Why buying cheap energy certificates worsens climate change
Oh…my….God. I just received an email from a Renewable Energy Certificate (REC) vendor called Carbon Solutions Group (www.carbonsolutionsgroup.com) that took my already high (but controlled) blood pressure to new heights.
RECs represent clean energy and can be purchased by entities wanting to claim to be powered by renewable energy. The gist of the Carbon Solutions e-mail (posted at the bottom of this blog) is that there is a misconception about their cost. RECs, the e-mail argues, are portrayed as way too expensive. Further, the U.S. Green Building Council is providing a misleadingly high number for the cost of powering your building with clean energy to help with LEED certification. Actually, the e-mail says, RECs pretty darn cheap.
Hey, great, right? Wrong.
I have been writing and thinking about what it means to actually solve climate for many years. The problem is dire, so we need real solutions, not illusions of solutions. With regard to clean energy procurement, one of the key challenges is that there is a huge gap between what it takes to actually generate clean power, and the perceived cost of “clean power” as purchased through cheap RECs. I thought I put a knife in this horror show ghoul once and for all, but apparently not. So I guess I will have to rain down a rhetorical napalm strike on this argument again. Sigh.
As I’ve outlined numerous times — for Climate Progress, twice in Harvard Business Review, in Chapter 7 of my book (Getting Green Done), and which Business Week‘s Ben Elgin has addressed many times — the problem is one of basic economics. In order for RECs to drive any sort of change in the world, in order for them to enable new clean energy development and reduce carbon dioxide emissions, they must cost a lot. That’s because the REC has to enable clean energy projects to happen by tipping their finances.
As an example, a solar project I helped develop required RECs at $170/megawatt hour of power produced over 20 years to have a marginally positive return on investment. Those expensive RECs, bought by Xcel energy, made the project happen. Without those REC sales, no project. (So there are good RECs, but they will cost you.) The US Green Building Council is actually right in dismissing cheap RECs — they want you to buy RECs that actually make a difference, not RECs from existing projects or projects that would happen anyway.
Cheap RECs don’t do anything to protect the planet because that price isn’t sufficient to actually help reduce carbon dioxide emissions. In my view, companies that are selling $2 RECs are helping to delay real, tangible progress on climate change. Well-intentioned businesses that purchase cheap RECs are under the illusion that they have done what it takes to solve climate change with regard to their operations. They have not.
As an example: to zero out the carbon impact of my home this year, I could pursue one of two scenarios. One option would be to install efficient lighting throughout the house, upgrade appliances, and put in a solar array. Total cost would be in the tens of thousands, with lots of time and labor. Alternatively, using $2 RECs, I could drop about ten bucks a year and more than zero out my emissions. Figure it out: which is the real solution?
OK, but let’s assume you’re a manager who really wants to buy “clean power” in some form. You need to do your due diligence. That should lead you to what’s called a forward REC from a high integrity business like Native Energy or Community Energy, now owned by Iberdrola. Here are the questions you need to ask of a vendor like Carbon Solutions Group (and I invite them to respond on this blog):
1) When I buy at $2 REC, does it do anything to change the world? Does it do any thing to reduce carbon dioxide emissions? (The technical way to ask this question is, “Are the RECs additional?”)
2) Would the project I am buying RECs from not have happened if I didn’t buy the RECs? (We already know the answer–$2/MWH isn’t enough money; it’s a meaningless addition to the project.) So what is my purchase doing? They will say “incentivizing the producer.” Baloney. Will you clean my sink full of dishes for a nickel?
3) Do you sell “forward RECS” (RECs that are part of the economic model of a project and are required to make the project happen, economically) and if so, what might those cost?
4) Where are your RECs coming from, and explain to me the finances of how that project worked and the role the REC played in this. Actually, send me the pro forma for the development, so I can see how those RECs made the project possible.
Below is the e-mail that set me off. But let me conclude with some philosophy. As I’ve said before, solving climate change is going to be a bitch. If an easy solution presents itself, it is almost certainly too good to be true.
Since 2006, Carbon Solutions Group has helped numerous clients obtain Renewable Energy Certificates (RECs) to obtain LEED points… Currently, we are running a 6 part series on some common issues in the REC market today. Through our extensive experience in the LEED market, we have frequently encountered misconceptions about the perceived high cost of Green Power. Below is an example of the cost-effective nature of RECs modified from the LEED NC 2.2 Reference Guide.
Reference Guide uses the example of a 50,000 sq ft restaurant, one of the highest energy consumption ratings per square foot. The process the Guide outlines is accurate, except for their pricing.
50,000 sq ft x 28.7 kWh/sq ft/yr = 1,435,000 kWh/year
1,435,000 kWh/year x 35% x 2 years = 1,004,500 kWh
The USGBC example uses a greatly inflated price of $0.02 per kWh or $20.00 per MWh for a total of $20,090!!!
Using conservative current CSG prices of $0.002 per kWh or $2.00 per MWh, this project would cost only $2,009 with Carbon Solutions Group.