Offsets and RECs: What's the Difference?

February 2018

Introduction

In encouraging organizations to choose green power for their electricity,

the Green Power Partnership frequently explains renewable energy

certificates (RECs)—what they are, why they are needed for green

power, and how they are used. Many Green Power Partners and

Partnership stakeholders were familiar, at least conceptually, with offsets

before learning about green power and RECs. It i

s common for RECs to

be compared with offsets, thought of as a type of offset, or described as

“offsetting” emissions. Offset

s and RECs, however, are fundamentally

different instruments.

Organizations working to lower their emissions footprint have a variety of

mitigation options at their disposal, including activities to reduce their

direct emissions, activities to reduce indirect emissions like energy

efficiency measures and switching to green power, and paying for

external reductions. Knowing the differences between instruments like

RECs and offsets is critical to deciding how both may be useful to your

ganization.

This document explains what these two widely used instruments are, the differences between them, why and

how an organization might use one or both, and common misconceptions.

To begin, this tables summarizes some of the basic differences between offsets and RECs.

A renewable energy certificate – REC

What is a REC?

(pronounced: rěk) is a tradeable,

market-based instrument that

represents the legal property rights to

the “renewable-ness”—or non-power

(i.e., environmental) attributes—of

renewable electricity generation.

A REC is created for every megawatt-

hour (MWh) of electricity generated

and delivered to the grid from a

renewable energy resource.

Electricity cannot be considered

renewable without a REC to

substantiate its renewable-ness.

Basic Differences Offsets RECs

Unit of Measure

Metric tons of CO

or CO

Equivalent

Megawatt hours (MWh)

Source

Projects that avoid or reduce greenhouse

gas (GHG emissions to the atmosphere

Renewable electricity generators

Purpose

Represent GHG emissions reductions;

provide support for emissions reduction

activities; and lower costs of GHG emissions

mitigation

Convey use of renewable electricity

generation; underlie renewable electricity

use claims; expand consumers’ electricity

service choices; and support renewable

electricity development

Corporate GHG Inventories

and Reporting

Reduce or “offset” an organization’s scope

1, 2 or 3 emissions, as a net adjustment

Can lower an organization’s gross market-

based scope 2 emissions from purchased

electricity

Consumer Environmental

Claims

Can claim to have reduced or avoided GHG

emissions outside their organization’s

operations

Can claim to use renewable electricity from

a low or zero emissions source

Offsets and RECs: What's the Difference?

Basic Differences Offsets RECs

Additionality Test

Requirements

Required. Each project is tested for

additionality to ensure that it is beyond

business as usual. Tests include

legal/regulatory, financial, barriers, common

practice and performance tests. The

combination of tests that is best suited to

demonstrate additionality depends on the

type of project.

Not required. Project additionality is not

required for a renewable energy usage

claim or to report use of zero-emissions

power.

Many organizations start managing their footprint by developing a GHG emissions inventory. Under the

WRI/WBCSD GHG Protocol

, an organization follows a standard set of accounting guidelines to measure

emissions and develop an emissions inventory that separately accounts for the emissions they are

responsible for from their operations, energy purchases and supply chain in three different ledgers, known as

scopes 1, 2, and 3.

Figure 1. Common Sources of Emissions by Scope

The scopes help distinguish emissions from sources that the organization directly owns or controls (direct

emissions) from emissions that are a consequence of the activities of the organization but occur at sources

owned or controlled by another organization (indirect emissions). This separate accounting is to ensure that

two or more organizations will not account for emissions in the same scope.

Through this framework,

organizations can assess their performance and determine what mitigation options to pursue.

http://www.ghgprotocol.org/

http://www.ghgprotocol.org/corporate-standard, page 25

Offsets and RECs: What's the Difference?

As mentioned above, those mitigation options can include the procurement of instruments, and the common

instruments in the U.S. are:

• Offsets – used to address direct and indirect GHG emissions by verifying global emissions

reductions at additional, external projects. Offsets (verified emissions reductions) are subtracted from

organizational emissions to determine net organizational emissions.

• RECs – used to address indirect GHG emissions associated with purchased electricity (scope 2

emissions) by verifying use of zero- or low-emissions renewable source of electricity. RECs (MWh of

renewable energy) are used in the calculations of gross, market-based scope 2 emissions based on

the emissions factor of the renewable generation conveyed with the REC.

