RECs and Carbon Offsets

A carbon offset is a tradable credit representing a metric ton of CO2e emissions avoided or reduced. According to the EPA, a REC is “a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation.”

Written by Olivia DiPrinzio, 2030 District Data and Research Intern

This article examines and presents the differences between renewable energy credits (RECs) and carbon offsets, the methodology behind carbon offset projects, building code commentary on carbon offsets, and the current, prominent certification systems.

Key Points

A carbon offset is a tradable credit representing a metric ton of CO2e emission avoided or reduced and can be used for direct or indirect emissions.
Carbon offset projects feature additionality testing which incorporates quantifiers requiring emission reduction or elimination to be “real,” “permanent,” and “verified.”
The following are the most prominent, broad systems used internationally: Gold Standard, Climate Action Reserve (CAR), American Carbon Registry (ACR), Verified Carbon Standard (VCS), and Plan Vivo, which are all used by the Green-e Climate certification used in LEED Gold and BD+C credits.
Value-pricing ranges are between less than one dollar per ton of CO2e to fifty dollars per ton of CO2e- with the average range falling between three to six dollars per ton.
The ZERO code combined carbon offsets/renewable energy options with ASHRAE 90.1 2016 code compliance and was adopted in an appendix of the International Energy Conservation Code (IECC) 2021 Report.

Introduction

As of 2022, Green Building Alliance accepts the use of on-site and off-site renewable energy certificates (RECs) in the calculation of Pittsburgh and Erie 2030 District partners’ performance calculations. However, RECs are not the only viable strategy to allow property partners to limit their negative impact on the environment.

As a result of discussions regarding the implementation of stretch codes within the city of Pittsburgh, the 2030 District team was prompted to investigate the possibility of allowing property partners to use carbon offsets to improve their performance. Carbon offsets were previously discouraged due to a lack of formal infrastructure and verification system but are now reaching a more standardized status after becoming more prominent within the construction sector. The use of carbon offsets as well as RECs help properties to decrease emissions.

However, there is a difference between net zero energy building, which is “an energy-efficient building where the actual annual delivered energy is less than or equal to the on-site renewable exported energy,” and carbon zero, which means that carbon emissions are not being produced. Carbon zero is a much more specific zero-quantification while net zero energy includes emissions as well as energy production. Carbon offsets aid in reaching carbon zero while RECs aid in reaching net zero energy. At the end of the article, additional resources are provided for further reading purposes.

RECs vs Carbon Offsets

While it is common for the term “offset” to be used in conjunction with RECs, RECs and carbon offsets are different mechanisms. According to the EPA, an REC is “a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation.”

On the other hand, the EPA states that a carbon offset is a tradable credit representing a metric ton of CO2e emission avoided or reduced. The first major difference between the two mechanisms is in the units in which they are measured. RECs are measured in terms of 1 MWh of renewable electricity generated while carbon offsets are measured in terms of metric tons of CO2e avoided or sequestered. The CO2e amount includes conversion metrics for other major greenhouse gases and thus their required sequestration amount. As a result of these units, the purpose of RECs is based on different green electric sources while carbon offsets are solely representing the reduction or avoidance of emissions.

Next, RECs are only able to address indirect emissions through their green electric choices while carbon offsets can address both indirect and direct greenhouse gas emissions. According to the EPA’s Green Power Partnership, this comes into play when assessing accounting guidance as RECs look at direct evaluations, in terms of emissions, while carbon offsets look at net evaluations. This is due to carbon offset projects including reduction strategies that are implemented elsewhere by other emitters. As carbon offset projects can be either indirect or direct, there is variability in project style and type with MIT citing reforestation projects, investment in renewable energy projects and sites, community projects and waste-to-energy projects as the four most common types.

