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This article is featured on The Southeast Asia Information Platform for Energy Transition (SIPET)'s website.
The CDx Team recently caught up with Roble Velasco-Rosenheim on the sidelines of the inaugural event of the Southeast Asia Corporate Decarbonization Exchange (CDx) in Bangkok during 1-2 October 2024. He is the Director of Partnerships and APAC Markets at the International Tracking Standard Foundation (I-TRACK Foundation), and founder of SuSca Group. With more than a decade of experience in clean energy across Asia, Mr. Velasco-Rosenheim has been pivotal in helping organizations to source and get credits for renewable electricity, and to improve their emissions reporting. His insights into Renewable Energy Credits (RECs) highlighted both the potential they provide, and the challenges they present, for corporate decarbonization.
Reasons for Purchasing Carbon Offsets
We asked Mr. Velasco-Rosenheim about the main drivers and conditions for companies to seek carbon offsets (or carbon credits). He explained that companies often turn to carbon credits when they have minimized direct emissions as much as possible. Carbon credits allow organizations to offset emissions that remain after implementing efficiency measures or shifting to renewable sources. These credits, often based on future projections, fund projects such as forest conservation and renewable energy initiatives, aiming to neutralize emissions in Scope 1 and Scope 3 categories. This is especially relevant for sectors like transportation and industry, where certain emissions are difficult to abate. Through carbon credits, companies can claim carbon neutrality, providing flexibility in their sustainability strategies by balancing out unavoidable emissions.
However, Mr. Velasco-Rosenheim noted that there can be a few drawbacks to the use of carbon credits. Since they are frequently based on projected (ex ante) reductions, their actual environmental benefits can sometimes be uncertain. Moreover, they do not directly impact a company’s operational emissions, making their role more about offsetting rather than actively reducing emissions from within the organization.
The Role of RECs in Renewable Energy Adoption
On the other hand, RECs are primarily aimed at Scope 2 emissions, providing companies with verifiable proof that they are using renewable electricity. RECs certify that one megawatt-hour (MWh) of renewable energy has been produced and added to the grid. Velasco-Rosenheim pointed out that many companies use RECs to demonstrate their commitment to renewable energy, which is increasingly required by sustainability reporting frameworks such as RE100 and the Carbon Disclosure Project (CDP). Companies that purchase RECs, whether bundled with physical energy purchases or as standalone instruments, can claim reductions in their Scope 2 emissions. This is essential for organizations that have set renewable energy targets as part of their decarbonization efforts.
However, he also highlighted some limitations. Unbundled RECs, which are not tied to actual energy purchases, may not directly contribute to new renewable projects, raising questions about their additionality. While RECs do verify renewable energy consumption, they do not necessarily incentivize the construction of new renewable capacity, making them less impactful in some cases.
Mr. Velasco-Rosenheim explained that “RECs, by definition, are not designed to prove additionality. They are, first and foremost, a tracking instrument. The real challenge lies in ensuring that these credits do not just shift existing capacity but actually contribute to new renewable energy development.”
Key Differences Between RECs and Carbon Credits
Mr. Velasco-Rosenheim underscored the differences between these two mechanisms. Carbon credits are measured in tons of CO2 equivalent, focusing on offsetting a broad range of emissions, including direct (Scope 1) and indirect (Scope 3) emissions throughout the supply chain. In contrast, RECs measure renewable energy in terms of MWh and are specifically designed to address Scope 2 emissions from purchased electricity. Furthermore, while RECs are verified ex post, meaning they confirm renewable energy production after it has occurred, carbon credits often rely on ex ante projections, making them more speculative in nature.
Challenges and Considerations
Mr. Velasco-Rosenheim also discussed hot-button issues such as additionality, transparency, and pricing volatility. Additionality remains a key point of debate, with some arguing that companies should prioritize credits and RECs that directly support new renewable energy projects. Furthermore, ensuring transparency in carbon credit validation is crucial, especially given the reliance on future projections. He noted that pricing for both RECs and carbon credits can vary widely across regions, complicating the market and impacting how companies invest in these instruments. Additionally, as voluntary markets evolve, there is an ongoing discussion about the potential role of regulation in enhancing transparency and accountability.
Ultimately, Mr. Velasco-Rosenheim emphasized that while both RECs and carbon credits are valuable tools, their use should be carefully tailored to align with a company’s broader sustainability goals. By choosing the right mix of these instruments, organizations can enhance their transparency, drive investment in clean energy, and contribute meaningfully to the energy transition.
Mr. Velasco-Rosenheim emphasized, “We are at a critical juncture. Companies can no longer rely on superficial measures to demonstrate their commitment to sustainability. The real test will be whether they are willing to invest in the long-term solutions that truly reduce emissions and drive the clean energy transition forward.”
Peter du Pont is the Co-Founder and Co-CEO and Ayesa Lemence is Communications and Outreach Manager for Asia Clean Energy Partners.
