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Redefining RECs--Part 2: Untangling certificates and emission markets

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  • Gillenwater, Michael

Abstract

Renewable energy and greenhouse gas emissions markets are currently in a state of confusion regarding the treatment of Renewable Energy Certificate (RECs). How should emission-trading schemes treat RECs? How can emission mitigation policies provide real incentives for renewable generation? The objective of REC markets should be to promote additional renewable energy investments. The author asserts that defining RECs in terms of attributes, especially off-site attributes, does not further this goal. Ambiguous language such as "environmental attribute" or "environmental benefit" creates confusion in the marketplace while failing to address the relevant coordination issues with Renewable Portfolio Standard compliance markets, voluntary emission offset markets, or emission cap-and-trade markets. Specifically, defining RECs in terms of off-site attributes creates a number of problems, including that once an emissions cap-and-trade scheme is in place, such definitions of a REC can become indefensible. The author proposes to redefine RECs in terms of on-site attributes, which resolves the aforementioned problems and allows compliance and voluntary renewable energy and emission markets to function without conflicts. Ideally, environmental commodities should be homogeneous, first best measures of the relevant environmental good, as well as easily measured and verified. The author proposes tradable environmental commodities that achieve these characteristics.

Suggested Citation

  • Gillenwater, Michael, 2008. "Redefining RECs--Part 2: Untangling certificates and emission markets," Energy Policy, Elsevier, vol. 36(6), pages 2120-2129, June.
    • Handle: RePEc:eee:enepol:v:36:y:2008:i:6:p:2120-2129
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    1. Raadal, Hanne Lerche & Dotzauer, Erik & Hanssen, Ole Jørgen & Kildal, Hans Petter, 2012. "The interaction between Electricity Disclosure and Tradable Green Certificates," Energy Policy, Elsevier, vol. 42(C), pages 419-428.
    2. Kumar, Rajesh & Agarwala, Arun, 2013. "Renewable Energy Certificate and Perform, Achieve, Trade mechanisms to enhance the energy security for India," Energy Policy, Elsevier, vol. 55(C), pages 669-676.
    3. Gillenwater, Michael, 2008. "Redefining RECs--Part 1: Untangling attributes and offsets," Energy Policy, Elsevier, vol. 36(6), pages 2109-2119, June.
    4. Gillenwater, Michael & Lu, Xi & Fischlein, Miriam, 2014. "Additionality of wind energy investments in the U.S. voluntary green power market," Renewable Energy, Elsevier, vol. 63(C), pages 452-457.
    5. Tsao, C.-C. & Campbell, J.E. & Chen, Yihsu, 2011. "When renewable portfolio standards meet cap-and-trade regulations in the electricity sector: Market interactions, profits implications, and policy redundancy," Energy Policy, Elsevier, vol. 39(7), pages 3966-3974, July.
    6. Christoph Heinzel & Thomas Winkler, 2011. "Economic functioning and politically pragmatic justification of tradable green certificates in Poland," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 13(2), pages 157-175, June.
    7. Gillenwater, Michael, 2013. "Probabilistic decision model of wind power investment and influence of green power market," Energy Policy, Elsevier, vol. 63(C), pages 1111-1125.
    8. Kumar, Rajesh & Agarwala, Arun, 2013. "Energy certificates REC and PAT sustenance to energy model for India," Renewable and Sustainable Energy Reviews, Elsevier, vol. 21(C), pages 315-323.
    9. Gaul, Chip & Carley, Sanya, 2012. "Solar set asides and renewable electricity certificates: Early lessons from North Carolina's experience with its renewable portfolio standard," Energy Policy, Elsevier, vol. 48(C), pages 460-469.
    10. Wenhui Zhao & Xiongjiantao Bao & Guanghui Yuan & Xiaomei Wang & Hongbo Bao, 2019. "The Equilibrium Model for the Coexistence of Renewable Portfolio Standards and Emissions Trading: The Supply Chain Analysis," Energies, MDPI, vol. 12(3), pages 1-29, January.
    11. Tanaka, Makoto & Chen, Yihsu, 2013. "Market power in renewable portfolio standards," Energy Economics, Elsevier, vol. 39(C), pages 187-196.

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