RECs vs Carbon Credits vs Carbon Offsets

RECs vs Carbon Credits vs Carbon Offsets

Facts about the differences between RECs, carbon credits and carbon offsets:

• RECs are measured in MWh and carbon credits in metric tons of carbon dioxide.
• RECs are certified by the GCC (Green Certificate Company).
• RECs are mainly used to reduce scope 2 emissions while carbon credits can be used to address scope 1, 2, and 3 emissions.
• Carbon offsets and carbon offset credits are different ideas, carbon offsets are projects that remove greenhouse gases from the atmosphere while carbon offset credits are tradable instruments that can offset an organisation’s emissions.
• There are two types of carbon credits, CERs (Certified Emissions Reductions) and VERs (Voluntary Emissions Reductions).

Differences between RECs, Carbon Credits and Carbon Offsets

 All three of these are means to a greener world. However, they differ in fundamental ways.

RECs, or renewable energy certificates, are market-based instruments that are created whenever renewable energy is generated from a generator. 1 REC is created for every MWh of energy produced. RECs can be sold to firms and consumers on the open market. Once a consumer or firm owns the REC, they can then claim to be powering their facility with the corresponding amount of renewable energy that the RECs represent, even if they aren’t actually using renewable energy sources. Making the claim will retire the REC and it cannot be sold further. In Malaysia, the GCC (Green Certificate Company) certifies RECs.

On the other hand, carbon credits are permits which allow organisations to emit a certain amount of carbon emissions. One credit enables a firm to emit one metric tonne of carbon dioxide. Carbon credits can also be traded on the international market, as firms who have no use for them can sell them to other firms who may deem it more economical than if they were to implement green technologies in the short term. Credits are reduced over time, meaning that firms will have to innovate. Credits that firms buy to meet regulatory targets are called certified emissions reduction credits or CER credits. The other type of credit is voluntary emissions reductions or VER credits, which involve a firm’s voluntary desire to compensate for emissions or remove greenhouse gases from the atmosphere. Unlike RECs which primarily address scope 2 emissions, carbon credits can be used to address scope 1, 2, or 3 emissions. Carbon credits are registered through the International Carbon Registry.

A carbon offset is a different concept altogether; it is a broad term describing the elimination of greenhouse gases to make up for emissions created elsewhere. For example, firms could invest in renewable energy projects such as wind farms, solar farms or hydroelectric dams. To ensure environmental integrity, there are a few criteria for the offset projects: they need to be real, permanent, additional, verifiable and enforceable.

Carbon offset credits, however, are credits that organisations can buy to reduce their carbon footprint. A carbon offset credit is represented by a reduction in 1 metric tonne of carbon dioxide. There are two types of offset credits: compliance and voluntary offset credits. Compliance offset credits are used when firms need to adhere to the legally binding caps put in place. Voluntary offsets credits occur when entities strive to meet carbon reduction goals on their own initiative. Carbon offset credits must be retired after being used in a claim.

The fundamental difference is that RECs are used to prove a firm is using renewable energy while carbon credits are used to incentivise firms to lower their emissions. Carbon offsets are when a firm initiates or invests in green projects, while carbon offset credits are tradable credits that allow for a firm to make up for its emissions. Whichever medium(s) businesses adopt, they will be part of the solution against climate change.