certification organization. Aiming to maintain objectivity, this core group excluded TerraPass and other carbon-offset marketers. The thorniest issue they face, most agree, is how to accurately count the carbon reductions that renewable energy projects may provide. If not done correctly, intermingling RECS with the carbon offset market could result in adding green energy to the grid without achieving cuts in greenhouse gas emissions that carbon offsets are designed to achieve. This particular concern involves what the market calls "additionality." In the carbon offset market, companies must prove that that their carbon reductions are not part of a business-as-usual product-enhancing practice but rather are undertaken exclusively to qualify for funding from the carbon offset market. Meanwhile, the main criteria governing additionally for RECS is that the certificates fund only renewable energy facilities built after January 1, 1997. This, in theory, could allow renewable energy sources to be built without diminishing fossil-fuel emissions. Similarly, Trexler warns, any carbon offset certification process that includes RECs will need to price them in a way that does not discourage more expensive steps needed to reduce carbon emissions. Wind farms, for example, produce more than 20 million MWh of electricity per year, "dwarfing the size of the REC market," Trexler says, and dropping prices for RECs to unnaturally low numbers. Lars Kvale, an analyst and spokesperson for the Center for Resource Solutions, acknowledges these concerns. Everything, he says, including the current RECS additionality definition, is on the table and open for discussion. None-the-less, he adds, the possibility that RECS could under price traditional carbon offsets is not necessarily a negative. "We want to target the cheaper solutions; that's what the cap and trade market is all about." he says. "It's perverse logic to say that just because the solutions may be more expensive that means they are more additional."

Sneak Preview

Although specific details of what a new carbon-offset certification program will look like are not yet available since the program remains subject to internal debate and outside stakeholder input, Kvale agreed to provide a broad outline. In general, the program is expected to follow the model set by the Center for Resource Solutions' current Green-e certification program for renewable energy products. It certifies products and not companies in the retail market. When it expands to the carbon-offset market, consumers buying offsets bearing the Green-e logo will have assurance that these offsets were audited independently, their supplies and sales were verified by Green-e and their sales pitches were accurate and not misleading. Specific carbon-offset categories, however, are still under debate. When it comes to deciding which carbon offsets can be certified, Kvale said, "We have to come up with a solution to ensure no double counting that actually helps reduce greenhouse-gas emissions." It is important, several group participants added, that these issues are ironed out now, facilitating and potentially adding strength to the mandatory market for climate protection likely to be enacted by the United States in the coming decade. The group, Kvale says, hopes to announce proposed standards for carbon offsets within the next two months and will be open for public comment before they become final. But if stakeholders successfully push for a market with flabby rules, this process could prove counterproductive. From Trexler's perspective, "coming up with the sectors and projects and rules that accomplish (their) objective requires technical work that is not appropriate to a stakeholder process or votes." Despite these concerns, many are rubbing their hands in anticipation of the energized market the new regulations could unleash. Even George Fletcher recently said he would consider buying into the REC market if he could be guaranteed greenhouse gas emissions reductions. Meanwhile, he is looking into installing solar paneling on his new home. Alice Kenny is a prize-winning science writer and a regular contributor to the Ecosystem Marketplace. She may be reached at alkenny@aim.com. First published: December 11, 2006 Please see our Reprint Guidelines for details on republishing our articles.

Please see our Reprint Guidelines for details on republishing our articles.