How a Good Idea Is Getting in the Way of Corporate Sustainability
Have you ever walked into a store and spotted a sign stating that the company is “100% powered by renewable energy”? Sustainability and environmental stewardship are increasingly imperative in the corporate world, and many businesses are scrambling to “green” their image. But how do these companies actually go about achieving 100% renewable status? Some have on- or off-site renewable energy generation, as exemplified by Apple’s data center in Maiden, North Carolina. Others make investments, purchase renewable energy directly, or buy carbon offsets. But one of the most popular options is to buy renewable energy credits, or RECs. For example, Intel buys over 3.1 billion kWh of RECs each year, which cover almost 90% of its domestic electricity use. The EPA simultaneously lists Intel at the top of its 100% Green Power Users list and as the largest REC purchaser in the U.S.
RECs provide a way for companies to support renewable energy without paying for the transportation of actual electricity. They act as currency in the renewable energy market: utilities and energy companies sell them to consumers and businesses. One REC usually represents one megawatt-hour (MWh) of energy, enough to power 350 houses for one hour. Renewable energy has two parts: (1) the physical electricity generated and (2) the added social and environmental benefits from being renewable. Electricity, whether generated by a wind farm, a solar array, or a coal power plant, is made up of electrons. When you turn on a light or watch TV, it is impossible to tell where those electrons came from. However, purchasing a REC is a way to buy those electrons directly. If a company values the social and environmental benefits of renewable energy, they can pay for those benefits without pursuing on-site renewable energy generation.
RECs are attractive to businesses because they are cheap, flexible, and come with short-term contracts. They allow businesses to support renewable energy, even if the company’s local energy mix doesn’t include many renewable resources. For instance, a company in Louisiana (whose energy portfolio is less than 2% renewable) can purchase RECs from a wind farm in Iowa (whose energy production is 91% renewable). RECs are largely successful because of their very low prices, which are usually 25% or less of the per kWh price of the physical renewable energy.
RECs have played an important role in the past two decades in spurring environmental involvement in the corporate sector. However, RECs have received criticism by serving as a way for companies to advertise themselves as sustainable without making a more meaningful commitment to the greening of the economy. If every REC purchase created new renewable energy capacity, then they would essentially act like carbon offsets – a company could buy RECs for the same amount as their energy that comes from fossil fuels. But in the vast majority of cases, REC revenue goes towards projects that would have been built anyway, or towards operational and maintenance costs. This is because the revenue that renewable energy producers receive from selling RECs is usually too low or too volatile to finance the addition of new renewable capacity. Because of this, RECs simply allow a company to claim the social credit for using renewable energy, but don’t actually add renewable energy to the electrical grid.
However, there are other ways for companies to participate in the “green” energy economy. If a company is seeking to reduce their emissions, but doesn’t have the capacity for on-site renewable energy generation, a good option is something called a power purchase agreement (PPA). PPAs allow customers to pay for most of the costs to get a new renewable energy project up and running, and adds real renewable capacity. For instance, Google just announced that it will reach 100% renewable in 2017, which it will achieve through physical generation and PPAs.
As public awareness of the risks and consequences of climate change increases, it is increasingly important for the corporate sector to take bold steps towards sustainability. Businesses and corporations are some of the biggest energy consumers in our economy, and the movement of these companies towards more sustainable energy practices can have a huge impact. RECs were a great way to initiate widespread corporate support of renewable energy projects over a decade ago, but with many companies using them to claim unrealistic “green” efforts, we must critically evaluate these claims and the influence of RECs in the corporate sector. Transparency in corporate sustainability is not only important to give consumers honest choices, but also to drive investment in real change.