Our key takeaway: Lots of companies rely on power purchase agreements (PPAs) and renewable energy certificates (RECs) to meet their science-based emission reduction targets. However, these are far from equal. PPAs lead to additional renewable energy production and real emission reductions, since the long-term power price de-risks new projects and allows access to project finance. In contrast, RECs are non-additional. The emissions were already being reduced by preexisting projects. There is for now no evidence that RECs have contributed to the generation of more renewable energy. Therefore, a new study finds that RECs act as a smokescreen of sorts, making company commitments look better than they are. In fact, when considering the (non-) impact of RECs, a number of company commitments are no longer aligned with the 1.5 °C goal. Long story short for standards that allow RECs and companies that rely on RECs: are we genuinely reducing emissions, or does it look like we are?
Anders Bjørn, Shannon M. Lloyd, Matthew Brander & H. Damon Matthews have published in nature climate change: ‘Renewable energy certificates threaten the integrity of corporate science-based targets’ (June 2022):
- Science-based targets and renewable energy certificates: Science-based targets (SBTs) are used by companies to “align voluntary company-level emission reduction targets with the global temperature goal of the Paris Agreement.” When reporting scope 2 emissions (emissions associated with the generation of purchased energy), the Science Based Targets initiative (SBTi) and the Greenhouse Gas Protocol that forms the basis of SBTi requirements allow companies to use renewable energy certificates (RECs) to claim the use of renewably generated electricity. This means that “[c]ompanies can then report zero emissions for each unit of electricity consumption covered by purchased REC.”
- Difference between renewable energy certificates and power purchase agreements: The authors reiterate the distinction between power purchase agreements (PPAs) and renewable energy certificates (RECs). PPAs “represent a long-term commitment by a company to purchase power from a particular renewable energy project.” “PPAs do lead to additional renewable energy production and real emission reductions, as the long-term power price de-risks new projects and allows access to project finance.” In other words, they are additional, and they do lead to additional renewable generation capacity or real emissions reductions. In contrast, the authors underscore that “RECs and similar market-based instruments are non-additional, that is, not leading to additional renewable generation capacity or real emissions reductions.” For instance, a company that purchases RECs from a pre-existing windfarm is not in reality leading to the generation of additional renewable energy, since the windfarm was already operational. Worse, “the RECs effectively increase the market-based emissions of other energy consumers on the grid through an increase in the residual emission factor.” The theory that RECs “may still contribute to the generation of more renewable energy in the longer term by, in aggregation, signaling to the market that there is a demand for renewable energy” has not yet been supported by evidence.
- Scope 2 emission trajectories without RECs: The study delves into reported historical emission reductions from a sample of companies and finds that “the widespread use of RECs by companies with science-based targets has led to an inflated estimate of the effectiveness of mitigation efforts. When removing the emission reductions claimed through RECs, companies’ combined 2015–2019 scope 2 emission trajectories are no longer aligned with the 1.5 °C goal, and only barely with the well below 2 °C goal of the Paris Agreement. If this trend continues, 42% of committed scope 2 emission reductions will not result in real-world mitigation.” The authors therefore point to the need to “revise accounting guidelines to require companies to report only real emission reductions as progress towards meeting their science-based targets.”