What is an Offset?

An offset project is “a specific activity or set of activities intended to reduce GHG emissions, increase the

storage of carbon, or enhance GHG removals from the atmosphere.”

The project must be deemed

additional

; the resulting emissions reductions must be real, permanent, and verified; and credits (i.e, offsets)

issued for verified emissions reudctions must be enforceable. The offset may be used to address direct and

indirect emissions associated with an organization’s operations (e.g., emissions from a boiler used to heat

your organization’s office building). The reduction in GHG emissions from one place can be used to “offset”

the emissions taking place somewhere else. Offsets can be purchased by an organization to address its

scope 1, 2, and 3 emissions. Offsets can be used in addition to an organization taking actions within its own

operational boundary to lower emissions. Offsets are often used for meeting voluntary commitments to lower

GHG emissions where it is not feasible to lower an organization’s direct or indirect emissions.

Figure 2. Offsets

An organization’s emissions from scopes 1, 2, and 3 are balanced by purchasing offsets equal to the sum of the

organization’s emissions.

http://www.ghgprotocol.org/standards/project-protocol, page 11, see “GHG Project”

http://www.ghgprotocol.org/standards/project-protocol, page 15, see “2.14 Additionality"

http://www.wri.org/publication/bottom-line-offsets

Offsets and RECs: What's the Difference?

Why do Organizations Purchase Offsets?

For an organization with a voluntary commitment to reducing its emissions footprint, purchasing and retiring

(that is, not re-selling) offsets can be a useful component of an overall voluntary emissions reduction

strategy, alongside activities to lower the organization’s direct and indirect emissions have been realized.

What is a REC?

Renewable Energy Certificates (RECs) are the legal instruments used in renewable electricity markets to

account for renewable electricity and its attributes whether that renewable electricity is installed on the

organization’s facility or purchased from elsewhere. The owner of a REC has exclusive rights to the attributes

of one megawatt-hour (MWh) of renewable electricity and may make unique claims associated with

renewable electricity that generated the REC (e.g., using or being supplied with a MWh of renewable

electricity, reducing the emissions footprint associated with electricity use). Claims to the attributes of the

electricity from a REC can only be made by one party. The purchase or use of renewable energy, verified

with RECs, is a decision an organization makes to ensure its electricity is provided from renewable sources

that produce low- or zero-emissions, thereby reducing the organization’s market-based scope 2 emissions.

As the physical electricity we receive through the utility grid says nothing of its origin or how it was generated,

RECs play an essential role in accounting and assigning ownership to the attributes of renewable electricity

generation and use. RECs legally convey the attributes of renewable electricity generation, including the

emissions profile of that generation, to their owner and serve as the basis for a renewable electricity

consumption claim. As such, the REC owner has exclusive rights to characterize the quantity of their

purchased electricity associated with the RECs as zero-emissions electricity.

Figure 3. RECs

By purchasing RECs, an organization receives the rights to the environmental attributes of the renewable electricity and

may make unique claims (e.g., using X MWh of green power) associated with the renewable electricity that generated the

purchased RECs.

http://www.wri.org/sites/default/files/pdf/bottom_line_offsets.pdf

The GHG Protocol Scope 2 Guidance defines two methods for scope 2 accounting, the location-based method and the market-based

method. The market-based method considers contractual arrangements under which the organization procures power from specific

sources, such as renewable electricity.

Offsets and RECs: What's the Difference?

Why do Organizations Purchase RECs?

RECs can be a flexible tool to help achieve clean energy goals, lower scope 2 emissions associated with

purchased electricity, and support the renewable energy market. Though RECs are the essential accounting

instrument required for all renewable energy usage claims, regardless of how renewable energy is purchased

or consumed, RECs can also be purchased separately from electricity and independently matched with

electricity consumption. This can be an attractive option for organizations in regions where renewable energy

options, such as utility green pricing /marketing programs are not offered by local suppliers, where policy

support for direct engagement in renewable energy projects is lacking, or where these other options are too

expensive or not suited to the organizations size or needs. By purchasing RECs and electricity separately,

organizations do not need to alter existing power contracts to obtain green power. Additionally, RECs are not

limited by geographic boundaries or transmission constraints. For organizations with facilities in multiple

states or energy grids, a single, consolidated REC procurement can be part of an organization’s strategy to

efficiently meet overall clean energy goals.