Carbon offsets are equal in terms of quantity for each project, as a carbon offset is defined by the removal or avoidance of one metric ton of CO2e emissions. While not varying in quantity, the projects will vary in cost due to location and project size, which impacts the monetary value of the offset credit. On the other hand, RECs are categorized as either bundled or unbundled. According to the IECC 2021 report, unbundled RECs are “certificates purchased by the owner representing the environmental benefits of renewable energy generation that are sold separate from electric power,” while bundled RECs include the underlying electric power. They are then further categorized by whether they are compliance RECs, which are to meet RPS requirements, or voluntary market RECs, which are supplied in areas where the market is currently oversupplied and not required.

Next, Green-e Certified RECs have a “21-month window of eligible generation.” Conversely, carbon offsets currently have a typical lifespan of two to three years, but each verification system has their own crediting period variations along with renewable options. Additionally, there is no current set procurement factor for carbon offsets, unlike RECs. For example, VCS offers crediting periods of 7 years twice renewable, 10 years twice renewable, and 10 years fixed. Due to the “permanence” factor of carbon offsets, however, the projects themselves must permanently sequester the required carbon amount to receive a credit. An example explaining sequestration and impacts from the Offset Guide is as follows:

“For example, protecting a parcel of forest from deforestation prevents 100 tons of carbon from being released into the atmosphere (reducing emissions by 100 tons). Fifty years later, however, the parcel is burned down, emitting all the carbon. The rate of emissions in year 50 is accelerated because, without the project, the 100 tons of carbon would not have been present. Net GHG reductions over 50 years are zero because the additional emissions cancel out the prior reductions.”

To be noted, however, is that carbon offset projects, unless directly involving carbon storage, are unlikely to become “leaky” and release emissions. Thus, the issue of permanence, once established within the project design, is typically sound and unchanging, unlike the example provided. According to the Carbon Offset Guide, in terms of the voluntary carbon market, carbon offset credits can be transferred between accounts within the same offset registry. Credits can be traded multiple times between multiple buyers, as a result of a direct purchase or a trade agreement, until the credits are either retired or used.

Finally, the standards by which each is evaluated have significant points of differentiation. Carbon offsets, in addition to REC standards, include the requirement additionality testing. Additionality testing, described as needing to play a “make or break” role, incorporates quantifiers requiring emission reduction or elimination to be “real,” “permanent,” and “verified.” The EPA also states that additionality testing evaluates criteria within the following categories: legal/regulatory, financial, barriers, common practice and performance tests. Additionality testing, however, is not required for RECs.

This table summarizes the key differences between using RECs and carbon offsets in a project. (Source: EPA)

Verification Systems and Methodology

When working towards verifying and registering a carbon offset project, there are several systems, each with their own methodology, to choose from. The following are the most prominent, broad systems used: Gold Standard, Climate Action Reserve (CAR), American Carbon Registry (ACR), Verified Carbon Standard (VCS), and Plan Vivo. There are additional specific-scope verification systems, but these are not used on the same scale.

These five systems all require carbon offset projects to pass additionality testing and to provide “permanent” solutions or containment for carbon. These systems are voluntary, which prevents their credits from being traded in compliance markets. In terms of value-pricing calculations for carbon offset projects, the Gold Standard identifies the following as the main categories that cause variations in value: “integrity of the standard it’s certified against, value associated with the beyond-climate sustainable development benefits, preferences for different project types or geographies and associated supply and demand dynamics, and costs required to plan, implement, and monitor a project.” According to the non-profit organization Second Nature, value-pricing falls between less than one dollar per ton of CO2e to fifty dollars per ton of CO2e- with the average range falling between three to six dollars per ton. In the additional reading section, there is a report listing the detailed transactional data, including average price, by standard.

These programs are also all used by the Green-e Certification program to verify projects based on “stringent permanence, additionality and other criteria.” The Green-e Certification is one of the most referenced resources when dealing with carbon offsets with ample public documentation on their practices and requirements, which can be found in the additional reading section. Green-e Certification certifies projects through one of the aforementioned systems while simultaneously enforcing additional requirements including annual independent audits and review by program administrators. In the United States, Green-e Certification is available for hydropower, biomass, forest conservation, and carbon capture and sequestration projects, each with their own specifications.

