Understanding Carbon Offsets

Power Purchase Agreements (PPAs)

What is PPA?

This option for claiming emission reductions is different from the previous ‘RECs by themselves’ option in that the RECs involved here remained “bundled” with an underlying wholesale power purchase agreement (PPA). The same issues differentiating voluntary versus RPS compliance RECs apply. As do the same conclusions and recommendations. Here we focus on the distinctions between the bundled and unbundled compliance RECs options.

Location

Same as compliance RECs.

Cost and Management Burden

Cost per metric ton of CO2e:

Cost would be negotiated as part of a PPA. Unfortunately, there is no standardized methodology currently for quantifying the emission reduction impacts of a PPA.

Environmental Integrity

The same environmental integrity issues differentiating voluntary versus RPS compliance RECs apply to this option. Although, by keeping compliance RECs bundled with a PPA it will be easier to procure a longer-term contract, which should increase the probability that the action will result in additional emission reductions.

Social and Environmental Co-Benefits

There is minimal risk of harm, as well as limited opportunity for co-benefits with this option.

Potential Risks

It is increasingly common for companies to use a renewable energy PPA and retire the associated RECs to make green energy purchasing and GHG reduction claims. This option provides far more environmental integrity than voluntary RECs alone, but the effectiveness of the various types of PPAs has not been studied or established.

Conclusions

Although there is uncertainty regarding how to properly quantify the impact of PPAs in corporate GHG reporting, this option does present fewer environmental integrity problems. Buyers could establish a strong claim to emission reduction by bundling and retiring under-supplied RPS compliance RECs with their PPA.