Renewable Energy Credits (RECs) and Carbon Offsets

Renewable Energy Credits (RECs) and Carbon Offsets are different types of purchasable credits used by organizations interested in reducing their emissions footprint.

RECs and carbon offsets are both examples of market instruments, a type of policy that uses economic tools to incentivize positive climate actions. While carbon taxes and cap and trade programs are common regulatory-based examples of market instruments, RECs and carbon offsets are used in the voluntary carbon accounting market. They are digital certificates that represent specific rights and can be bought, sold, and traded freely despite not having any physical value. Organizations can purchase RECs and/or carbon offsets and use them to offset their carbon footprint.

These certificates, however, require an understanding of the energy use and emissions of an organization. Carbon accounting is particularly important. Commonly, emissions are categorized into three scopes, which helps organizations more easily understand their carbon footprint.

Category	Emissions Source	Examples
Scope 1	Direct emissions from owned or controlled sources	Fossil fuel used for heating or industrial processes, vehicle emissions
Scope 2	Indirect emissions from purchased energy	Purchased electricity, district heating and cooling
Scope 3	Indirect emissions from upstream and downstream sources	Purchased goods, product supply chain, waste disposal, employee travel

More information on carbon accounting and the emissions scopes is available on our Carbon Accounting resource page.

Renewable Energy Credits

How RECs Work

Since the electrical grid aggregates all generated electricity from various sources, customers have no way of identifying the specific source of electricity. Some states, like Pennsylvania, have deregulated markets that allow customers to choose electricity suppliers, allowing for the direct purchase of renewable electricity. Many states, however, do not allow this, leaving customers without the option of choosing greener generation sources. RECs allow customers to virtually purchase the environmental benefits of renewable energy, even in regulated electricity markets.

After registering with a regional tracking system, renewable energy generating sources are issued RECs as they generate electricity, with one REC issued for every megawatt-hour (MWh) of electricity generated. Each REC is a digital asset, comprising data certifying its validity, where it was generated, the type of renewable energy, and other information. These are identifying features that allow tracking systems to ensure that they are accounted for accurately.

RECs are sold as bundled or unbundled. Bundled RECs are purchased alongside electricity from a supplier; unbundled RECs are purchased independently from electricity. When unbundled RECs are purchased, they do not have to be immediately attributed to electricity usage and can be traded or resold until they are retired. A large market exists for unbundled RECs, and several organizations manage REC sales on behalf of renewable energy generators.

To use a REC and claim its environmental benefits, it must be retired, meaning that it can no longer be sold. Coordination with the relevant tracking system will prevent the REC from being double counted.

While a useful tool in decarbonization, RECs have limited scope: the environmental benefits of RECs only extend to electricity use and Scope 2 emissions. RECs are an important step in reducing carbon emissions but alone are not enough to eliminate an organization’s carbon footprint. Carbon emissions that are associated with fossil fuel use in buildings, supply chains, manufacturing, and other non-energy operations cannot be mitigated with RECs.

RECs Certification & Verification

RECs are issued to generating sources by different regional organizations across the U.S. and Canada. Each group manages their own issuance, trading, and tracking for plants in their area. For example, renewable energy producers in Pennsylvania would register with the Generation Attribute Tracking System, which issues RECs for generation sources in the PJM service territory.

The Center for Resource Solutions maintains the Green-e Certification, which adds a standardized third-party accreditation to RECs. Green-e Certified RECs provide a level of quality assurance and validation across the country and further prevents double counting and other potential concerns associated with REC usage.

How Renewable Energy Credits Work
Image credit: U.S. Environmental Protection Agency

Carbon Offsets

How Offsets Work

While many efforts are being made around the world to advance decarbonization, there are a wide variety of processes and technologies that produce large amounts of emissions. In cases where it is not possible or is unfeasible to eliminate emission sources, carbon offsets can be purchased instead. This gives organizations the ability to balance emissions produced with emissions saved.

A carbon offset certifies that one metric ton of carbon dioxide equivalent (CO₂e) has been avoided or removed from the atmosphere. CO₂e is a common metric that standardizes all types of greenhouse gas emissions to the equivalent amount of carbon dioxide.

Carbon offsets can come from a variety of types of projects around the world. Common types include reforestation, land or ecosystem conservation, energy efficiency, and emissions capture and storage.

Carbon offsets apply as general emissions reductions that can balance out any emissions production, regardless of source. Offsets, therefore, can be used much more broadly than RECs and can reduce emissions from any of the three scopes.

Offsets Certification & Verification

The offsets market is more complicated than the market for RECs. The less straightforward nature of carbon offsets requires more standards, monitoring, and verification of emissions-offsetting projects. Offsets are accredited and managed by a wide variety of organizations. Each organization sets their own standards for projects, including project eligibility requirements, carbon measurements, and quality assurance.

All carbon offset projects, regardless of organization, must pass additionality testing. Additionality mandates that the project’s emissions reductions would not have occurred without the revenue from the offsets. Generally, if a project could be completed without the revenue provided by offsets, it is not eligible for offsets.

Carbon offsets act as direct funding to the project itself, and the purchase of one, while being literally representative of one ton of CO₂e, can be viewed as a direct financial contribution to the project. Additionality, although a crucial component of offsets, can be criticized due to its somewhat subjective nature and the in-depth review needed to fully assure it. Carbon offset issuing organizations have occasionally been criticized for certifying projects that overestimated how much carbon emissions would be saved, didn’t have additionality status, or otherwise were of lower quality, which highlights the importance of conducting due diligence before purchasing any offsets.

Offsets can also be accredited by the Green-e Certification system to verify projects and carbon credits in the same way they do for RECs, applying an additional level of quality assurance across the board. Green-e has a comprehensive review of each of the major carbon registries and clearly states which projects they do and do not certify. Using third parties like Green-e and other tools allows organizations to ensure that their carbon offsets translate to tangible benefits for the environment.

How Carbon Offsets Work
Image credit: Second Nature

RECs versus Offsets Comparison

	RECs	Carbon Offsets
Metric	1 MWh of Electricity	1 Metric Ton of CO^₂e avoided or reduced
Purpose	Purchase renewable electricity	Decreases net emissions footprint
Affected Emissions	Scope 2 emissions only	Can apply to all three scopes of emissions, but most commonly Scopes 1 and 3
Environmental Claims	Uses renewable electricity, zero scope 2 emissions	Net zero emissions or carbon neutrality

Things to Consider

Both RECs and carbon offsets represent huge markets and are methods that allow billions of dollars in funding to flow into sustainable developments. However, both RECs and carbon offsets operate primarily in voluntary markets, and don’t require taking other measures to reduce emissions. Both programs have been criticized for contributing to greenwashing, efforts taken by corporations to demonstrate sustainable interests and values without meaningful depth.

Offsets and RECs are best utilized as supporting measures alongside holistic sustainability practices; energy use should be optimized to be as efficient as possible before purchasing RECs; and decarbonization efforts should be done in conjunction with the acquisition of offsets.

Green Certifications

Carbon offsets, when applied to an organization at large, can be used as components of organization-wide certifications such as B Corp Certification. Particularly, offsets apply as an approach to addressing hard-to-control Scope 3 emissions and are used when other measures cannot reduce emissions.

Buildings can benefit from RECs and carbon offsets, with several certification standards accepting the use of either option. LEED v5 allows the use of Green-e certified RECs as an option in the Renewable Energy credit. The Living Building Challenge also accepts the use of offsets for offsetting embodied carbon.