There was no evidence found to suggest that one of the five systems was more efficient than the others, leading to the conclusion that the choice of system would be situational based on desired requirements and outcomes. However, the Ecosystem Marketplace reported that VCS certified approximately 58% of the global offsets in 2016 with Gold Standard certifying 17%, CAR certifying 8% and ACR certifying 3%. Additionally, the standard type plays a large role with the full-fledged being the most stringent, as it requires accounting standards, monitoring, verification and certification standards, and registration enforcement systems. Finally, the United Nations Clean Development Mechanism (CDM) was not included in this outline, as it is used in developing countries specifically, but the criterion is used in baselines, so their documentation is included in the additional reading section.

Below are the highlights of each system’s criterion with the full manuals included in the additional resource section for further evaluation (WWF and Green-e Certification). Each of these systems has unique methodologies that can be developed based on each specific project presented, thus making it difficult to calculate an appropriate carbon offset project amount. However, most systems look at carbon footprint calculations as a preliminary starting point for the project.

Gold Standard

Coverage: International

Label for Credits: Verified Emission Reduction

Standard Type: Full-fledged

Baseline Requirement: CDM approved methodologies

Accepted Project Types: Renewable Energy and end-use efficiency

Must reduce one of the following greenhouse gases: NOx, CO2 or CH4

Verra VCS

Coverage: International
Label for Credits: Verified Carbon Unit
Standard Type: Full-fledged
Baseline Requirement: VCS program-approved methodologies (includes CDM)
Accepted Project Types: Any except GHG producing projects
Provides rules and requirements that must be followed by any offset program

Plan Vivo

Coverage: International
Label for Credits: Plan Vivo Certificate
Standard Type: Bio-Sequestration
Baseline Requirement: project-specific, reviewed by Plan Vivo Foundation individually
Accepted Project Types: LULUCF except commercial forestry

Climate Action Reserve

Coverage: United States, Mexico
Label for Credits: Climate Reserve Tonne
Baseline Requirement: based on benchmarks from other projects within the sector
Accepted Project Types: projects following protocols developed by the Reserve’s board

American Carbon Registry

Coverage: United States, some international
Label for Credits: Emission Reduction Tonne
Baseline Requirement: project specific
Accepted Project Types: projects following ACR standardized criteria

Full-fledged Verification Systems

The full-fledged standard type is characterized as a verification system that provides (1) accounting standards, (2) monitoring, verification, and certification standards, and (3) registration enforcement systems. Two of the five well-accepted verification systems have been designated as the full-fledged standard type: Gold Standard and Verra VCS. Below is a detailed account of the specific aspects of both systems, provided for further evaluation of applicability and implementation. All information is taken from the Global Carbon Project report found in the additional resource section.

Gold Standard

Project Eligibility

GS accepts renewable energy, including methane-to-energy, and energy efficiency projects.
GS excludes hydro projects with greater than 15MW capacity.
A project cannot be in countries with an emissions cap.
Project sizes: micro-scale (<5,000 tons CO2 per year), small-scale (5,000-60,000 tons CO2 per year), large-scale (>60,000 tons CO2 per year)
Crediting period option(s): one 10-year period, 7-year period (renewable up to three times)
VERs will “only be issued after the project is successfully registered as a GS CDM project.”
GS VER projects “must show clear sustainable development benefits, including local and global environmental, social, and economic as well as technological sustainability.”
GS requires two public consultation rounds (except at micro-scale which only requires one) and does not require international stake holder consultation.

Additionality

These tools are project based and require previous announcement checks.
GS requires “application of the latest UNFCCC additionality tool.”
VER projects can choose to use baseline methodologies approved by one of the following: Methodology Panel of CDM Executive Board, Small Scale Working Group or United Nations Development Programme MDG Carbon Facility.
Projects can propose new methodologies that will be reviewed and approved by the Gold Standard Technical Advisory Committee for an additional price.

