Addressing the Limitations of Renewable Energy Certificates with the Science-Based Targets Initiative
Author: Vanessa Wang, Elaine Xie, Mingxuan Tan, Doris Li
Introduction
The transition to a sustainable future hinges on the world's ability to stabilize global warming. Over recent years, the term 'net zero' has emerged as a pivotal goal in this effort. It denotes the balance between the amount of greenhouse gas emissions produced and the amount removed from the atmosphere, with the ultimate ambition of halting climate change. Achieving this requires reducing emissions significantly and compensating for any remaining emissions through measures such as carbon capture by oceans and forests. The urgency of this is underlined by the Paris Agreement, which aims to limit global warming to 1.5°C above pre-industrial levels. Achieving this requires a 45% reduction in emissions by 2030 and attaining net zero by 2050.
Understanding Renewable Energy Certificates (RECs)
A renewable energy certificate, or REC, is a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation. RECs are issued when one megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable energy resource.
RECs include several data attributes, including certificate data, certificate type, tracking system ID, renewable fuel type, eligibility for certification or renewable portfolio standard (RPS), emissions rate of the renewable resource, and so on.
Source: https://asiacarbonxchange.org/2023/03/13/what-are-renewable-energy-certificates-with-faqs-2/
How does RECs Work?
RECs serve as certificates that monitor renewable energy contributions to an electrical grid, commonly originating from sources like solar or wind energy designated for certain locations. Once this energy is supplied, the provider earns a credit that can be traded on various platforms. While each REC represents one megawatt-hour, their market value fluctuates based on demand and the degree to which electricity providers fulfill their green energy targets.
Furthermore, not only energy firms, but also market speculators can trade RECs. These individuals, while assessing diverse market scenarios and forecasts, might acquire RECs anticipating a future surge in their worth, aiming for potential profits.
Does purchasing RECs equate to a sustainable approach?
Purchasing RECs is one of the avenues businesses and individuals take to support green energy and demonstrate their commitment to sustainability. However, equating the purchase of RECs directly to a sustainable approach requires a nuanced understanding.
Strengths of Renewable Energy Certificates (RECs)
Pro #1: Lowering Personal Carbon Emissions
Utilizing RECs means tapping into energy from renewable sources, which inherently possess a smaller carbon footprint than traditional fossil fuels. This shift results in a corresponding reduction in carbon emissions.
Pro #2: Strengthening the Renewable Energy Sector
By supporting RECs, companies directly bolster the renewable energy market, helping diminish the dependency on and demand for fossil fuels.
Pro #3: Cost-Effectiveness
Compared to alternative carbon-reducing solutions, RECs present a cost-effective avenue. This affordability aids in making sustainable choices accessible to more businesses and individuals.
Pro #4: Fostering Energy Decentralization
RECs encourage a decentralized approach to energy provision. By dispersing energy sources, there's a reduced strain during peak consumption times and a diminished risk of power outages.
Pro #5: Hassle-Free Carbon Emission Reduction
Opting for RECs offers a streamlined method for reducing carbon emissions. The system's beauty lies in its simplicity: purchasers benefit from supporting renewable energy without the need for constructing or maintaining renewable energy infrastructure.
Pro #6: Flexibility in Meeting Sustainability Goals
RECs provide companies and individuals with the flexibility to meet their sustainability objectives, even if they don't have the means to produce renewable energy directly. It's a tangible step towards a greener future
Limitations of Renewable Energy Certificates (RECs)
Challenge #1: The Question of Additionality
There's a criticism surrounding RECs about their 'additionality'. Specifically, many of the projects that receive revenue through RECs would likely have been undertaken even without this financial incentive. This calls into question the true impact RECs have on spurring new renewable energy initiatives.
Challenge #2: No Assurance of Carbon Reduction
While RECs support renewable energy, they don't directly curtail the usage or production of energy from fossil fuels. Hence, purchasing RECs doesn't necessarily equate to a guaranteed reduction in carbon emissions in the immediate term.
