Additionality and Carbon Offsets: Not All RECs Are Created Equal

By: Pivot Energy

January 4 2023

The path to net zero global emissions is extremely complex. Emissions-generating fossil fuels have long served as the backbone for our modern infrastructure, powering the everyday luxuries that we often take for granted – from agriculture and transportation to the satellites that power the internet. But now, to maintain the habitability of our planet's ecosystem, we must quickly replace power plants and update the electric grid to accommodate renewable energy sources, such as solar and wind. 

Needless to say, many pieces are at play here that can make the upcoming energy transition seem somewhat overwhelming. Utility companies, businesses, governments, etc., will all need to work together to systematically replace and optimize our nation’s core infrastructure. This will be a much easier task for some compared to others, so we will need to help each other along the way via different forms of reducing greenhouse gas emissions, including carbon offsets

In this blog, we will discuss the intricate (and highly debated) topic of additionality and how it is critical to establishing and regulating an effective carbon offset market. First, we’ll explain how additionality works by reviewing why it is so difficult to track the credibility of an offset, or rather how it can be easy to dispute its impact. Afterward, we will discuss the clean energy version of carbon offsets as an environmental commodity – namely renewable energy certificates (RECs) – and how they too can vary in terms of their environmental impact. Stick around, and you’ll know more about verifying that your company is doing the best possible job to participate in our collective fight for a healthy environment.

The Issue With Offsets

Carbon offsets have become a highly contentious topic, with many arguing that they are hurting the environment more than they are helping. It is tough to claim that a company’s investment in renewable energy unequivocally signifies that they are removing carbon from the atmosphere. There’s a lot to consider, such as where, how, and in what way the investment is made and whether the investment is merely a tactical distraction from emissions-as-usual business practices.

For example, let’s say you decide to protect an acre of trees by purchasing offsets that prevent any logging corporation from cutting them down. In theory, you just prevented roughly 48 pounds of CO2 from reaching our atmosphere. However, what if the logging company never intended to cut down those trees in the first place? Or what if they decide to hack down a different acre of trees instead? In that case, the negative impact on our atmosphere is the same; your “offset” failed or may have even served to worsen global carbon emissions.

Enter Additionality

This is where additionality comes into play. As defined by the Environmental Defense Fund and the World Wide Fund: "Additionality: In the context of crediting mechanisms, emission reductions or removals from a mitigation activity are additional if the mitigation activity would not have taken place in the absence of the added incentive created by the carbon credits [aka carbon offsets]."

Essentially, an offset with a high additionality score signifies that the only way the project would exist is because of the funding from your carbon offsets. To qualify as a genuine carbon offset, the reductions achieved by a project need to be "additional" to what would have happened if the project had not existed. In the real world, determining additionality is rarely straightforward. By definition, additionality relies on considering a counterfactual scenario: what would have occurred in the absence of my carbon offset?

Another added complication: Additionality isn’t a binary measurement – it’s a spectrum. A carbon offset can range from 0% additional (where the carbon offset did not lead to more carbon being removed or avoided) to 100% additional (where the climate impact would not have happened without the carbon offset).

The Renewable Energy Certificate

Renewable energy certificates (RECs, or SRECs for solar-specific certificates) are a way for governments to incentivize the growth of renewable energy sources to meet emissions reduction goals. Though a different type of environmental commodity, RECs are similar to carbon offsets in that they are created, bought, sold, and retired. However, RECs are specific to the electricity grid and represent ownership of a certain amount of carbon-free electricity generation, as opposed to being calculated in tonnes of carbon dioxide equivalent.

The term “additionality” in the context of renewable electricity is a bit of a misappropriation of the term as it is used in the world of carbon offsets. Nevertheless, it is a useful shorthand to express how the involvement of third parties like investor-owned utility compliance buyers and voluntary corporate buyers can directly induce the development of new renewable electricity generation. While RECs used to be considered very additional, their additionality has waned over time, as renewable energy usage has become more viable through economies of scale, project costs can be substantially offset by government incentives such as the investment tax credit (ITC), and more and more REC supply comes from resources that are already operational.

Since RECs range in terms of their additionality, some correspond with having a much greater impact on the environment than others. Similar to our previous example concerning the logging company and the acre of trees, you want to make sure that your RECs are supporting projects that need supplemental funding. With all of the new incentives and other tools available that have made renewable energy projects more cost-competitive, some projects no longer require financial aid to break ground. A REC for such a project would have an extremely low additionality score. However, there remain plenty of projects that are not intrinsically profitable (e.g., in markets with fewer incentives or areas that are less sunny). To justify their construction, these projects still require additional revenue support via a long-term REC purchase transaction or power purchase agreement (PPA).

This Topic is Complicated, Work With an Experienced Partner

Even for people that work in the clean energy industry, additionality and comparing the environmental impact of different environmental commodities such as RECs and carbon offsets can be tricky concepts to grasp. As we move forward, customers, investors, and shareholders are all going to expect that you’re being diligent in terms of researching carbon offsets that will have the best possible impact on the environment. Working with a trusted partner, such as Pivot Energy, is a surefire method of identifying and incorporating the best possible decarbonization strategy that can grow and adapt alongside your business. Reach out today!

 

 

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