For years, thousands of companies have purchased renewable energy credits, known as RECs, to say they use green power and to shrink their carbon footprints. Now, as skepticism mounts about whether RECs achieve their claimed environmental benefits, the market for these credits is slowing—and a number of companies, from Whole Foods Market (WFM) to McDonald’s (MCD), are quietly scaling back their involvement.
“These voluntary green power markets have no significant effect on how much renewable energy is generated,” says Michael Gillenwater, executive director of the nonprofit Greenhouse Gas Management Institute, which trains companies on how to accurately measure their emissions.
Most businesses purchase their power from the grid, where it’s impossible to distinguish between electrons created by windmills and electrons created by coal plants. The market for RECs emerged in the late 1990s as a way to separate green energy into two products—the electricity and the environmental benefits, which can be sold separately.
A single REC represents the environmental benefit associated with one megawatt-hour of renewable electricity placed on the power grid. By purchasing RECs, companies can claim credit for using the green electrons. The money they pay usually flows through a network of brokers, who then pass along some of the funds to the company that generated the clean energy. This represents a new revenue stream for clean energy developers, which, in theory, results in the construction of wind turbines and solar installations that otherwise wouldn’t be built.
Companies who purchase the RECs can claim a reduction in their own carbon emissions, according to several green-minded organizations and the Environmental Protection Agency. For instance, Intel (INTC), the No. 1 buyer of RECs in the U.S., says it has reduced heat-trapping emissions by more than 1 million metric tons per year since 2008 by acquiring RECs.
A growing number of doubters are calling this vanishing carbon an illusion. Gillenwater, who has conducted two separate studies on the subject, says the money from RECs is so small that it doesn’t spur energy developers to build more wind farms or solar plants. Closed Loop Advisors, a New York-based sustainability consulting firm, says companies shouldn’t claim emissions cuts from RECs because these funds don’t alter the power being supplied to the grid.
Wal-Mart Stores (WMT) also dismissed RECs in a recent paper outlining its renewable energy strategy, stating the credits “may not have the desired impact of accelerating renewable energy development.”
Amid these concerns, the popularity of RECs appears to be slowing. After growing at a clip of 25 percent per year from 2010 to 2012, the market for voluntary REC purchases that are “unbundled” from electricity—the most common category for corporate buyers—grew just 1 percent in 2013, according to a recently released report from the National Renewable Energy Laboratory.
Several big REC buyers tracked quarterly by the EPA have recently disappeared from its rankings, including Whole Foods, McDonald’s, Hilton (HLT), and Safeway(SWY). That follows other big buyers that have scaled back their REC purchases in recent years, including PepsiCo (PEP) and Johnson & Johnson (JNJ).
Companies including Whole Foods and PepsiCo say they are focusing on more tangible solutions, such as installing renewable energy projects at their facilities.