Friday, November 03, 2006

A Reader Writes... and the Writer Corrects (and Recorrects)

Commenter Al wrote:

When one buys those credits, nothing is offset and no new capacity is built. Those credits represent a bundle of intangible benefits of green energy which has already been produced and sold. That offsets nothing unless there was either constant or decreasing total energy demand at the time that the energy was produced.

The purchase represents free money to somebody, though probably only a fraction to RCE which seems to be a mere broker, with the bulk going to the energy producer. The hope is that this will create an incentive for the producers to build more capacity, but there is absolutely no requirement that they must do so.

Al is right about the nature of renewable energy credits as " a bundle of intangible benefits of green energy which has already been produced and sold"; I did get that wrong in my initial post. I apologize for that incorrect information -- partly a combination of having the process backwards in my mind, and partly being in too much of a rush to get the post up to verify my understanding -- should've have redone my homework. And he's right about their being no requirement to build new capacity. What certifiers verify is the production of the energy that would also have the "intangible benefits of green energy."

On the matter of offsets, I fail to see how the level of energy demand affects the credits. Sure, with periods of rising demand, non-renewable generation is ramped up, but as long as renewables are feeding power, wouldn't they still be offsetting additional power that would have to be produced by those non-renewable sources? I do know that, in general, most renewables aren't suited to meeting rising demand, and that the nature of certain renewables makes meeting peak demand difficult to impossible (i.e. peak demand usually occurs in the evening, so solar power can't meet it). I don't see how this affects the offset quality, though, of renewable power that is produced. Educate me... seriously.

Finally, I still take exception to the "free money" characterization. Even with my corrected sense of how the process of creating and selling offsets works, I find that odd wording. Now, I understand that wind farm developers invest in these projects, in part, because they can sell the offsets. So, "return on investment" seems like a more accurate characterization, without the shady undertones. Or, do we consider interest paid on a savings account, or a higher return on a stock purchase, "free money" also...?

UPDATE: After some more digging, I discover that Al and I were both half right (I knew I hadn't just concocted my explanation -- at the same time, I should've rechecked my facts). Some projects selling wind credits are "pre-selling" them to raise funds for renewable energy projects under construction -- NativeEnergy is an example of this. At the same time, it doesn't look like such pre-sales create a binding obligation for those projects to produce the amount of energy and intangible benefits, but rather to commit the money to the projects. Should the projects not go online for some reason, NativeEnergy has committed to using the funds from sale of green tags to purchase additional offsets so that customer monies still go to offsetting carbon emissions. They present this as a worst-case scenario, and it looks like that's a fair characterization, as the projects they support are well underway.

This has been a fascinating discussion, even while heated at times. We're clearly dealing with a complex concept, and I've heard that Whole Food and RCE are keeping an eye on this discussion, and figuring out ways to address the concerns mentioned here and elsewhere.

David Roberts at Gristmill has weighed in at this point, also -- he supports the concept, but believes that "donation" accurately represents the transaction occuring here. Brian Green has made a good case for that label, also. I certainly understand why a for-profit company would want to avoid that word. I'm interested -- would your perceive a for-profit company soliciting donations as unseemly? Or, is that just another example of the non-profit and for-profit sectors overlapping more and more?

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