Traders in clean-energy certificates fear House bill will upset market

NEW YORK -- Brokers in renewable-energy certificates have reservations about provisions in the House-passed climate and energy bill that would set a national renewable electricity standard.

While most clean technology analysts assume the bill sponsored by Democrats Henry Waxman of California and Ed Markey of Massachusetts would expand the market for the green certificates -- tradable commodities known commonly as RECs -- veterans in the REC trade fear federal mandates will crush a voluntary market for green energy.

"Due to a legislative oversight, the Waxman-Markey bill currently does not allow the voluntary market to thrive," said Rob Harmon, chief innovation officer at Bonneville Environmental Foundation. "If passed without amendments, it would eliminate the voluntary market."

Voluntary REC sales have been driven by large firms trying to buff their green images and to a lesser extent by small businesses and even households concerned about reducing their impact on global warming.

In a 2005 study the National Renewable Energy Laboratory estimated the total value of the U.S. REC market to be as high as $185 million. At the time, NREL said the market could rise to as high as $900 million assuming state laws mandating renewable energy purchases proliferated. Prices for RECs -- the paper equivalent of 1 megawatt-hour worth of clean electricity -- have varied wildly across states, from less than a dollar in parts of New England to hundreds of dollars apiece for solar RECs in New Jersey.


Thomas Rawls, a spokesman at NativeEnergy Inc., points to other parts of the bill that REC sellers do not like. Lawmakers failed to make clear enough that that a REC could be used twice -- for both compliance and for a voluntary purchase. The "double counting" problem could jeopardize REC programs.

"If someone uses a megawatt-hour for compliance under a federal RES [renewable electricity standard], that same megawatt-hour could not be used for a voluntary sale," Rawls said. "In some of the language I have seen, it is not perfectly clear about that, and ambiguity around that matter is troubling."

Though some worry about crowding out the voluntary side as the number of REC purchasers swells, the central concern is of property rights, Harmon said. His chief concern is that the legislation will strip away ownership he currently holds to RECs and transpose them to utilities facing new regulations.

A REC "represents the property rights to the environmental, social, and other nonpower qualities of renewable electricity generation," U.S. EPA says on its Web site. In the market today, it is common for contracts to assign ownership of the actual electricity from wind, solar and other renewable sources to a utility, while the nonpower attributes -- namely, the ability to monetize the appeal of green power -- are assigned to other REC brokers.

REC industry insiders point out that the new legislation creates a federal REC that has not been accounted for in clean-power contracts. Contracts that clearly spell out the ownership of a federal REC are respected in the bill, but one provision says that, in cases where ownership is not spelled out, the federal REC is delivered to the utility directly and to no other party.

"I have lots of contracts which say that I own all the renewable energy attributes and the interconnecting utility owns the generic power," Harmon explained. "The result of [the provision] is it takes away my property rights because my property rights are vested in all of the renewable energy and environmental attributes of that REC, of that megawatt-hour."

REC sellers also complain that the Waxman-Markey legislation ignores a feature important to the Northeastern states' Regional Greenhouse Gas Initiative (RGGI), which incorporates clean-energy certificates into its system.

Experts say RGGI officials track the volume of renewable energy purchases as they calculate the volume of allowances to auction to power companies under the initiative's small cap-and-trade system. If clean-energy usage rises, fewer allowances are issued. That ensures the program stays on track to keep greenhouse gas emissions below the cap.

Industry players say Waxman-Markey does not follow that model, nor does it include safeguards designed to ensure the survival of the voluntary market. Emissions could rise even as REC sales swell, they say. State renewable portfolio standards are also said to incorporate rules that encourage a robust voluntary market alongside the compliance market.

'The middle ground'

To be sure, not all experts see the bill upsetting the REC market. Most agree that by requiring all U.S. utilities to procure renewable power, the market space for corporate social responsibility buyers and households will shrink and REC prices will likely rise.

"I always kind of stick with the middle ground," said Ken Ivanic, vice president of environmental markets at World Energy Solutions, a firm that hosts auctions and over-the-counter transactions for carbon offset credits and RECs. "I think it's never quite as bad as what the naysayers are saying or quite as good as the optimists say."

Ivanic sees a coming convergence of the voluntary and compliance REC markets, with the two sides complementing each other rather than competing for supply. Pricing should also become more uniform, he said, encouraging RECs to transition from the pieces in a confusing mix of micro-markets that exists now, with prices varying wildly, toward something resembling more commonly traded commodities.

Lisa Zelljadt, a renewable-energy certificate expert at the carbon market monitor Point Carbon, also expects much of the current REC marketplace to change little. Many utilities now actively purchasing green power voluntarily could soon see themselves required to do so by law, she points out, meaning many customers will simply shift their behavior a bit but will more or less stay as engaged in the market as they were before.

Still, even optimistic analysts admit that rules governing a federal renewable electricity standard should be revised more along the lines of RGGI and successful state initiatives to allay the concerns of market players.

On the other side of the aisle, some marketers of voluntary greenhouse gas offset credits fear that the vague wording in the House bill, which would put much of the oversight of offsets to U.S. EPA and the Department of Agriculture, threatens to upset their industry, as it is not yet clear which of the nearly dozen or so competing certification systems would survive.

"For us, the big concern from Waxman-Markey has been the discouragement of early action," said John Kadyszewski, director of the American Carbon Registry. "In this particular bill, the language is fuzzy about which existing registries will be recognized going forward. It's not clear that any of them will be based on the way language is written."

Overall, there appears to be less agreement that Waxman-Markey poses a threat to the U.S. voluntary carbon market. Most hold out hope that federal cap and trade will elevate the status of their industry and encourage even more sales. REC sellers could see a similar lift by congressional action, as industry data already shows that voluntary REC sales thrive the most in states with strong renewable portfolio standards programs.

Though some crowding out can be expected, "you'll always see a voluntary market side by side with a regulatory market," said Climate Action Reserve President Gary Gero.

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