ClimateIntel.com

The Federal Trade Commission recently closed the period for public comments on whether the Commission should update its “Green Guides” to address the growing corporate and consumer retail carbon market and related market claims. One major issue raised in the FTC proceeding was the interplay between Renewable Energy Certificates (“RECs”) and Carbon Offsets (“Offsets”) and how these products are being used in the voluntary carbon market.

In both the voluntary Offsets and REC markets, there can be significant variation among the providers with respect to design of marketed products and the projects underlying them. It is this variability, both within and across each type of carbon product, that has raised concerns regarding the claims being made in REC and Offset markets and the need for greater clarity as to what consumers should expect from a REC or Offset carbon instrument.

The key issues raised include:

• Additionality: Should voluntary REC projects be required to meet some “additionality” requirement before their RECs are treated like an offset? If so, what standard should apply in the renewable project context? In the past, additionality has been a cornerstone for all regulatory and most voluntary carbon-offset programs but, as ClimateIntel discussed in a prior review of the additionality issue, stakeholders do not agree on what should be required.
• Substantiation: Customers cannot see, touch, or taste the climate change benefits they believe they are buying with the voluntary purchase of an offset or REC. What level of substantiation is appropriate in order to support environmental claims related to the purchase or sale of offsets and RECs? Are there different substantiation concerns raised by each one?
• Ownership and double counting: In the voluntary carbon market, RECs and Offsets are fungible and tradable commodities, meaning that a single offset or REC may change hands multiple times from the initial project through its “use” or retirement. Without adequate market controls, it is possible that the same carbon reductions or renewable energy generation could be claimed by multiple members of a carbon instrument’s supply chain. What standards should be in place to track the ownership of individual carbon instruments to prevent such double counting?
• Consistency of terms and calculation methodologies: In theory, a single Renewable Energy Certificate is equivalent to the right to claim one (net) megawatt hour of electricity generated from an eligible renewable energy resource. “Carbon offsets,” in turn, represent the right to claim right to claim responsibility for a quantity of greenhouse gas either removed from the atmosphere or the emission of which has been avoided. The manner in which companies calculate the quantity of net energy actually produced to support a given REC, or the net quantity of greenhouse gas removed or avoided varies considerably from project to project and company to company.
• Timing of environmental benefits derived from projects supporting the carbon instrument: There is considerable diversity in the carbon market regarding the time period in which environmental benefits will accrue from any given carbon instrument. In some cases, RECs or Offsets will be based on purchasers investing in projects that will provide carbon reduction or offset benefits in the future. In other cases, the purchase price for the carbon instrument will go to cover investments in projects that have already been completed. Still others guarantee that the carbon instrument sold can match the specific “vintage” desired by the purchaser. In each case, the instrument marketers can provide compelling arguments for why their approach is best for the purchaser and the environment.

There is no single answer to most of the questions the FTC put to the stakeholder community regarding the appropriate use and marketing of offsets and RECs in the voluntary market (the FTC has emphasized that it is focused only on the marketing of offsets and RECs in unregulated voluntary markets, not the more heavily-regulated compliance markets in operation or under development in the US). As reflected in the comments submitted in these proceedings (1, 2), Consumer and stakeholder positions and perceptions on the use of voluntary RECs and offsets vary considerably depending on their respective business and ideological preferences. Indeed, even before FTC began taking comments on its regulatory function, it had stated that the “FTC does not have the authority or expertise to establish environmental performance standards” relating to offsets or RECs, and instead would “focus on [its] traditional consumer protection role, addressing deceptive and unfair practices under the FTC Act.” FTC’s challenge is to establish a procedural framework for characterizing such unfair and deceptive practices at a time when so many substantive terms and definitions are still under debate.

This entry was posted on Thursday, April 10th, 2008 at 9:14 AM and is filed under GHG Regulation, US Law and Policy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.