Renewable Electricity, RECs, and Carbon Offsets: What’s the Difference?

Wednesday, May 1, 2013 @ 09:05 AM
posted by Admin

Most of us understand what renewable electricity is, but the difference between renewable energy credits (RECs) and carbon offsets is less clear. Nevertheless, it’s important to understand what exactly renewable electricity is in order to understand RECs and carbon offsets.

Renewable Electricity Basics

Renewable electricity is electricity derived from sources that are replenished over time, without depleting the earth’s resources. Traditional fossil fuels, on the other hand, don’t replenish in the time it takes to deplete these resources. Electricity can be produced from such renewable sources as:

  • Wind
  • Solar
  • Hydro (ocean tides and waves)
  • Geothermal Heat
  • Biomass

How the electricity is ‘made’ varies by the type of source. Solar energy, for instance, is captured by solar panels, while wind is captured by wind turbines. Throughout the world, renewable capacity has grown by 10-60% annually since 2004. The two largest sectors of renewable electricity are wind followed by solar. It is expected that the installed capacity of solar will surpass that of wind in 2014, but due to its lower capacity of solar, the total amount of generated electricity of solar will not likely catch up to wind until 2015 or so.

Renewable Energy Credits (RECs)

Also referred to as renewable energy certificates, RECs are essentially written proof that renewable electricity has been generated. One REC is equal to the equivalent of 1 megawatt hour (MWh) or of electricity. To put this into perspective, an average home will use about 1 MWh (1000 kilowatt hours) of electricity in about two months. These credits can be sold, traded, or bartered.

RECs act as a motivational factor for the production of carbon-neutral renewable electricity. If you purchase RECs, the renewable energy produced does not necessarily power your home or business; it just means that the energy has been produced somewhere in the U.S. A green energy provider, such as a solar farm, is credited with RECs as they generate electricity in 1 MWh increments. The provider can then sell the RECs to individuals and businesses.

Businesses have been buying and trading RECs for quite some time now, as governmental regulations as well as company culture initiatives have pushed companies to make such investments to reach their goals of carbon neutrality. Environmentally conscious individuals have also been buying RECs for their own peace of mind. But what many homeowners don’t understand is that they too can be granted with RECs for their own renewable energy systems in their homes. And they can sell these credits to businesses just like larger renewable power plants.

Carbon Offsets

While RECs guarantee the production of renewable electricity, carbon offsets are different because they actually reduce the amount of carbon dioxide and other greenhouse gases emitted into the atmosphere. Carbon offsets essentially counteract the carbon emissions made elsewhere, and can be derived from renewable energy, methane collection and combustion, energy efficiency, forest preservation and other land-use changes, and more.

Like RECs, both businesses and individuals can purchase carbon offsets. Large companies, the government, and other large organizations purchase offsets because of caps on the total amount greenhouse gases they are allowed to emit, established under the Kyoto Protocol and other agreements and regulatory laws. Companies, governments, and individuals are also able to purchase carbon offsets voluntarily in order to make up for their own carbon emissions.


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