Currently, most guidance and protocols for corporate GHG inventories permit the use of RECs and GOs in the calculation of an organization’s carbon footprints. This attributional accounting practice is typically, and improperly, based on a consequential accounting argument—that eventually, if demand for these instruments grows sufficiently large, a higher price will cause an increase in renewable energy generation and therefore prevent fossil fuel-fired generation. Not only is the argument logically flawed (it is not presented as a credible method of attributing grid-wide emissions), but the factual justification has been disproved[1] (i.e., voluntary certificates do not, and under feasible economic conditions, will not, influence renewable energy investment or generation) (see If more companies purchase RECs and GOs, then won’t this increased demand eventually cause more renewable energy investment and generation?).[2]
In economic terms, RECs and GOs are intangible co-products of electricity production that are costless themselves to produce (i.e., they are simply records in a database). Existing renewable energy generation is vastly higher than the voluntary demand for RECs and GOs, so no scarcity is created by the voluntary purchase of them, which is reflected in the consistently low price. The fact that their price is not zero simply demonstrates that there is a cost of marketing and transacting them.
“Energy products that are advertised as having climate benefits but do not actually function to reduce greenhouse gas missions mislead customers, foster customer complacency with the continued combustion of fossil fuels, and detract from urgently needed efforts to enact real solutions.” (Sierra Club, 2019)
For a detailed discussion of the origins of this collective mistake in the environmental community, see:
Brander, M., Gillenwater, M., and Ascui, F. (2018). Creative accounting: A critical perspective on the market-based method for reporting purchased electricity (scope 2) emissions. Energy Policy.
[1] For additional literature on the topic, visit: https://www.bccas.business-school.ed.ac.uk/impact-and-collaboration/renewable-energy-purchasing/
[2] Open letter rejecting the use of contractual emission factors in reporting GHG Protocol Scope 2 emissions (2015). Available here: https://scope2openletter.wordpress.com