Challenge #3: An Oversaturated Market Landscape
The burgeoning success of the renewable energy sector and low REC prices have led to a glut in the market. While this is a testament to the industry's success, it does raise concerns about the diminishing value and impact of each REC.
Challenge #4: Intermittency of Renewable Energy Sources
Because RECs derive from renewable energy sources, they inherit some of the challenges associated with these sources. Particularly, there are times when renewable sources like solar and wind don't produce energy consistently, leading to potential supply gaps.
Embracing a Deeper Commitment: The Science-Based Targets Initiative
While RECs are a commendable step towards greener horizons, they are but one facet of a multi-dimensional approach to sustainability. The Science-Based Targets Initiative (SBTi) presents a holistic strategy, ensuring businesses align their goals with the pressing demands of climate change.
The SBTi is not just an initiative, but a fervent dedication to providing businesses the guidance to sync their objectives with up-to-date climate science. It sets the gold standard in emissions reduction and net-zero aspirations, aligned with current climate data. Besides endorsing best practices, the SBTi offers robust technical support and resources for businesses. A consortium of experts stands ready to independently verify and validate set targets.
Through science-based targets (SBTs), companies and financial entities grasp the urgency and scale of decarbonization needed to mitigate severe climate repercussions. SBTs are a way for companies to define emissions reduction targets. Unlike traditional “potential-based targets”, SBTs follow a “top-down” approach: they focus on the quantity of emissions that needs to be reduced in order to meet the targets set out in the Paris Climate Agreement, limiting global warming to 1.5°C. In addition, the Net-Zero Standard, launched in October 2021, gives companies a science-based framework for defining ambitious and effective climate targets with a long-term goal of achieving net-zero emissions.
How SBTi Enhances Renewable Energy Accountability
While RECs have their place in the sustainability landscape, the SBTi provides a more nuanced and accountable metric for assessing environmental efforts. Here's how:
Science-Driven: Targets are rooted in current climate science, ensuring relevance and urgency.
Industry Specificity: Recognizing unique challenges across sectors, the SBTi offers tailored guidance.
Transparency: With mandatory public disclosures and independent verifications, the initiative ensures credibility.
Holistic View of Emissions: It considers all emission scopes, providing a comprehensive view of a company's carbon footprint.
Net-Zero Alignment: Encourages comprehensive strategies beyond just reduction, including carbon removal and offset.
Collaboration: By fostering a multi-stakeholder approach, the SBTi ensures diverse perspectives shape its metrics.
How can companies set a science-based target?
The role of the private sector is pivotal in mitigating GHG emissions. Integrating science-based targets into corporate sustainability practices is imperative. Here's a concise five-step roadmap to setting a science-based target:
Commit: submit a letter establishing your intent to set a science-based target
Develop: work on an emissions reduction target in line with the SBTi’s criteria
Submit: present your target to the SBTi for official validation
Communicate: announce your target and inform your stakeholders
Disclose: report company-wide emissions and track target progress annually
Source: https://en.carbonneutralplus.com/what-are-science-based-targets-and-what-are-their-benefits/
Limitations of the Science-Based Targets Initiative (SBTi)
Before diving into the limitations of the SBTi, it is essential to comprehend the intricacies of Scope 3 emissions. They represent a company's indirect emissions that occur across its value chain, excluding direct operations (Scope 1) and purchased energy (Scope 2). These can range from upstream activities, such as the extraction and production of purchased goods, to downstream ones, including the end-of-life treatment of products sold.
Source:https://www.myclimate.org/en/information/faq/faq-detail/what-are-science-based-targets-sbt/
The SBTi's ambitious goals undoubtedly guide corporations towards a sustainable path.
