Many thanks to Cameron Berhardt for his research assistance for this post.
Although renewable energy credits (RECs) are primarily relevant for entities that must comply with the California Renewable Portfolio Standard (RPS), all types of RECs, whether bundled, unbundled or tradable, may have applications for city usage as well. Similarly, carbon offsets have a role in California’s cap and trade program (though only 8% of a regulated entities’ compliance obligation) but are largely used in the voluntary market. There is no statutory guidance as to the use of RECs and offsets in climate action plans (CAPs). However, a number of cities and counties within California have included the use of RECs and carbon offsets for two main purposes: either as part of procurement of alternative forms of renewable energy, or to directly reduce carbon emissions, or both. Any such use ultimately leads to GHG reduction, the main purpose of a CAP.
A review of these references and how cities, counties, and other jurisdictional entities plan to use or do use RECs and carbon offset credits may be useful to those who wish to have a better understanding of the role that these credits can play for these groups in California. This post serves as an initial inquiry of a handful of plans in California.
Table 1 provides some examples of reference to RECs in climate action plans.
Table 1 References to RECs in selected climate action plans, California
As seen from the examples shown in Table 1, there is no explicit differentiation by type of REC, whether bundled, tradable or unbundled. By issuing a green business certificate, Cupertino motivates businesses to use unbundled RECs (and/or carbon offsets) but it does not use RECs for itself to achieve the city’s CAP targets, although the city may offset a portion of the cost of RECs to the businesses. Los Angeles County’s CAP on the other hand includes a GHG mitigation measure to buy solar power directly (therefore bundled), or through a PPA (where if the RECs are not purchased with the energy, the GHG benefits would not accrue to the County), or through the purchase of SRECs (unbundled). Marin County promotes solar measures similarly where SRECs would appear to contribute towards a low cost solution at an assumed cost of $10 per MWh.
Other cities outside of California also purchase RECs. The City of Houston, Texas, purchased over 623,000 MWh certified RECs from Green-e in 2013 under a 2-year contract and was awarded EPA’s Top 30 Local Government list of the largest municipal green power users. However, it is difficult to assess how much of this is from local and regional supplies and unbundled RECs. In 2014, the City of Worcester purchased RECs to cover 23% of its municipal operations’ electricity consumption at a cost reported to be less than 0.25% of the total annual operating budget. While Worcester purchases RECs from the voluntary market, it also generates solar and sells SRECs to the utility which needs SRECs to fulfill the state of Massachussetts’ solar carve-out compliance of 0.5% by 2020. As SRECs are more expensive the regular national RECs, this becomes a means of revenue generation for the city.
Voluntary markets suffer from the possibility that RECs may have been double counted or double sold and claimed by another party. One way to avoid this is to purchase RECs that are tracked and third party certified and to realize that the purchase and the environmental attributes are only for the duration of the contract and that ownership of RECs must be transparent in the contract.
Carbon Offset Credits
Carbon offsets have been defined as representations of reductions in greenhouse gas (GHG) emissions that compensate emissions from somewhere else. Carbon offset credits are often only granted for projects that produce carbon or carbon equivalent (GHG) emission reductions which would have not naturally or otherwise occurred (including renewable energy generation). Many cities in California reference carbon offsets in their climate action plans in a manner similar to how they reference RECs and a sample is provided in Table 2.Table 2 Carbon offset credit references in selected climate action plans of California cities and counties
Cities and counties can use carbon offsets from the voluntary markets, just like other entities such as universities, businesses, or individuals interested in meeting renewable energy or GHG targets. As described in a previous post, third party entities that certify and verify voluntary offsets, such as Green-e, provide some standards for buyers and sellers to ensure that the RECs and offsets are verifiable and additional.
How much do RECs and carbon offsets cost?
