Understanding Carbon Offsets

Energy Efficiency Certificates

What is an Energy Efficiency Certificate?

Energy Efficiency Certificates (EECs), or “white tags,” are a tradable environmental commodity that represents an MWh of energy consumption avoided through an energy efficiency activity. Although far less common than RPS compliance RECs, they also serve a compliance function in select US-states and other countries where there are government-mandated quotas for energy savings. These mandates are placed on electricity distribution utilities.

In theory, EECs are analogous with carbon credits but are denoted in units of avoided energy consumption rather than avoided emissions. To be counted as an avoided emission an EEC project would need to satisfy the same quality criteria (e.g., additionality and accurate quantification) and assurance processes as a carbon crediting project.

EECs are denoted in terms of MWh of energy savings. Therefore, they would have to be converted to metric tons of avoided GHG emissions by analyzing the marginal impact of the underlying energy efficiency project on electricity generation emissions.

Given the immaturity of the market for EECs and the lack of standardization of methods for these certificates, there is limited information about this option.

Location

There is a very small compliance market for EECs. Connecticut, Pennsylvania, and Nevada have allowed utilities to use and trade EECs for compliance with their energy efficiency obligations. Italy operates a national program.

Cost and Management Burden

Cost per metric ton of CO2e: N/A

Unlike the carbon credit market, there are no independent institutional mechanisms in place for EEC quality assurance. It would create a significant management burden for the purchaser.

Environmental Integrity

There are several significant challenges with EECs. The existing quantification methodologies for EECs account for historical energy use and weather effects but do not consider additionality as fully as a crediting project. Therefore, EECs can be issued to projects that are profitable and likely to be implemented in the absence of the EEC incentive (i.e., they likely lack environmental integrity).

An organization could more credibly purchase carbon credits from energy efficiency projects implemented following carbon crediting methodologies.

Social and Environmental Co-Benefits

There is minimal risk of harm.

Potential Risks

Given the immature market and lack of standardized quality assurance criteria, EECs present environmental integrity risks.

Conclusions

Theoretically, the EEC option is the same as the carbon credit option, but this option lacks a broad technical community and standardized quality assurance processes like those that support carbon credit issuance. The voluntary carbon credit market already includes numerous types of energy efficiency project types that embed credible methods for quantifying tonnes of avoided emission and address additionality. EECs are a far inferior and higher risk option compared to carbon credits.