The reliance of many large companies on a certain type of rigorously screened energy credit could be an indicator that the private sector is lagging far behind in efforts to limit contributions to climate change, new research finds.
The study, published in early June in the journal Nature Climate Change, focuses on renewable energy certificates (RECs), documents that show a certain amount of energy was generated using renewable methods such as wind or solar.
The research found that without the credits, many companies would have far larger carbon footprints, which many environmental experts say is ineffective.
“In my opinion, [RECs are] always misleading because they don’t use renewable energy in the physical sense,” said Anders Bjørn, a postdoctoral researcher at Concordia University and lead author of the study.
The difference, once RECs are removed, creates a wide discrepancy that throws many companies behind targets intended to meet the Paris Agreement. Adopted in 2015, the deal is an international agreement between 192 countries and the European Union that aims to significantly reduce greenhouse gas emissions to prevent global temperature levels from rising by more than 1.5 degrees Celsius.
Companies buy RECs to offset part of their carbon emissions. This practice stems from the Greenhouse Gas Protocol, an initiative that provides the primary standard by which companies estimate their emissions. This method of emissions accounting allows companies to significantly reduce the carbon emissions they report without making significant changes to their operations.
Businesses have embraced markets like carbon credit programs and RECs to demonstrate they are taking steps to reduce their environmental footprint. Many of these programs are based on a cash-for-credit system, in which a company pays money on a loan created to represent green energy production. Offsets represent emission reductions while RECs represent the use of renewable electricity.
Bjørn’s research looked at the Science-Based Targets Initiative (SBTi), which helps companies meet emissions targets and follow the current Greenhouse Gas Protocol. Through the SBTi, over 1,000 companies have committed to achieving net-zero emissions.
In theory, RECs should increase the amount companies invest in renewable energy sources. However, according to Michael Gillenwater, a REC researcher and executive director and dean of Greenhouse Gas Management, a nonprofit organization focused on environmental impact accounting, a large body of previous research has shown that RECs don’t actually work that way.
“All the research has shown that pretty clearly [the REC market] does nothing,” Gillenwater said. “It’s basically ineffective at influencing investment or renewable energy generation.”
“It’s basically ineffective at influencing investment or renewable energy generation.”
Michael Gillenwater, REC researcher and Chief Executive and Dean of Greenhouse Gas Management
Although RECs are intended to create investments that drive the creation of new wind and solar farms, little to no renewable energy actually appears to be created because, as Gillenwater explains, “REC certificates just aren’t worth enough.”
The Concordia University study shows how far companies are from the Paris Agreement’s carbon emissions targets when the amounts compensated by RECs are subtracted. According to current measurements, 68% of the 115 companies analyzed in the study have reduced their emissions enough to reach the 1.5 degree target. However, the study found that only 36% of companies hit the target when RECs are excluded.
The study only focused on Scope 2 emissions, i.e. emissions related to the purchase of electricity. According to the study, while companies reportedly reduced their Scope 2 emissions by 31%, they actually reduced their scope 2 emissions by just 10% when excluding RECs.
“The widespread use of RECs casts doubt on companies’ apparent historical Paris-matched emissions reductions, as it allows companies to report emissions reductions that are not real,” the researchers said in the study.
The Greenhouse Gas Protocol will revise its standards later this year. The researchers advocate a change in the way emissions are reported that includes a more nuanced understanding of RECs.
“We recognize that companies have increasing concerns about reducing their market-based Scope 2 emissions from an emissions accounting perspective using low-impact tools without driving real-world change,” the SBTi said in a statement to Bloomberg. “This is an issue that goes beyond the SBTi and we believe the best solution involves revised accounting standards and guidance for all users.”
Shannon Lloyd, one of the researchers, emphasized that the problem isn’t with the companies, but with the system itself.
“I don’t think the call for this paper should be, ‘Let’s point the finger,'” Lloyd said. “The call should be, ‘Let’s find out.'”