Historically, LEED has prompted teams to purchase “green power” via qualified renewable energy credits to account for a certain proportion of the project’s anticipated electricity usage. For project owners, achieving “100 percent green power” was as simple as contracting with their utility provider for electricity and paying a relatively small premium for renewable energy credits (RECs).

Simple solution. Easy to document.

Starting with LEEDv4, carbon offsets are introduced - and required to account for “green power” relative to non-electrical energy consumption (such as natural gas).

In the abstract, perhaps the notion of purchasing some combination of RECs and/or carbon offsets bears little distinction. Both sound like forms of “green power.” Ultimately, a Btu is a Btu when it comes to sourcing green power for a project—right?

In fact, RECs and carbon offsets are fundamentally different and there is a certain propriety with regard to their utility on a project.

What is a renewable energy credit (REC)?

RECs are directly related to electricity production. They are not related to greenhouse gas emissions. For every 1,000 kilowatt hours (kWh)—or 1 megawatt hour (MWh)—of renewable energy produced and connected to the utility grid, one REC is generated. From large power companies to single-family homeowners, anyone can produce and trade in RECs.

The “ownership” of a REC is critical. If the owner of a facility that produces renewable energy sells their RECs to another company, then that other company “owns” or secures the right to claim credit for those 1 MWh units of green power in the utility grid. 

What is a carbon offset?

A carbon offset represents the reduction of greenhouse gas (GHG) emissions on a metric ton of carbon dioxide equivalent (CO2e) basis. When the owner of a facility purchases offsets, that owner alone has the right to all associated claims about the environmental benefits embodied by the purchased offsets. Carbon offsets are to be regarded as a commodity and not a donation or investment in a future emissions reduction project.

Scope 1 vs. Scope 2 GHG emissions

There are two type of greenhouse gas emissions.

Scope 1 emissions are emitted directly from sources owned or otherwise controlled by a specific entity. Electricity produced on-site through the burning of fossils fuels is measured by the Scope 1 emissions associated with that fossil fuel.

Scope 2 emissions are emitted indirectly through purchased electricity as well as high-temperature hot water, chilled water, or steam that come from a utility provider. Scope 2 emissions include transmission and distributions losses related to hot water, chilled water, and steam as it is conveyed from the utility to the site. However, Scope 2 emissions do not account for transmission and distribution losses associated with electricity.

As a result, RECs can only be used to mitigate the effects of Scope 2.

Carbon offsets may be used to mitigate Scope 1 or Scope 2 emissions.

Ensure that RECs and carbon offsets are certified

Before purchasing RECs or carbon offsets, it is critically important that reputable vendors are sourced in order to ensure that the green power is sourced from projects that have been validated and registered under high-quality project standards.

As such, RECs and carbon offsets should be certified by Green-e (or equivalent through another reputable certification body). Certification requires companies to provide their customers with a notice of price, terms, and conditions of service.

The economics of RECs and carbon offsets

The marketplaces for both RECs and carbon offsets are fluid. Moreover with regard to cost, there is an economy of scale and the price per unit of either can diminish with larger purchases (think of it like the money saved by buying a commodity in bulk).

To illustrate the economics of RECs and carbon offsets on a building project, consider a recent example: a small commercial structure pursuing LEEDv4 certification intending to purchase either 50 or 100 percent green power and carbon offsets for at least five years.

The project was predicted to consume 112,204 kWh/year in electricity and 825,200 kBtu/year in natural gas. Table 1 and Table 2 breakdown the costs of the RECs and green power investments respectively.

LEED is looking to address new market realities

LEEDv4 and earlier versions of the rating system leveraged RECs and carbon offsets to provide credit for on-site production and purchased power/carbon offsets. However, looking toward the future, it is imperative for the rating system (which functions as a major market driver) to provide an integrated credit solution that reflects the evolution of the renewable energy market that combines all avenues teams can pursue whether it is on-site, off-site but owner developed, or via credible power/carbon offsets. The current draft of LEEDv4.1 integrates offsets with the full diversity of on- and off-site procurement options into a single, streamlined Renewable Energy credit.

The intent of integrating the former on-site renewable energy and green power credits is to better ensure that LEED is structured to provide true “additionality” in renewable energy development—that is, the many minds behind LEED want to make sure that projects are growing the renewable grid and not just harnessing existing capacity where possible.