No more faking it: Companies ditch green credits, clean up instead

It has been a near-magical tool allowing corporations to claim massive reductions in greenhouse gas emissions for very little cost.

For years, thousands of companies have purchased renewable energy credits, known as RECs, to say they use green power and to shrink their carbon footprints. Now, as skepticism mounts about whether RECs achieve their claimed environmental benefits, the market for these credits is slowing—and a number of companies, fromWhole Foods Market (WFM) to McDonald’s (MCD), are quietly scaling back their involvement.

“These voluntary green power markets have no significant effect on how much renewable energy is generated,” says Michael Gillenwater, executive director of the nonprofit Greenhouse Gas Management Institute, which trains companies on how to accurately measure their emissions.

Most businesses purchase their power from the grid, where it’s impossible to distinguish between electrons created by windmills and electrons created by coal plants. The market for RECs emerged in the late 1990s as a way to separate green energy into two products—the electricity and the environmental benefits, which can be sold separately.

A single REC represents the environmental benefit associated with one megawatt-hour of renewable electricity placed on the power grid. By purchasing RECs, companies can claim credit for using the green electrons. The money they pay usually flows through a network of brokers, who then pass along some of the funds to the company that generated the clean energy. This represents a new revenue stream for clean energy developers, which, in theory, results in the construction of wind turbines and solar installations that otherwise wouldn’t be built.

These voluntary green power markets have no significant effect on how much renewable energy is generated

Michael Gillenwater, executive director, Greenhouse Gas Management Institute

Companies who purchase the RECs can claim (PDF) a reduction in their own carbon emissions, according to several green-minded organizations and the Environmental Protection Agency. For instance, Intel (INTC), the No. 1 buyer of RECs in the U.S., says it has reduced heat-trapping emissions by more than 1 million metric tonnes per year since 2008 by acquiring RECs. (Bloomberg LP, which owns Bloomberg Businessweek, used RECs to lower its carbon footprint by 43 per cent last year.)

A growing number of doubters are calling this vanishing carbon an illusion. Gillenwater, who has conducted two separate studies on the subject, says the money from RECs is so small that it doesn’t spur energy developers to build more wind farms or solar plants.

Closed Loop Advisors, a New York-based sustainability consulting firm, says companies shouldn’t claim emissions cuts from RECs because these funds don’t alter the power being supplied to the grid. “Shifting the marketing rights from one party to another does not change anything in the real world,” it stated in a report (PDF) published this month.

Wal-Mart Stores (WMT) also dismissed RECs in a recent paper (PDF) outlining its renewable energy strategy, stating the credits “may not have the desired impact of accelerating renewable energy development.”

Amid these concerns, the popularity of RECs appears to be slowing. After growing at a clip of 25 per cent per year from 2010 to 2012, the market for voluntary REC purchases that are “unbundled” from electricity—the most common category for corporate buyers—grew just 1 per cent in 2013, according to a recently released report (PDF) from the National Renewable Energy Laboratory.

Several big REC buyers tracked quarterly by the EPA have recently disappeared from its rankings, including Whole Foods, McDonald’s, Hilton (HLT), and Safeway(SWY). That follows other big buyers that have scaled back their REC purchases in recent years, including PepsiCo (PEP) and Johnson & Johnson (JNJ).

Companies including Whole Foods and PepsiCo say they are focusing on more tangible solutions, such as installing renewable energy projects at their facilities. “PepsiCo believes it can have a greater impact on carbon reduction by investing directly in renewable and alternative energy solutions at a facility level,” PepsiCo spokesperson Erin Thomas said in an e-mail. McDonald’s didn’t respond to requests for comment.

Intel continues to be the biggest purchaser of RECs, but says it’s also focused on energy efficiency and building on-site renewable energy installations at its various US locations. (Bloomberg LP says it’s focused on developing on-site renewable generation and won’t count RECs toward its goal of reducing carbon emissions 20 per cent by 2020.)

Hilton and Safeway have backed away from RECs for different reasons. Safeway says it stopped purchasing RECs as it goes through its acquisition by Albertsons. Hilton, meanwhile, said it scaled back its purchase of RECs because the prices were rising and it wasn’t having a major marketing impact, says Randy Gaines, Hilton’s vice president of engineering, housekeeping, and laundry operations in the Americas.

Wal-Mart summed up the skepticism. “While REC purchasing may allow us to more quickly say we are supplied by 100 per cent renewable energy,” its report stated, “it provides less certainty about the change we’re making in the world.”

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