It’s no secret that corporate purchasing—from tech companies to financial institutions—is driving the global growth of renewable energy markets. Bloomberg New Energy Finance reports that 43 corporations signed 5.4GW of renewable energy contracts across 10 countries in 2017 (more than a 25% increase in capacity compared to 2016). While there are instances where renewable power purchase agreements make sense in strictly economic terms, many companies are pursuing these contracts as part of their environmental and social governance initiatives, and they want to make robust claims about the additional impact their purchases have on mitigating climate change beyond a business-as-usual scenario. Similarly, residential ratepayers who choose to buy green power typically want their impact to be surplus to regulation. To preserve these impacts, it’s imperative that both regulators and purchasers understand how voluntary claims are affected by the policy environment in which these purchases occur.
Generally, there are two principal types of environmental regulation that interact with the voluntary market for renewable energy: policies that mandate the delivery of renewable energy by retail electricity suppliers and those that govern the greenhouse gas emissions associated with electricity generation. Both types can—and should be—designed to be separate yet complimentary to voluntary renewable energy markets. For policies such as renewable portfolio standards that mandate the delivery of a certain percentage of clean energy, this primarily means implementing safeguards to ensure that renewable energy certificates (RECs) are not used for compliance while also being sold to residential or commercial customers seeking to procure additional renewable energy—an issue commonly referred to as double counting. The relationship between carbon regulation and voluntary renewable energy purchases is slightly more nuanced.
Policies such as cap-and-trade programs set sector-wide limits on greenhouse gas emissions, and regulated entities must comply through the retirement of a limited quantity of emissions allowances. When individuals or corporations choose to purchase additional renewable energy, for example by enrolling in a green tariff program, they typically expect their purchase to help avoid greenhouse gas emissions beyond what would occur without their voluntary action. However, if these purchases are not properly accounted for on a regulatory level, then the overall “cap” on emissions will remain the same. Essentially, this means that voluntary renewable energy purchases allow regulated entities to either retire fewer allowances, in which case ratepayers are subsidizing compliance, or they can increase their overall emissions profile with no financial penalty. Unlike a double counting scenario, these voluntary purchasers still have an immutable claim to be using renewable energy; however, they may have lost the grid emissions benefits typically associated with renewable energy use. These implications are likely to affect investment and purchasing decisions, potentially hindering demand in the voluntary market.
It’s important that both corporate purchasers and regulators are aware of these potential issues and understand how to design policies so as to both preclude inaccurate claims and ensure that voluntary action is driving climate change mitigation in tandem with regulation. Many U.S. states with cap-and-trade programs, including California and many covered under the Regional Greenhouse Gas Initiative (RGGI), have implemented voluntary renewable energy “set-aside” mechanisms that reduce the amount of available emissions allowances to account for voluntary purchases. Proper use of these allowance set-asides allows voluntary renewable energy markets to support emissions reductions beyond what would otherwise occur under existing regulation, and it gives voluntary purchasers a credible claim to the avoided emissions value of the green power they purchase. Corporate and Voluntary Renewable Energy in State Greenhouse Gas Policy: An Air Regulator’s Guide dives deeper into these issues and provides guidance on how to best navigate the interactions between carbon regulation and renewable energy markets. Center for Resource Solutions will also host webinars on this topic on March 21st and April 5th.
With the U.S. federal government backing away from the Paris Agreement and Clean Power Plan, state and municipal governments and forward-thinking corporations will continue to drive the American green economy. Ensuring that regulations and voluntary action are complementary and incremental will increase both the environmental benefits of these initiatives and provide a more economically efficient allocation of resources. As more states pursue carbon regulation, these interactions will become increasingly important. At the same time, as U.S.-based corporations expand their renewable energy procurement globally, they should strive to be fully aware of how their purchases and claims are affected by different international regulatory schemes. Where there are insufficient provisions to protect the impact of voluntary renewable energy procurement, market participants must actively engage with regulators to push for better policies.
Noah Bucon is Senior Analyst, Policy and Certification Programs at Center for Resource Solutions.