While climate and energy plans referred to above may put an illustrative price on RECs, there are a variety of factors that influence REC prices. Many of these factors are intrinsic, including the renewable fuel source, the generation technology, the vintage (year the REC was created), the location of the generation facility, the certification eligibility of the REC, and the preferences of REC or carbon offset buyers, for example for locally produced power or offsets or certain types of generation. The cost competitiveness of other fuel sources may also affect prices. For example, if natural gas prices are low, less electricity could be produced from renewable energy sources, leading to a lower quantity of RECs in the market and thus higher REC prices.
There appear to be significant differences between voluntary REC prices and compliance REC prices. REC prices in the Northeast (with the exception of Maine) have remained between $50/MWh and $65/MWh. Compliance RECs traded at less than $5/MWh in other regions in 2013, but some markets began to increase in 2013 and prices rose to above $15/MWh through early 2014. Regulatory requirements, such as solar carve-outs specifying the percentage of solar (Figure 1) or penalties for non-compliance (such as alternative compliance payment (ACP)), increase the demand and thus the price for these RECs. In 2013, solar ACPs typically ranged from roughly $350/MWh to $650/MWh, compared to about $55/MWh for the main Renewable Portfolio Standards (RPS).
Figure 1: Regulatory requirements for solar or distributed generation across the states.
The U.S. Department of Energy (DOE) reports that western wind RECs sold at higher prices than any national RECs during the period 2007 to 2011 but then declined below national averages through 2015 (Figure 2).Figure 2: Voluntary REC prices for wind
There is generally little price transparency in REC markets. Prices are not reported from most transactions because they are conducted as bilateral contracts between entities. Many REC marketers do not readily offer price quotes to the public and force inquirers to either call or submit online quote request forms such as from the 3Degrees Group. As such, current market prices are often difficult to identify without the assistance of a broker. Extensive lists for both residential and commercial REC providers are accessible through the Buy Clean Energy website. A National Renewable Energy Laboratory report (2014) states that wholesale prices in the voluntary market for unbundled RECs, which can be purchased from anywhere in the country, have been less than $2.00/MWh since 2013. The growth of unbundled RECs is reported to have stagnated and competitive markets for renewable energy has grown instead, through such mechanisms as community choice aggregation, community solar, utility green power programs, and power purchase agreements.
Carbon offset credits
There are many carbon offset marketers and products available to retail customers in the United States. A list of retail marketers and products that the U.S. Department of Energy provides is available on their website “Greenhouse Gas (GHG) Offsets: Retail GHG Offset Products.” Price varies by product, location, whether residential, who certifies the project, and third party product certification. As described in a previous post, the primary third-party project certification and registries are the American Carbon Registry (ACR), Chicago Climate Exchange (CCX), Climate Action Reserve (CAR), Climate Community and Biodiversity Standard (CCBS), Gold Standard, the United Nations Framework Convention’s Climate Change Clean Development Mechanism (UNFCCC CDM) and the Verified Carbon Standard (VCS). Product certification indicates independent third-party programs that certify the final retail GHG offset product sold in the marketplace. These programs ensure the credits supplying the product were certified by eligible project certification programs, sold as advertised, and delivered correctly and exclusively to offset customers by the retailer. The primary third-party product certifier is Green-e Climate. For the California Cap and Trade regulated market, only certain projects are eligible to generate credits based on specific protocols and despite that there has been an oversupply of certified offsets resulting in near floor prices between $11 and $13 dollars since the program began. The voluntary carbon market grew 14% in 2014 to 87 million metric tons CO2e globally with private companies being the largest user. However, prices have continuously decreased since 2011 to an all-time low of $3.8/mtCO2e in 2014, well below the historical average of $5.8/tCO2 globally after it was realized that the Kyoto Protocol would fail, a US-wide cap and trade would fail, lack of demand, increased supply, and regulation-based reductions in carbon. Avoiding deforestation are the best-selling offset projects at this time.
Price ranges for different offset types are shown in Figure 3.
Figure 3 Types and prices of voluntary carbon offsets, 2014 Source: Ecosystem Marketplace: State of the Voluntary Carbon Markets 2015 (page 13)
 Personal communication, City of Worcester, April 2016.