Validation & Registration

Requirements for GS VER and CER projects are identical, except for a broader scope of eligible host countries and baseline methodologies.
All projects must be “validated and verified by a DOE.”
Key requirements: stakeholder consultation report, finished PDD with baseline and monitoring methodology, a sustainable development matrix, and a validation report

Monitoring, Verification & Certification

Monitoring reports, submitted to a DOE, must be submitted yearly.
Key requirements: verification report of compliance
- A verification report includes sustainable development indicators, which must be monitored based on whether they are “crucial for the overall positive impact on sustainable development, particularly sensitive to changes, or stakeholder concerns have been raised.

Registries

APX, Inc., created and manages the GS Registry for Verified Emissions Reductions (VERs).
GS does not “engage in project or credit transactions.”

Verra VCS

Project Eligibility

All project types are allowed if they are supported by an approved VCS methodology or an approved GHG program, with a few exceptions listed in the documentation.
There are no restrictions regarding project location, unless in an Annex-1 country.
Project sizes: micro projects (<5,000 tons CO2e per year), projects (5,000-1,000,000 tons CO2e per year), mega projects (>1,000,000 tons CO2e per year)
Crediting period option(s): maximum of 10 years (renewable up to three times)
VCS “does not focus on environmental and social benefits. It is sufficient to show that they are compliant with local and national environmental laws.”

Additionality

VCS uses “project-based, performance-based and positive technology list-based additionality tests,” with the latter two as alternative options for project-based testing.

Project accepted methodologies include VCS program approved, various GHG program approved, or newly proposed methodologies.

Newly proposed methodologies are approved using “double approval process... seeking an approval from two independent accredited auditors.

Project-based test

This test follows CDM procedures, must not be mandated by any enforced law or statute, demonstrates that it “faces capital or investment return constraints or an institutional barrier that can be overcome,” and demonstrates that “it is not common practice in the sector or region when compared with other projects that received no carbon finance” based on GHG Project Protocol for Project Accounting.

Performance-based test

“A project can demonstrate that it is not business as usual if the emissions generated per unit of output, it generates are below a benchmark level approved by the VCS program.”

Positive technology list-based

A project developer must “use a baseline methodology to determine the number of offsets a project will create.” The official list is still being developed.

Validation & Registration

Validation and verification can occur concurrently.
Projects can be validated as an individual project or as a member of a grouped project.
Validation must follow and meet the requirements of ISO 14064-3:2006 and the VCS Validation Report.
The VCS Validation report includes details about project design, baseline, monitoring plan, calculation of GHG emissions, environmental impact, and stakeholder comments.

Monitoring, Verification & Certification

Emissions reductions can be “verified by the same entity that validated the project.”
Key requirements: “verification report prepared as per the VCS Validation Report template”

Registries

VCS accredits different registries. Thus, VCS provides serial numbers for each project as well as adds each project to a publicly accessible database to prevent double counting.

Project owners must submit a letter proving current unregistered status, that reductions aren’t due to government mandate or RECs, and, for Annex-1 countries, a letter proving an equivalent amount of Assigned Amount Units were canceled from that registry to help prevent double counting.

VCS Carbon Offset Project Example

For context, this section will explore the methodology of one project within the VCS registry. Located outside of Chambersburg, PA, the Slate Ridge Digester Grid Connected Methane Recovery Project was registered in 2012 with VCS. As a waste handling and disposal project, the estimated annual emission reduction for this site is 855 tons of CO2e.

Taken from their published documentation, the project used six methodologies based on UNFCCC CDM methods, which can be found on page eight of the document. These methodologies were selected based on the proposed solutions chosen to address each major source of possible reductions. These proposed solutions have already been implemented in other projects previously, thus allowing for the team to utilize these methodologies for baseline development and evaluation.

