New SBTi standard to drive renewable energy certificate market changes: expert


(Photo: Pexels)

The Science Based Targeting Initiative (SBTi) will allow companies to offset Scope 3 emissions using carbon credits, a move that could trigger greenwashing controversies or significantly change the renewable energy certificate (REC) and carbon credit markets.

Renewable energy certificates may be used as carbon credits

SBTi's revision of standard on offsetting Scope 3 emissions has sparked a series of controversies. While the carbon market welcomes this news, there are many voices of opposition. 

Reccessary's carbon market researcher Judy Chao (趙瑀嫻) commented on the current market trends, suggesting that the change will also affect the REC market.

Companies can choose to purchase green electricity through either power purchase agreements (PPAs) or renewable energy certificates (RECs), with the former being preferred as it ensures the actual use of green electricity, said Chao.

Chao said that SBTi's revision of standard would significantly change the renewable energy certificate (REC) markets. (Photo: Reccessary)

Such a market trend may conflict with SBTi's announcement. In extreme cases, the use of RECs to offset Scope 2 emissions may no longer be acceptable in the future, yet may be applicable to Scope 3, which is clearly contradictory.

In this case, there are two possible paths for the future development of the market mechanism, according to Chao.

First, as RECs would no longer be accepted for Scope 2 emission offsets, they could become a form of carbon credits and thus apply to Scope 3.

Alternatively, RECs could be allowed to be used in Scope 2 and coexist with carbon credits, but with a limitation of 5-10% use of RECs in electricity consumption to mitigate the risk of greenwashing.

Cooperation between REC issuers and carbon registries are of growing importance

As for which path is more likely, Chao believes that RECs are likely to remain in place.

With SBTi's announcement, whether power plants can apply for both RECs and carbon credits will become a key concern, as they should only apply for one to prevent double counting of environmental benefits.

She also expects that the market will increasingly rely on the cooperation between REC issuers and carbon registries, facilitating information sharing and ensuring transparency to prevent greenwashing and the misuse of environmental protection benefits.

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