What is Renewable Energy Certificates?

What are Renewable Energy Certificates?

Renewable Energy Certificates (RECs) are market-based instruments that represent the environmental attributes of one megawatt-hour (MWh) of electricity generated from a renewable source such as wind, solar, hydro, or biomass. When a renewable generator produces electricity, it creates two products: the physical electricity (sold into the grid) and the REC (representing the "green" attribute). RECs can be sold separately from the underlying electricity, allowing any electricity consumer to claim the environmental benefit of renewable generation.

Why It Matters

RECs are the foundation of most corporate renewable energy claims in the United States and many international markets. When a company reports that it sources "100% renewable electricity," it almost always means it has acquired RECs equal to its electricity consumption—not that every electron powering its facilities was generated by a renewable source. Understanding how RECs work, and their limitations, is essential for any organization making clean energy claims.

The voluntary REC market is enormous. In the U.S. alone, voluntary REC transactions exceeded 300 million MWh in 2024, driven by corporate sustainability commitments, RE100 membership requirements, and Scope 2 emissions reporting under the GHG Protocol. Google, Amazon, Microsoft, and Meta are among the largest purchasers, with combined annual procurement in the tens of millions of MWh.

However, the credibility of unbundled REC purchases is under increasing scrutiny. Critics argue that buying cheap, unbundled RECs from existing renewable facilities—particularly in grids that are already heavily supplied by renewables—does little to drive additional clean energy deployment. A solar REC from Texas, purchased by a company in Virginia, neither reduces emissions on the Virginia grid nor incentivizes new renewable construction. This critique has pushed leading companies and standard-setters toward more rigorous approaches: 24/7 carbon-free energy matching, hourly attribute tracking, and emphasis on additionality.

For GHG Protocol Scope 2 reporting, RECs enable the "market-based" accounting method, allowing companies to report electricity emissions based on the attributes they have contractually claimed rather than the average grid mix. This creates a significant difference between location-based and market-based Scope 2 figures for many organizations—a gap that stakeholders and regulators are increasingly questioning.

How It Works / Key Components

RECs are tracked through regional registries that prevent double-counting. In the U.S., registries include the Green-e Energy program (administered by the Center for Resource Solutions), the Western Renewable Energy Generation Information System (WREGIS), PJM-GATS, M-RETS, and NEPOOL-GIS. Each REC carries a unique identification number, generation facility details, generation date, and resource type. Once a REC is "retired" against a consumer's electricity use, it cannot be resold or reclaimed.

Bundled RECs are purchased alongside the physical electricity from a renewable facility, typically through a power purchase agreement (PPA). Unbundled RECs are traded separately from the electricity, often on spot or forward markets at significantly lower prices—sometimes under $1 per MWh for wind RECs in oversupplied markets. The price difference between bundled and unbundled RECs reflects the additional value of guaranteed supply, price hedging, and stronger additionality claims associated with direct procurement.

International markets use similar instruments under different names. Guarantees of Origin (GOs) serve this function in Europe, tracked through the Association of Issuing Bodies (AIB). International RECs (I-RECs) cover markets across Asia, Latin America, Africa, and the Middle East. While the mechanics are similar, prices, credibility standards, and regulatory recognition vary significantly across systems.

The emerging standard for credible corporate clean energy procurement emphasizes temporal and geographic matching. Rather than purchasing annual RECs from anywhere on the grid, leading companies are moving toward matching their electricity consumption with clean energy generation on the same grid, in the same hour. Google's 24/7 carbon-free energy initiative and the EnergyTag standard for hourly energy attribute certificates represent the frontier of this evolution.

Council Fire's Approach

Council Fire advises organizations on renewable energy procurement strategies that balance cost, credibility, and impact. We help clients navigate the spectrum from unbundled REC purchases to bundled PPAs and 24/7 matching, aligning procurement decisions with reporting requirements, stakeholder expectations, and genuine grid decarbonization impact. Our focus is on ensuring that renewable energy claims withstand increasing scrutiny from investors, regulators, and civil society.

Frequently Asked Questions

Are RECs the same as carbon offsets?

No. RECs represent the environmental attributes of renewable electricity generation; they are an accounting instrument for clean energy claims, particularly Scope 2 emissions reporting. Carbon offsets represent verified emissions reductions or removals from specific projects. A REC reduces your reported Scope 2 emissions by claiming clean electricity; an offset counterbalances residual emissions across any scope. The two instruments serve different functions within a corporate climate strategy.

Do RECs actually reduce emissions?

The emissions impact of REC purchases depends on additionality—whether the purchase drives new renewable capacity that would not otherwise have been built. Unbundled RECs from existing facilities in renewable-rich grids likely have minimal incremental impact. RECs from new facilities, especially those procured through long-term PPAs that helped finance construction, have stronger additionality claims. The market is increasingly differentiating between these scenarios, with higher prices and greater credibility attached to procurement that demonstrably drives new clean energy deployment.

What is the difference between location-based and market-based Scope 2 reporting?

The GHG Protocol's Scope 2 Guidance requires companies to report emissions using both methods. Location-based accounting uses the average grid emission factor for the region where electricity is consumed. Market-based accounting uses emission factors from contractual instruments—RECs, PPAs, or utility green tariffs—that the company has acquired. A company buying RECs covering all its consumption might report zero market-based Scope 2 emissions while its location-based figure reflects the actual grid mix. Both figures provide useful but different information.