Prior to the project beginning, the property owners identified four major sources of possible reductions based on previous activities. The group had no deviations from proposed methodologies and detailed all data and methods of monitoring in the document. The group submitted a formal monitoring plan as well as a plan to demonstrate and assess the project’s fulfillment of the additionality requirement. The table below shows the ten-year emission reduction data of the project, showing a net 8,545 tons of CO2e emissions avoided or sequestered. The full documentation for this project can be found in the additional reading section with the title “Slate Ridge Project Description.”

All the systems have online project directories which provide project specifications and descriptions, detailed documentation, and certification time frames.

Building Codes

Finally, there is the examination of carbon offsets in building codes. In 2021, the IECC report featured the inclusion of the ZERO building code within one of its appendices. The ZERO building code provides buildings and jurisdictions with the option to “adopt a zero-net-carbon standard as their community’s minimum energy code.” ZERO code combines carbon offsets/renewable energy options with ASHRAE 90.1 2016. Currently, the ZERO building code covers the production and obtainment of renewable energy as well as allowing off-site renewable energy for buildings to use to reach net-zero. Additionally, at the ZERO code sites where fossil fuel burning is allowed, the emissions could potentially be offset by carbon offsets in conjunction with the required clean energy input. Carbon offsetting can also play a role based on the source of off-site clean energy procured, as some offsetting projects are clean energy producers that run simultaneous emission reduction programs.

Current Practices

There are a few examples in which carbon offsets are already being used that could act as preliminary sources of evaluation. First, LEED Gold currently groups progress with RECs and carbon offsets within the same category of points possible. The carbon offsets must be within scope one or two, must be Green-e Climate certified (or equivalent), and must be from greenhouse gas emission reduction projects located in the United States. Scope one emissions are direct carbon emissions that are produced from a site or appliance under the specific organization’s control. Scope two emissions are indirect emissions from the generation of electricity that the organization uses. Following that, LEED BD+C EA credit has the same criteria as LEED Gold for certain building types, thus allowing for verified carbon offsetting. Lastly, Canada Green Building Council allows for the use of carbon offsets under ZCB-design standards if the offset projects are Green-e Climate certified or are derived from projects already certified under Gold Standard, VCS, Climate Action Reserve, or American Carbon Regulation.

Rating System Evaluation of Offsets and RECs

Finally, it is critical to know how various green building evaluation systems, such as LEED Zero or Living Building Challenge, evaluate carbon offsets and RECs. In the case of LEED Zero, it is required that both carbon offsets and RECs are Green-e Climate certified or obtain an equivalent certification. Since LEED Zero recognizes both exported on-site and off-site renewable energy, the system ranks RECs fourth out of four in terms of strategies in the renewable energy guidance plan. Next, in the case of the Living Building Challenge, RECs are not accepted while two types of carbon offsets, Verified Emission Reduction (VER) and Certified Emission Reduction (CER), are accepted.

According to the LBC, the acquisition of a carbon offset requires that “the purchase of carbon offsets must directly support a new Renewable Energy project.” Additionally, the project is required to “account for the total footprint of embodied carbon (tons CO2e) from its construction through a one-time carbon offset tied to the project boundary.” Another building evaluation system that permits the use of carbon offsets is EcoDistricts. While there is no explicit discussion of carbon offsets or RECs, two EcoDistrict Roadmap case studies, Sharpsburg and Etna, include the use of carbon offsets to reduce these buildings’ remaining emissions. There was no mention of RECs, so the applicability of REC use is unknown under EcoDistricts. Finally, the Green Globes building evaluation system allows the use of RECs and carbon offsets to achieve points within their off-site renewable energy credit assessment. For the RECs, they must either be Green Energy certified, via the U.S. Department of Energy, or have another certification, such as one of the certifications discussed previously. Additionally, whether the property partners choose to implement RECs or carbon offsets, there is a three-year minimum commitment involved.