Editor’s note: This is the second part of Earth911’s introduction to carbon offsets and renewable energy certificates. You can use these two financial tools to change your carbon footprint and, by asking how companies meet their CO2 emissions goals, determine whether “green” products are actually contributing to carbon dioxide (CO2) reductions. In part one of this series, we introduced these tools. This installment focuses on how to use them successfully, because many carbon offset programs, in particular, are not legitimately sustainable.

Renewable energy credits (RECs, or “wrecks”) and carbon offsets are potentially useful tools to help you reduce your home and purchasing CO2 footprint. But you should proceed with caution, especially when buying carbon offsets because companies do not deliver consistent CO2-reduction results. Both RECs and carbon offsets, while hypothetically good, are the subject of criticism and controversy.

RECs represent a megawatt hour (MWh) of renewably produced electricity while carbon offsets represent a ton of carbon that will be sequestered (locked into a material or placed underground) to remove it from the atmosphere. Concerns about both RECs and offsets revolve around two major issues: moral hazard and legitimacy.

Won’t Get Fooled Again

Worries about moral hazard, creating an attractive alternative that encourages bad behavior, are well-placed. At Earth911, we encourage you to think in terms of trade-offs, but only with a careful eye to your bottom-line CO2 output. For instance, if you switch to an electric vehicle, you will reduce your carbon footprint dramatically (presuming you charge your EV only with renewable energy) – by as much as 28.9 percent depending on your travel habits. But that does not justify increasing your meat consumption by five meals a week, which would cancel out most of the reduction.

Moral hazards suggest that if you act, paying the cost of a change, someone else can absorb your change in their carbon totals and claim to be producing less CO2. Carbon offsets are particularly prone to this problem. For a small incremental cost, a polluting energy company can purchase your offset carbon and use it to emit more CO2. Unfortunately, the definition of falling prey to a moral hazard was demonstrated by the United Nations, which claimed in a video ad that was pulled due to criticism that people can “keep calm and offset.” The plain fact is that we need to reduce CO2-producing activities rather than just shift them around; any REC or carbon offset must result in a net decrease in CO2 overall, not just in one sector, such as energy. Lowering your carbon emissions when driving but increasing them when we eat doesn’t help.

Legitimacy issues are related to questions about whether carbon dioxide is actually removed from the atmosphere. For example, as a consumer, you often have little insight into how carbon offsets are handled; you may pay extra for your plane ticket to offset the carbon produced by your trip, but can you be sure your airline is investing in the right types of projects to offset your carbon footprint?

Carbon offsets are typically unverified and unenforceable. Before you purchase a carbon offset, make sure you’ve done your homework. Is this a reputable company with transparent practices? Can you verify that they’re taking carbon offset efforts in line with an actual reduction in environmental damage?

Terrapass, a company that has had offset legitimacy issues in the past, has established a solid tracking program and closes out all its carbon offsets by confirming they have been sequestered. So, every offset purchased is returned to the ground or locked in a substance that will not release it for centuries, including trees and carbon removal technologies. Individuals can purchase Terrapass carbon offsets easily.

REC’d Expectations

There have also been a few points of controversy surrounding RECs. The concern is that dirty energy producers and consumers, such as large websites or banks, can trade RECs purchased from a clean energy source to offset their CO2 emissions elsewhere. The trade-off is difficult to track because RECs are traded like stocks — there is a price attached and, once transferred, the savings appears to be lost. However, RECs represent carbon that will not be produced in the first place, so they are generally good for the environment. Your cost is the markup for creating and handling the REC, which is analogous to the fees a stock brokerage charges when you buy or sell shares of stock.

When you purchase a REC, such as by enrolling in a green energy program, you acquire the right to use a MWh of renewable energy.  Terrapass and Arcadia Power have created virtual grids that allow solar power producers to sell their RECs to consumers. The grid is “virtual” because they move the REC carbon from the source to a consumer who could be across the country, allowing the consumer to consume only renewable energy through a complex credit-trading process. Basically, RECs allow your utility to trade clean energy for dirty energy, but the result is a net reduction in dirty energy produced because there is no demand for dirtier electricity.

RECs are not simple, alas. It is easy to see the trade of a coal-produced MWh of energy for a clean MWh as an exercise in rearranging deck chairs. But RECs make a significant difference by allowing people and companies that want to use clean energy to purchase it.

No Time for Inaction

The challenge is, of course, that we don’t have time to wait for the long run to play out. We need to combine the tools we have available — including our own ability to make informed choices about the sources of power we use (RECs) and the sequestration of carbon we produce (carbon offsets), the marketplace where our values can be priced, and the integrity and transparency of that marketplace — to create massive overall reductions in CO2 emissions.

When you buy a car, the manufacture of your vehicle has already produced between six and 25 tons of CO2, which you can offset by purchasing carbon offsets that are retired. If the carbon offset is not retired, as Terrapass does each year, the CO2 will remain in the atmosphere. After accounting for production-related CO2, you still face offsetting the 19.59 pounds of CO2 produced by each gallon of gas you burn. If you own an electric vehicle, your car still represents at least six tons of CO2 that can be offset with a legitimate offset purchase. You can also offset your gasoline-burning CO2 emissions with offsets, and Terrapass has plans that address specific situations.

You can use RECs to buy your own clean power, but another way they can serve your interest in a cleaner economy is by checking that the companies you buy from use RECs to access clean power. For example, if Google purchases a REC to make up for its remaining non-renewable energy use, it yields a net improvement in the environment. You can review companies’ sustainability statements to learn more about how companies buy and use electricity, which is a topic for a future report.

Here are our tips to apply when making a REC or carbon offset choice:

  • Don’t fall for morally hazardous choices. Make sure you are creating a net CO2 reduction when you purchase carbon offsets and RECs. These energy credits are a tool consumers have never had at our disposal.
  • Ask for year-end confirmation about the handling of your carbon offsets. Were they retired or sold? If they were sold, the offset was likely lost to a dirty producer. You want to be proud at the end of the year that you know your CO2 emissions were offset, so confirm your outcomes.
  • Ask your REC seller to provide an accounting of how your REC was consumed. Remember that offsets of dirty power are to be expected, but that the goal is to reduce CO2 overall.
  • Don’t just think about buying RECs, consider becoming a clean energy producer with solar or wind power at home. You can eliminate your consumption of dirty energy and even sell your excess power.

By Mitch Ratcliffe

Mitch is the publisher at Earth911.com and Director of Digital Strategy and Innovation at Intentional Futures, an insight-to-impact consultancy in Seattle. A veteran tech journalist, Mitch is passionate about helping people understand sustainability and the impact of their decisions on the planet.