Renewable Energy Credits Allow Companies to Overstate Emissions Reductions

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CLIMATEWIRE | Tradable credits for renewable energy generation are allowing companies to exaggerate their progress toward slashing emissions, according to a new report from Concordia University and the University of Edinburgh Business School.

In the study, published in Nature Climate Change, researchers examined the emissions of 115 companies with climate goals certified by the Science Based Targets initiative (SBTi), a partnership that involves the World Resources Institute and other groups.

Researchers found that most of the reductions in the companies’ reported Scope 2 greenhouse gas emissions — or emissions from purchased energy — were from renewable energy certificates (RECs) during the 2015 to 2019 study period.

Many companies were no longer on track to keep global average temperature rise below 1.5 degrees Celsius, as RECs were taken out of their accounting. This could have significant implications for global efforts against climate change as companies are seen to be key players in reducing carbon emissions.

The practice of including REC use in emissions reporting “casts serious doubt upon the veracity and alignment of reported corporate emission trajectories with the most ambitious Paris Agreement climate goal,” the authors wrote.

Renewable electricity projects generate one REC for every megawatt-hour of electricity they provide to the grid. The credits can then be purchased by companies and used in their emissions accounting.

Absent RECs allow a company to calculate its Scope 2 emissions by using its electricity consumption and grid emission factor. Companies that purchase RECs are able to use lower average emission factors in their accounting. They can report lower emissions, while maintaining their actual electricity consumption.

” You can report a rapid and progressive decline in emissions as a company by simply buying more certificates each year than you did the previous year,” Anders Bjorn, Concordia University’s postdoctoral fellow and lead author of the study, stated in an interview.

“But these certificates are unlikely actually to put more renewables onto the grid,” Bjorn said. “You’re kind of taking credit for something which would have happened anyway .”

Renewable energy certificates (RECs) are being promoted by those who believe they can signal to the market an increase in demand for renewable energy generation. Lesley Hunter, senior vice-president of programs and content strategy at American Council on Renewable Energy, stated that RECs are essential to the U.S. market for renewable energy. .”

RECs may also be purchased through power purchase agreements. In these agreements, the buyer agrees that he will offtake a specified amount of electricity and corresponding credit from a new renewable energy project for a set period of time.

In these cases, RECs can “have a direct impact upon driving new renewable energy generation,” Hunter stated in an email.

The number of companies that have climate goals has increased dramatically in recent years. In 2016, SBTi announced that 200 companies had committed to setting science-based targets. Today, more than 3,000 companies have set or are setting targets.

” With more and more companies setting these targets it’s important that it’s not only that targets are set but also that companies reduce their emissions accordingly,” Bjorn stated.

The popularity of RECs is also on the rise, according to the study, complicating reporting efforts: The sample companies’ use of RECs represented 8 percent of their purchased energy in 2015, but that jumped to 27 percent in 2019.

The researchers found that the sample companies reduced their combined Scope 2 emissions by 31 percent between 2015 and 2019, factoring in market-based instruments such as RECs. This reduction would place the companies on the path of the SBTi to preventing global average temperature rises exceeding 1.5 degrees Celsius.

Take RECs out of the equation, and emissions would have decreased by only about 10 percent during the same period, the researchers said. At that rate, the drop in emissions would only be able to meet SBTi’s less ambitious trajectory for keeping warming below 2 degrees Celsius, which the group dropped last year to better reflect Paris Agreement ambitions.

The researchers also used the pattern of REC usage by the companies to project future emissions reporting.

They found that most of the companies that used market-based Scope 2 reports would not align with the pathway for keeping the temperature below 2 degrees Celsius. About 42 percent of the combined decrease in the companies’ Scope 2 emissions would be unlikely to have an impact on real greenhouse gas emissions in that future scenario.

To make emissions accounting more reliable, transparent, and transparent, researchers suggested that companies be required to report their emissions primarily without taking into account market-based instruments. They suggested that accounting standards could be tightened so that companies only use market-based instruments to increase renewable energy development.

A spokesperson for STBi stated in an email that they are “aware there’s growing concern about companies using low impact instruments to reduce market-based scope 2 emission, from an emissions accounting perspective, without driving real world change .”

The spokesperson stated that the group is working to revise emission reporting principles and increase transparency around accounting.

According Bjorn, the study’s lead author, the findings are also a reason for concern about the ability of companies to make progress towards the Paris Agreement goals.

“It can be dangerous for policymakers to look at these actions taken in companies and say, ‘They have the solution.'” Bjorn stated. “It is dangerous to leave the climate change issue up to companies, and I think our study suggests that it is unrealistic to expect that companies will voluntarily solve climate change .

Reprinted from E&E News with permission from

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