RECs and Carbon Credits are a GOOD Thing

RECs and carbon credits are a GOOD thing, so stop bashing them.

As an example a few months ago Inside Greentech had an article attacking renewable energy credits, singling out one such purchase by Wells Fargo, and comparing them to the indulgences sold by the Catholic Church to save your soul in the middle ages.

“In the 16th-century church, those who were long on cash but short on righteous living could balance the equation by buying “indulgences”, representing a sort of absolution for sinful behavior.

Indulgences may have disappeared about the time of Martin Luther, but they seem to be alive and thriving in a more contemporary religion – the Church of the Green.”

I find this rather exasperating.

All renewable energy, carbon and energy efficiency credits are, is a simple derivative.

Devolving the “power” produced by one company into its components a) the electrons, b) the “green strip”, c) the “low carbon strip” (though often for conservatism only one of b or c can often be claimed), and selling these components to different users.

There is nothing more wrong or complex here than is done with collateralized mortgages and exchange traded funds everyday on Wall Street. The only caveat is ensuring you don’t sell the same thing twice, but that’s what certifications and audits are for.

By defining the property rights for the green portion of the power as separate and detachable (just like oil and gas mineral rights and water rights are detachable from land ownership) from the electron stream, we enable the market to act more efficiently, give the consumer choice, and change the world for the better.

It’s not a matter of asking why a company should be permitted to make or sell a credit. The real question should be, why can’t I? If I’m the producer, it’s my power, I can split it up anyway I want as long as my customer agrees. Once it is in the grid, the electrons don’t care. And as a buyer, if my current provider won’t sell me green power because they don’t produce enough (and in a regulated world I don’t have a choice about who to buy from), I can buy my electrons from my regulated provider, and buy the green power portion from a third party who does makes the product I want, but whose electricity customer doesn’t care or won’t pay as much as I will.

This is especially true for someone like Wells Fargo, who operates across state and national borders. In their infinite wisdom, the energy regulators don’t let Wells Fargo aggregate its retail power purchases from one single provider or buy power from Xcel Energy’s Colorado wind farms for its California offices. Without green credits, Wells Fargo could not put their money where their mouth is and go green. Do we really want to punish good behavior?

So why are RECs and carbon credits important? It’s all about giving the consumer (whether that’s residential or commercial) a choice. Nobody screams when Fidelity or Vanguard creates a new ETF, why would we complain when someone does the same thing with green power? Whether you are liberal or conservative you should be able to understand that.

Author Neal Dikeman is a founding partner at Jane Capital Partners LLC, a boutique merchant bank advising strategic investors and startups in cleantech. He is the founding contributor of Cleantech Blog, and a Contributing Editor to AltEnergyStocks.com.

7 replies
  1. Nick Dalacu
    Nick Dalacu says:

    Neal:As you very well know, I like you and your convoluted thinking very much. However when you are talking about “devolving power in electron streams and green strips and carbon strips”, I cannot escape the feeling that, in a past incarnation you sold indulgences or sneak oil. Your old friend, Nick

  2. The Evangelical Ecol
    The Evangelical Ecol says:

    RECs/CCs certainly have their place. But do you get credit for carbon reduction if you buy credits from a company you own and/or benefit from? I read another comment on a blog that said he was trying to start his own country out West in the middle of nowhere so he could make a living selling credits for not polluting. Mean this question sincerely: How can we define "credits" in economic terms that make sense? And how can folks make "offsets" that legitimately reduce the net amount of pollution in the world?

  3. The Evangelical Ecol
    The Evangelical Ecol says:

    RECs/CCs certainly have their place. But do you get credit for carbon reduction if you buy credits from a company you own and/or benefit from? I read another comment on a blog that said he was trying to start his own country out West in the middle of nowhere so he could make a living selling credits for not polluting. Mean this question sincerely: How can we define "credits" in economic terms that make sense? And how can folks make "offsets" that legitimately reduce the net amount of pollution in the world?

  4. The Evangelical Ecologist
    The Evangelical Ecologist says:

    RECs/CCs certainly have their place. But do you get credit for carbon reduction if you buy credits from a company you own and/or benefit from? I read another comment on a blog that said he was trying to start his own country out West in the middle of nowhere so he could make a living selling credits for not polluting. Mean this question sincerely: How can we define “credits” in economic terms that make sense? And how can folks make “offsets” that legitimately reduce the net amount of pollution in the world?

  5. Anonymous
    Anonymous says:

    I think credits are a good thing, and I don't like to waste too much time over-analyzing and navel-gazing over them. In my experience most "green-minded" people, especially those who are blogging, are uncomfortable with anything the government can't control with an iron fist. They don't like capitalists and don't like the wild wooly chaos of open markets. Which is really funny considering that wild wooly chaos is exactly how nature runs her ecosystems. No heavy-handed godlike government trying to impose rules. Just lots of competitors, lots of creative mess, and sort out the solutions from that mess.That's the kind of messy, creative, highly efficient mechanism the human race needs to use to solve the climate puzzle. Let everybody try everything, and let market mechanisms like carbon credits sort it all out.Again, greenies don't like this because they don't understand it. That's why greenies cannot be entrusted with the important job of fixing the climate mess we're in.SO the point I'm making is this…for the first 10 years of this climate mitigation process, we should allow ALL solutions, ALL market mechanisms, with very few limitations. Let every competitor have a shot, and don't let the government regulators slow it to a snails pace by getting them involved.Steve KerryCarbonsequestration Blog

  6. aussie paul
    aussie paul says:

    And how have 'market mechanisms' worked so far? Haven't they been responsible for this crisis? We have seen 'market mechanisms' not only pollute and corrupt with relative impunity, but they have enabled murder and started wars. We Greenies understand how things work more than you would like everyone to believe and your putdowns and abuse now will see you looking silly in the short term and downright evil in the long term.

  7. Rob
    Rob says:

    I got on here because I have a debate today in my Intro to Environmental Policy class. I wanted to be more prepared than the others so I am doing research outside just the text. Here is what I have found, not as an economist or as an environmental activist. Free market enterprise is the heartbeat of this U.S. nation. Yes, we may bicker back and forth over what economic model to use, we have the democarats pushing the Keynesian model, which is deficit spending with a splash of oversight. And the GOP to our right seething for Trickle Down Economics, which is big tax breaks, hoping larger companies spend the breaks to create new jobs, thus trickling down to the everyday people….Carbon Crediting is unfortunately exactly both of those models, you have deficit polluting, with some oversight…The EU, or EPA, and then you have trickle down polluting, which would be to buy carbon credits and let the funds trickle down to the people so they can plant trees. For example, Delta airlines emits so much pollution, so they plant "x" amounts of trees to offset their carbon footprint…All that being said, mother nature doesn't care what currency you pay her in…just do right by her, and for the other side, Do right by yourself and mother nature spend money in your Research and Design divisions, and create sustainable solutions…That way everyone get paid.Rob Hathcock

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