However, it's not without its set of challenges:
Complexity of Scope 3 Reporting: Scope 3 encompasses a vast range of activities. As a result, accurately quantifying these emissions can be daunting. Tracking every emission source, from raw material extraction to the end-of-life of products, demands intricate data systems.
High Costs for Companies: Comprehensive Scope 3 reporting often requires substantial investments in data collection, verification, and reporting. For smaller businesses with limited resources, this can be a significant financial burden.
Inconsistency in Reporting: Due to the vastness of Scope 3 emissions and the lack of a standardized tracking methodology, inconsistencies can arise in how companies report their data. This can hinder the comparability of targets and progress across different organizations.
Dependency on External Entities: A company's Scope 3 emissions largely depend on its suppliers and partners. Therefore, influencing emission reductions across the supply chain may be out of a firm's direct control.
The Essential Role of Scope 3 Reporting in Regulating the Carbon Market
Despite its challenges, the inclusion of Scope 3 emissions in SBTi targets is indispensable:
Holistic Emission Overview: Scope 3 emissions often form a significant portion of a company's total carbon footprint. Ignoring them would offer a skewed perception of a firm's environmental impact.
Promotion of Supply Chain Responsibility: By compelling companies to address Scope 3 emissions, the SBTi indirectly pushes entire supply chains towards sustainability. This ripple effect can lead to industry-wide shifts in environmental practices.
Standardization and Accountability: With more companies aligning with the SBTi, there's potential for more consistent and standardized reporting methodologies to emerge, promoting transparency and comparability.
Market Regulation: Comprehensive reporting can prevent companies from 'carbon offloading', where they might move carbon-intensive processes to parts of the supply chain not traditionally accounted for, thereby seeming 'greener' than they truly are.
While the SBTi's emphasis on Scope 3 emissions introduces complexities and financial implications for companies, its rigorous approach ensures that corporate sustainability efforts aren't superficial. The initiative underscores the significance of holistic emission accounting in genuinely addressing climate change. As the global economy moves forward, the blend of responsibility, transparency, and accountability that the SBTi promotes will be crucial in steering the corporate world towards a genuinely sustainable trajectory.
Conclusion
The pursuit of a sustainable future is a multifaceted endeavor, with an emphasis on achieving net-zero emissions as its cornerstone. While Renewable Energy Certificates represent a commendable stride in the green energy domain, they are not without limitations. These instruments, though instrumental in catalyzing the renewable energy market, have raised concerns regarding their true efficacy in prompting novel renewable projects and ensuring immediate carbon reduction.
SBTi emerges as a beacon in the sustainability landscape, offering a more holistic, rigorous, and science-driven approach to environmental accountability. Through a blend of industry specificity, transparency, and a comprehensive view of emissions, the initiative propels businesses to align their objectives with pressing climate imperatives. SBTi's emphasis on embracing all emission scopes, particularly the intricate and often overlooked Scope 3 emissions, provides an unparalleled depth to its approach. Despite the challenges associated with tracking and managing these extensive emissions, their inclusion is pivotal to ensure a holistic overview of a company's environmental impact.
In the juxtaposition of RECs and the SBTi, it becomes clear that while both have roles to play in the broader tapestry of environmental stewardship, the SBTi offers a more encompassing and forward-thinking blueprint. It beckons companies not just to participate but to immerse themselves fully in the journey towards a sustainable future. Through initiatives like SBTi, which weave science, accountability, and industry-specific guidance into their core, we inch closer to a world where net-zero is not just an ambition, but a tangible reality. The onus now lies on businesses, both large and small, to harness the potential of such initiatives and champion the cause of a greener, more resilient planet.
Reference
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Patel, R. (2018). Intermittency Issues in Renewable Energy. Energy Transitions Review.
https://www.ncsl.org/research/energy/renewable-energy-credits
https://www.epa.gov/green-power-markets/renewable-energy-certificates-recs
https://www.myclimate.org/en/information/faq/faq-detail/what-are-science-based-targets-sbt/
