Carbon Investment Loans
REGOs and Greenwashing
I recently had a nice discussion with my hackerspace about Renewable Energy Guarantees of Origin (REGO) and Iceland’s role in the scheme. For those of you unfamiliar, REGOs are certificates that prove that a certain amount of electricity has been generated from renewable sources. They are issued by regulatory bodies and can be traded between energy suppliers and consumers to demonstrate compliance with renewable energy targets.
The goal of REGOs is to provide transparency and accountability in the renewable energy market, ensuring that consumers can make informed choices about the source of their electricity.
You could consider them a next-generation implementation of carbon credits. Previously the voluntary carbon market (VCM) proved to be incredibly unreliable and unregulated. John Oliver had a vicious takedown of carbon credits a while back. It’s a great watch.
REGOs are an improvement on that scheme, relying on a regulated body, and with source-origin proofs. You can be sure that the energy really was generated from a valid source, not just a forest someone promised not to intentionally burn down.
There are issues with REGOs, though. In practice they started with a hint of promise, but have become little better than green-washing of late. There are three main issues:
- To be beneficial, they must be “additional”
- Funding should lead to further investment in green energy
- Cannot double-count the credits
REGOs fail bady at all three.
First, the idea of additionality is that reductions or production would not have occurred without this market. If the program is not additional, then offsetting/crediting rather than directly reducing emmissions can actually worsen the effects of climate change. To be additional, the ability to purchase carbon offsets or certificate must be a deciding factor in whether or not it will be implemented. By their nature, REGOs are an after-the-fact market. There is no additonality at work.
Second, the money being paid to the producers of the original green energy have no limitations on what they do with the money. This is great for the recipient, of course. We in Iceland pull in lots of money through the scheme and can do whatever we want with it. But that money, the entire market worth, is therefore not going intentionally toward fighting climate change. If anything we are taking money that could have been invested in climate action away from it.
And third, it’s very easy to double-count the credits themselves. Iceland is 100% renewable, right? Well, legally-speaking, no. We sold those credits to foreign energy producers. Now Iceland can’t claim it’s green. There is no enforcement, though. Some people will claim it regardless of the legal facts. And others, more frustratingly, will point out that while we aren’t legally green, all of the energy produced domestically is green. Semantics, right?
What a company buys with REGOs is the reputation of a green energy producer, but that reputation doesn’t go away for the source. At least not in any way that matters. This makes it really tempting for places like Iceland to jump in with both feet. Of course we could use more money coming in. But what damage are we doing to environmental efforts in the process.
And what about the costs incurred by the company buying these credits? Surely this is driving up their prices and making green energy more attractive as an alternative, right? Well, not really. In practice the money gets trickled down (in the bad way) and costs rise for individuals. There may not be an alternative choice in their market. Often what we see is that the power producer will simply offer a green choice at a markup, and then whatever costs are incurred from customers making that choice, they will apply the markup difference to buying the credits to fulfill it. Thereby they have changed nothing about their operations at all, no investments or reductions are made, and the company seems to be offering a green solution to those who want to pay for it.
Everyone wins! Except the planet.
So what is the alternative?
I think we’re on the best track we can be with the world structured as it is. There is zero desire to introduce a pan-European tariff scheme, especially among politicians already wary of federalism. Sovereignty must rain supreme here, and that’s dealing with countries that have an established shared political landscape. How much harder it will be to rope in East Asia or the United States in the mix.
For better or worse (it’s worse) we’re probably stuck with action on the commercial level. So what can we do. VCMs were a disaster. REGOs are turning out not much better. Do we toss the whole thing out? I don’t think so, not quite yet anyway. I think we’re on the right track, but we need to be vigilant and constantly shore up the holes in the plans we implement. Businesses are savvy and they will try to exploit any holes they find. We mustn’t give in to thinking a solution is a one-and-done. It will take patching.
So what could we patch first? I have a potential solution for the first two failings of REGOs: carbon loans.
Rather than purchasing carbon offsets or certificates for energy units, those units can be taken on loan, with interest. This would require a continued regulatory body involved to validate the process. If a company wanted to purchase 100 units of carbon certificates, they would state their intention to take them on loan from a producer with certified origin certificates available. So far this is the same as REGOs. There is a limited fund available based on the currently produced green energy market. It isn’t speculative, and it’s all regulated and verifiable.
The difference is, no money is paid to the origin producer at that time. Instead, the value of that transaction is on loan, with interest, to the dirty energy producer. Payment of that loan must happen through green energy investment or by additive reduction in their own emmisions. And here we need the second part of the regulation. These entities need to be reviewed and approved by the same body who regulates the source certificates. This is to avoid the scams we see in the VCM market.
It’s a hybrid model of VCMs and REGOs, basically, with interest. The hope here is that the cost of these purchases can be lowered by acting locally on themselves first. Why give the money away when you can lower your own emissions and spend less?
Is it perfect, oh definitely not. Are there issues, probably! It doesn’t actually bring in money for the origin certificate folks. Who knows, maybe they get the interest in exchange for a role as regulators proving that the loans have been paid off? I’m not sure. What it does do is encourage spending on new additive efforts and focuses the money in green directions. That’s a marked improvement over the current scheme.