RECs can be purchased from marketers or sometimes directly from renewable energy generators. Several

REC marketers/environmental attribute brokers are active in REC markets, offering another approach to

procurement that is increasingly being used by large purchasers. Brokers do not own the certificates but rely

on their knowledge of the market to connect buyers and sellers for a fee. Brokers also aggregate and

disaggregate supply into customized offerings that meet specific consumer needs. This includes breaking up

output from very large projects into smaller bundles as well as aggregating smaller projects offtakes into

larger consolidated bundles. They can help negotiate deals that take into account an organization’s unique

interests. For more information on purchasing RECs, see the Guide to Purchasing Green Power.

Are Offsets and RECs the Same?

No. While both offsets and RECs can help an organization lower its emissions footprint, they are different

instruments used for different purposes. Think of offsets and RECs as two tools in your sustainability tool box

– like a hammer and a saw. They are not interchangeable. Each tool is used in building a house, but each is

used to accomplish specific tasks. One is not more important or better than the other.

Using the term “offset” (even as a verb) when discussing your REC purchases can be confusing in the mind

of many listeners – confusing the action of contractually fuel-switching to low- or zero-emissions electricity

with having paid for a global emissions reduction. Rather than saying your purchase of RECs is offsetting

your emissions, it would be better to claim that your purchase of RECs is renewable electricity from a low- or

zero-emissions resource which reduces the emissions associated with your electricity use.

The major differences between these two instruments are:

• Unit of Measure: The unit of measure for an offset is typically one metric ton of CO2-equivalent

emissions. A REC is based on 1 MWh of renewable electricity.

• Purpose: Offsets represent emissions reductions, provide support for emissions reduction activities,

and may lower costs of GHG emission mitigation. RECs expand consumers’ electricity service

choices, convey environmental attributes and renewable electricity use claims, and support

renewable electricity development.

http://www.wri.org/sites/default/files/pdf/bottom_line_renewable_energy_certs.pdf

https://www.epa.gov/greenpower/guide-purchasing-green-power

Offsets and RECs: What's the Difference?

• Source: Offsets can come from all different kinds of projects that lower, remove or avoid emissions

while RECs are only generated from renewable electricity sources (i.e., solar, wind geothermal,

biomass, hydropower).

• Claims: A buyer of an offset can claim to have reduced or avoided direct GHG emissions outside

their organization’s operations. A buyer of a REC can claim to use 1 MWh of renewable electricity

from a low- or zero-emissions resource. Purchasers of RECs should avoid confusing statements

such as my purchase “offsets” emissions.

• Accounting Guidance: Offsets can be used to negate or “offset” an organization’s scope 1, 2 or 3

emissions. Offsets are a separate line item intended to define a “net” emissions figure when

documenting achievement of a target. RECs allow an organization to lower their market-based

scope 2 emissions from purchased electricity.

• Additionality: Offsets must represent real, permanent, verified, and enforceable reductions. And

most importantly, they must come from activities or project that are additional to what would occur

under a business-as-usual scenario. This “additionality” requirement for offset projects is central to

ensuring that the ton of emissions reductions you use as an offset is fully equivalent to a ton of

emissions reductions from your operations. There is no requirement to demonstrate additionality

when applying RECs to an organization’s market-based scope 2 emissions.

Summary

Both offsets and RECs represent the environmental benefits of certain actions that can help mitigate GHG

emissions. Offsets represent a metric ton of emissions avoided or reduced; RECs represent attributes of 1

MWh renewable electricity generation. Offsets and RECs, however, are fundamentally different instruments

with different impacts, representing different criteria for qualification and crediting in the context of inventory

or emissions footprint.

http://ghgprotocol.org/scope_2_guidance, page 90. The Project Protocol treatment for additionality does not require a demonstration

of additionality for RECs. For more on regulatory additionality/surplus, page 2: https://resource-solutions.org/wp-

content/uploads/2016/03/RECs-and-Additionality.pdf.

Green Power Partnership

U.S. Environmental Protection Agency

1200 Pennsylvania Ave., NW

Mail Code 6202A

Washington, DC 20460