Can the private sector lead on climate while Washington dithers?
Twenty-eight US states had heat advisories last week, temperatures topped 115 degrees in Texas and Oklahoma, and record heat waves in Europe dominated the news cycle. Meanwhile, the GOP-SCOTUS-Manchin axis of climate inaction has largely kept US federal climate policy on ice. Manchin’s about face last week makes it seem likely that the Biden administration will indeed get a climate spending bill in the end, but the bitter divide and halting progress in Washington leaves plenty of room for doubt as to whether federal policy is ready to match the scale of the climate crisis.
Fortunately, Washington isn’t the only locus of action here in the US. Bolder ambitions can still be found among not just vanguard cities and states like California, but also in a growing voluntary movement composed of diverse actors in the private sector.
According to Net Zero Tracker, more than a third of the companies listed in the Forbes Global 2000 now have a “net zero pledge.” The 300+ companies that are part of RE100, an organization aligning corporate action on renewable electricity, together procured 150 TWh of renewable electricity last year, which is equivalent to the size of the retail electricity market in New York state.
Corporate pledges clearly have real momentum. The real question is whether they are doing any good. Are they a sign of progress, or is this just the mainstreaming of greenwashing?
RECs: A Modern Form of Indulgences
A company that wants to reduce its carbon footprint might consider how to change its core business operations. This can be tough, especially if they don’t already have a system in place for measuring their own emissions.
A path of less resistance is to just keep doing what you are doing, but buy offsets (carbon reductions) to counteract your emissions. Carbon offsets come in several flavors, but to offset electricity emissions, a common approach is to buy Renewable Energy Credits (RECs). Each time a renewable power plant generates and sells one MWh of energy, it also generates one REC that can be sold separately from the energy. Infrastructure for establishing, verifying and trading RECs already exists to serve Renewable Portfolio Standards (RPS) in many jurisdictions, so interested buyers have a ready market.
If a company wants to be “100% renewable,” it can tally up its annual electricity consumption from the grid, estimate the fraction that came from fossil generation based on their local grid mix, and then buy enough RECs to offset the dirty MWh they consumed. As such, RECs are to twenty-first century corporations what indulgences were to medieval sinners–an option to keep up your preferred lifestyle while wiping away the consequences with a quick financial transaction.
Compared to other ways to decarbonize a business, buying RECs is not just simple, it is also cheap. REC prices were long below $1 per MWh, meaning that they added minimal cost to energy bills.
(Several states have RPS requirements that specify a minimum amount of generation that must occur in that state. REC prices for these narrower markets can be much higher, ranging from $10 to $30 in a few states, with even higher prices for solar-specific RECs in some cases. Companies typically buy so-called national RECs that are produced outside of these specific locations and trade at much lower prices.)
RECs Can Lower a Company’s Footprint, But Do They Help Save the Planet?
Corporate pledges are measured and evaluated based on carbon accounting. When a company reduces its carbon footprint, it may or may not have any effect on global emissions because often all that happens is a reshuffling of responsibilities. Reducing one’s own footprint and reducing global emissions are simply different things.
A company’s procurement of renewable power only reduces emissions if it causes an increase in overall renewable generation (this is the so-called additionality problem). Such an effect is implausible for most REC purchases. Solar and wind farms built years ago, for example, still generate a REC every time they produce and sell a MWh. Buying up the RECs from those facilities typically won’t change how much they generate, and thus has no impact on emissions. Such REC purchases just reshuffle paper claims about who “owns” a bit of electricity that was going to be generated regardless, making it a bit like buying an NFT for some image that we can all still share regardless of who owns it.
Voluntary green procurement can have an effect on emissions if demand is big enough to drive market behavior, for example by increasing overall REC demand and thus raising REC prices so much that it spurs additional development. The good news is that voluntary green power markets are now large enough to plausibly have such effects. NREL estimates that voluntary green power accounted for 192 TWh of power in the US in 2020, equivalent to 5% of all retail electricity. This is roughly half the size of the total compliance market for renewables across the nation’s patchwork of RPSs. Last fall, prices spiked to over $6 per MWh, signaling a potentially tighter market.
The Growth of Voluntary Green Power Procurement in the US
Even so, how much difference REC purchases might make is hard to assess with precision, and unless prices continue to rise, a healthy degree of skepticism seems appropriate.
Because of these problems with RECs, many have long pushed for voluntary procurement that goes beyond just scooping up whatever loose RECs a buyer happens to find in the market. Unfortunately, these alternative approaches don’t fully solve the core problem.
The second generation approach to clean power procurement is for companies to sign power purchase agreements (PPAs) with new renewable generation sources, usually for an extended number of years. Buyers pay for power and retire the associated RECs. PPAs, driven by corporate pledges, are a fast growing share of the voluntary market, as shown below in another helpful chart from NREL.
Different Types of Voluntary Green Power As a Share of the Market
Some, led by Google, have gone beyond PPAs and advocated something called 24/7 clean power. In a 24/7 scheme, a buyer matches their load hour by hour within a local power market to clean generation. Advocates argue that this is necessary to substantiate a claim of running on 100% renewable energy. After all, if you simply have enough solar PPAs to offset your annual load, it still means that you are consuming fossil fuels at night.
Unfortunately, the emissions reductions implied by green power PPAs or even 24/7 clean power remains murky. If a company signs a PPA with a new plant, it doesn’t necessarily imply an emissions reduction because that plant might have found another buyer or might have been built even if the only option was to sell into the spot market, and most 24/7 schemes rely heavily on existing sources. As a result, in many, perhaps most, instances, even advanced green power procurement leaves a big gap between corporate claims and emissions reductions.
Voluntary Green Power: What is it Good For?
Despite my tone so far, I’m actually pretty excited about voluntary green electricity, so long as everyone involved understands the difference between corporate carbon accounting and actual mitigation. Companies that want to maximize their impact on emissions might pursue a different approach entirely, but I suspect most will continue to focus on their footprint with the goal of meeting pledges.
Companies following the standard path of green electricity procurement may not be maximizing their emissions reduction per dollar spent, but they are likely to create three key benefits.
First, given their size, growth and signs of upward pressure on REC prices, it is highly likely that corporate clean electricity procurement is having some impact on renewable deployment, though how much is hard to say. A robust demand for PPAs is surely a good thing for wind and solar developers, and 24/7 buyers are sure to demand clean power at times and locations where it is currently absent.
Second, the push for 24/7 is a valuable experiment in thinking about what a truly renewable grid will look like, and how we might move towards it. Google and other proponents of 24/7 are explicit about this as a benefit–they want to start solving the implementation problems associated with a fully clean grid, and I for one am happy to have major companies out front on an issue that requires this type of innovation.
Third, and perhaps most important, is politics. Many companies have jumped onto the 100% renewable electricity bandwagon because it was easy and everyone else was doing it. But having made that commitment, they will now want clean power to be cheap and plentiful, which brings us all the way back to Washington. Voluntary clean power markets are never going to solve the climate crisis, but if they align an increasing share of corporate interests on the side of grid decarbonization, they could well have their biggest impact by pushing politicians and regulators to get green faster.
Keep up with Energy Institute blogs, research, and events on Twitter @energyathaas.
Suggested citation: Sallee, James. “Voluntary Green Power to the Rescue?” Energy Institute Blog, UC Berkeley, August 1, 2022, https://energyathaas.wordpress.com/2022/08/01/voluntary-green-power-to-the-rescue/