What are RECs?
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 renewable energy produced. RECs can be sold to corporate consumers on the open market.
Once a corporate consumer 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 physically consuming renewable energy sources.
In Malaysia, RECs are certified by either one of the internationally recognized registries, namely Interstate Renewable Energy Council (I-REC) and Tradable Instruments for Global Renewables (TIGR).
What are Carbon Credits?
One carbon credit represents one metric ton of carbon dioxide equivalent avoided or offset either through technology-based projects and nature-based projects.
- Technology-based credits are generated through technological interventions that reduce or capture greenhouse gas emissions, such as methane capture projects and energy efficiency projects.
- Nature-based credits are derived from projects that leverage natural processes to reduce greenhouse gas emissions, i.e. reforestation projects and marine protection projects.
There are two types of Carbon Credit Markets, namely the Compliance Market and the Voluntary Carbon Market.
- The Compliance Markets are regulated by mandatory national, regional, or international carbon reduction regimes. Examples include the European Union Emissions Trading Scheme (EU ETS) and the California Cap-and-Trade Program.
- The Voluntary Carbon Markets enable companies, governments, and individuals to purchase carbon offsets on a voluntary basis, often to meet corporate social responsibility (CSR) goals or to demonstrate climate leadership.
Differences between RECs and Carbon Credits
Both commodities are means to a greener world. However, they differ in fundamental ways.
- RECs represent 1 MW of electricity generated from a renewable energy source, while carbon credits represent one metric ton of carbon dioxide equivalent being offset or avoided.
- For RECs, there are multiple registries across different regions, i.e. I-REC and TIGR. On the other hand, the registries for Carbon Credits include Verified Carbon Standard / Verra (VCS) and Gold Standard.
- RECs are mainly acquired to reduce Scope 2 emissions, while carbon credits can offset Scope 1, 2, 3 emissions and the residual emissions after the corporation has implemented all feasible internal reduction measures to reduce its carbon footprint.
Conclusion
In conclusion, both RECs and carbon credits contribute to the goal of a greener world, they serve distinct purposes and operate within different frameworks. RECs focus on promoting renewable energy generation by allowing organisations to claim the environmental benefits of green energy, even if they are not directly using it. On the other hand, carbon credits aim to reduce of offset greenhouse gas emissions through various projects, either by capturing emissions or preventing them altogether.
The choice between RECs and carbon credits depends on the specific sustainability goals and regulatory requirement of the organisation.