New Study Calls for Unleashing Market Forces with Reimagined Renewable Energy Credits

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April 13, 2022 – LANSING, Mich. – A new paper released by Dr. Michael Giberson, a retired professor of economics at Texas Tech University, in partnership with the Conservative Energy Network (CEN), investigates Clean Energy Standards (CES) to identify the impact of these regulations on electric cost and reliability. The study, titled “Renewable Energy Standards Need Reform to Sustainably Support an Energy Transition,” proposes changes to the Renewable Energy Credit (REC) system to better match actual energy usage and environmental impact to acquired credits on a more granular level.

In March 2022, the U.S. Securities and Exchange Commission (SEC) proposed rules that would require companies to disclose climate related information in SEC filings. According to the SEC, “registrants would be required to disclose the role that carbon offsets or RECs play in the registrant’s climate-related business strategy.“ As various players continue to make lofty environmental claims, the nature and characteristics of these RECs may be ever more important, not just with their investors, or on a theoretical or public relations level, but now perhaps as a legal standard as well.

“Voluntary corporate efforts in the clean energy space allow for greater experimentation and more rapid innovation than is typically possible in federal and state government processes,” said Landon Stevens, CEN director of policy and advocacy. “Federal and state policymakers can take advantage of these efforts by considering whether government policies ought to change in response to developments emerging from voluntary clean energy action.”

Since the creation of the country’s first Renewable Portfolio Standard (RPS) in Texas in 1999, various locales, industries, and individual companies have had to find ways to calculate and record compliance with mandated energy goals. Since that initial foray into an RPS model, energy regulation has continued to evolve. Today, more than three dozen states are discussing various forms of zero emissions or carbon free, Clean Energy Standards. Regardless of the format of the standards, RECs have emerged as the primary compliance tool and need to undergo an evolution of their own.

As states raise the stringency of RPS policies, the mismatch between renewable resources supported and consumer demand threatens to produce greater price volatility in power markets and raises reliability concerns for grid operators. This paper argues that by reevaluating the structure of RECs and looking to update them to include relevant time, location, and environmental attributes, market forces can better act to drive the meaningful environmental gains envisioned by lawmakers and validate the environmental claims made by market participants.