Buying Renewable Energy Doesn't Mean What You Think

Thousands of companies and cities buy renewable electricity credits to meet their climate targets and bolster their sustainability claims. But what does buying those credits actually mean?

The Washington Post

June 23, 2023

7 Min Read
energy storage, batteries
Half Moon Ventures’ 4.2-MW solar farm provides electricity for the Minster DER system in Ohio.Courtesy of the Village of Minster.

Imagine that you want to go green. You go to your utility and say you want to buy power - power specifically from a solar or wind farm, power that doesn't come with sky-high carbon emissions or harmful air pollution. Your home uses about 10 megawatt-hours of electricity per year, so you buy that amount of solar and wind.

Congratulations! You've just erased all the greenhouse gas emissions from your electricity use. Right?

Not . . . exactly. Around the country - and the world - thousands of companies, households and cities buy renewable electricity credits to meet their climate targets and bolster their sustainability claims. There's just one problem: Buying those credits, it turns out, doesn't mean you are actually running on renewables. In fact, it doesn't mean that at all.

"I'm going to claim that I'm using all of that renewable electricity" if I buy a credit, said Michael Macrae, a senior manager at the World Resources Institute. "Now physically, did I? Not necessarily."

Once, experts say, buying renewable electricity credits may have helped struggling wind and solar farms get off the ground. But now, as the price of renewables plummets and solar farms spring up from California to Texas, it looks more like a way for companies to claim that they are cleaning up their act without much effort - or cost.

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The reason has to do with the science of the electricity grid - and the very strange product known as a "renewable energy credit."

Why Buying Electricity Is Weird

Buying electricity presents a few problems that, say, buying a toaster doesn't.

"Electricity is just a weird thing," said Michael Gillenwater, the executive director and co-founder of the Greenhouse Gas Management Institute.

For one thing, electricity has to be used the instant it is produced; that's why grid operators are constantly trying to balance all of their different power sources. And once electricity is produced - by the spinning of a wind turbine or by the firing of a coal power plant - its source can't be tracked. When you turn on a light switch or plug in an electric car, it's impossible to tell whether that power was generated by a solar panel or a natural gas plant.

Mark Dyson, managing director of carbon-free electricity at the energy think tank RMI, says an electricity grid is a bit like a giant swimming pool. When different types of power plants create electricity, it's similar to pouring water from different colored glasses into the pool - they look different on the outside, but once in the pool the water can't be separated out. A person, or electricity user, sitting on the other end of the pool sucking out water with a straw can't tell where it came from.

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That's why renewable energy credits, also known as renewable energy certificates, or RECs, were invented. These credits play a kind of electricity shell game. Say a wind farm in Texas produces thousands of megawatt-hours of electricity in a given year. That wind farm can make money two ways: first, by selling that power to the local utility or second, by selling the "greenness" or "renewable-ness" of that power to companies and individuals - in the form of credits.

When a company says that it's buying renewable energy, most of the time that means it's buying renewable credits - not the electricity itself.

Certain renewable credits are sold to comply with state or federal regulations - these tend to be more expensive and, experts say, more legitimate. But other credits are sold to companies or individuals who just want to look more green.

Those credits can create some odd contradictions. A company based in West Virginia might be using 25 megawatt-hours of electricity in a year that's coming primarily from coal. But the company could buy renewable credits from a wind farm in Texas and claim that its electricity is entirely pollution-free.

That company "could report publicly that its emissions have gone to zero," Macrae said. "But does the Earth see less emissions?"

A Case Study

For example, take an Iowa wind farm. It produces electricity and sends it to the local grid, which powers homes and companies.

In addition to energy, the same wind farm in Iowa produces renewable credits for each unit of electricity it generates.

Those credits are sold to consumers and companies in other places, for example New Jersey, to claim that they are using renewable electricity.

But their actual electricity comes from the New Jersey grid - powered mostly by natural gas, a fossil fuel, and nuclear power, which is fossil free.

No Clear Benefit for the Climate

The idea behind renewable credits is that if companies and individuals buy them, it will provide more money that can help wind and solar developers get off the ground. But critics say there is no evidence that the cash from such credits is actually helping deploy wind and solar.

"There is no research showing that it does," Gillenwater said.

A study from 2013, for example, showed that the ability to sell renewable credits was unlikely to change the decision-making of a wind farm developer, even if the credits became much more expensive. Often, renewable credits cost less than $1 per megawatt-hour; they have occasionally reached around $5 per megawatt-hour. Experts say the credits would have to cost around $20 to $40 to provide a true incentive to build renewables.

Gillenwater says there are a few problems that undercut the credits' real-world impact. For one, the credits aren't reliable over a long period of time. A company could buy renewable credits one year and then decide not to the following year, making it hard for a renewable developer to rely on them as a source of revenue. But the larger problem, he said, is that there's plenty of renewable credits.

"Even if I got a decent number of people to buy teaspoons of dirt, it's not like there's going to be a scarcity of teaspoons of dirt," he said. "The price is always going to be pretty low."

Homeowners or renters who buy "renewable electricity" directly from their utility - and who don't pay a stiff price premium - are likely buying credits produced by wind farms and solar farms in totally different parts of the country, Gillenwater explained.

There is also growing evidence that such credits are helping companies inflate their green credentials. Another study, released last year, analyzed the climate targets of 115 companies with and without the use of renewable credits. Looking at the energy mix where these firms operated, researchers calculated that they had reduced their electricity-related emissions by 10 percent - leaving them shy of the Paris agreement's climate goals. But by factoring in renewable credits, these companies said they cut their carbon pollution by around 31 percent on average.

"A big proportion of the reported reductions are not real," said Anders Bjorn, lead author of the study and a postdoctoral fellow at the Technical University of Denmark.

Possible Fixes?

Is there a way for companies and individuals to buy renewable energy so that it actually matters?

Some say yes. The Greenhouse Gas Protocol, a group that provides standards for companies to report their emissions, is looking at proposals to make the reductions from electricity more "real."

One possible proposal is known as "24/7 clean power." The biggest problem with renewable credits is that the renewable energy in question could be produced hundreds (or even thousands) of miles away from where the person or company is using electricity. The energy could also be produced at totally different times than when it's used. For example, a company in Maryland that runs a factory overnight could be receiving credits from a solar farm in California that only operates in the middle of the day.

Dyson says that's a problem because, well, California already has a lot of solar panels. Each solar panel added to the grid there isn't making a huge difference in terms of shifting the country away from fossil fuels.

Under a system of 24/7 clean power, which has been endorsed by companies like Google and Microsoft, companies would still buy renewable credits - but those credits would be tied more closely to the electricity the company actually uses. In this system, companies would have to buy credits for each hour that they operate and on their own grid - no more buying up renewables in Texas for a company in West Virginia. This has gotten buy-in from the federal government, and there is evidence from energy modelers that it could help clean up the grid.

Other solutions include trying to track the actual emissions avoided by any purchase of green power, or simply requiring companies to report the emissions of the electricity used in their area.

It's unclear at the moment which strategy will win out. But experts say there is an urgent need to align renewable credits with the needs of the grid, to make sure buying renewable electricity isn't just trading teaspoons of dirt.

"There's no evidence they ever moved the needle," Gillenwater said. "There's a bit of magical thinking here."

--Shannon Osaka and Hailey Haymond, The Washington Post

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