Understanding Carbon Offsets

Energy Efficiency Certificates

What is an Energy Efficiency Certificate?

Energy efficiency certificates (EECs), or “white tags,” are a tradable environmental commodity that represents a MWh reduction in energy consumption through an energy efficiency activity. Although far less common than RPS compliance RECs, they also serve a compliance function in a few States and other countries where there are government mandated quotas for energy savings. These mandates are placed on electricity distribution utilities.

In theory, EECs are analogous to emission offset credits, but are instead denoted in units of energy reductions rather than emissions reductions. To be counted as an emission reduction an EEC project would need to satisfy the same quality criteria (e.g., additionality and accurate quantification) and assurance processes as a carbon offset project.

EECs are denoted in term of MWh of energy savings. Therefore, they would have to be converted to metric tons of GHG emission reductions by analyzing the marginal impact of the underlying energy efficiency project on electricity generation emissions.

Given the immaturity of the market for EECs and the lack of standardization of methods for these certificates there is limited information about this option.

Location

There is a very small and immature compliance market for EECs. Connecticut, Pennsylvania, and Nevada have allowed utilities to use and trade EECs for compliance with their energy efficiency obligations. Italy operates a national program.

Cost and Management Burden

Cost per metric ton of CO2e: Not available

Unlike the carbon offset credit market, there are no independent institutional mechanisms in place for EEC quality assurance. It would require significant management burden for the purchaser would have to curate this transaction largely on its own.

Environmental Integrity

There are several significant challenges with EECs. The existing quantification protocols for EECs account for historical energy use and weather effects, but do not consider additionality as fully as a carbon offset project. Therefore, EECs can be issued to projects that are profitable and likely to be implemented in the absence of the EEC incentive (i.e., they likely lack environmental integrity).

An organization could more credibly purchase carbon offset credits from an energy efficiency project.

Social and Environmental Co-Benefits

There is minimal risk of harm.

Potential Risks

Given the immature market and lack of standardized quality assurance criteria, energy efficiency certificates present environmental integrity risks.

Conclusions

Theoretically, the EEC option is the same as the carbon offset option, but without the benefit of the broad technical support community and standardized quality assurance processes. The voluntary carbon offset market already includes numerous types of energy efficiency project types that embed credible methods for quantifying metric ton of emission reductions and addressing additionality issues. EECs are a far inferior and higher risk option to carbon offset credits.