The Universal Low-Carbon Building Standard Avoids RECs and Unnecessary Complications

This is the fourth article in a five-part series introducing a comprehensive, universal carbon standard for buildings. Part One explains how “net zero” has failed us. Part Two introduces the six building blocks of a proposed low-carbon standard. And Part Three provides details on each of those six things. 

Part Four (this one) explains why we need to prohibit offsets and RECs, and eliminate other distractions, and Part Five offers a condensed recap as well as a path toward adoption of this comprehensive low-carbon standard across the building sector.

The goal of the Universal Low-Carbon Building Standard I’m introducing in this series is to help the building industry focus on the right things—the actions we need to take to decarbonize our sector. That also means not focusing on the wrong things, which either a) lack credibility and distract from real reductions or b) introduce unnecessary complexity. 

The pursuit of renewable energy certificates (RECs) and procurement of offsite renewable energy are examples of the first problem, while grid interactivity (or requiring time-of-use emissions optimization) exemplifies the second. 

What about Offsite Renewables?

It may sound heretical to omit offsite renewable energy (RE) from a low-carbon building standard. Doing so effectively concedes that a building is not powered by 100% renewable or carbon-free energy. But that’s kind of the point.

As we discussed in Part One of this series, the vast majority of buildings cannot meet their own energy needs with onsite generation. So procuring from elsewhere is the most common way to show that a particular building is producing as much power as it’s using over the course of a year.

Renewable energy certificates (RECs) from offsite renewable energy purchases are used to show reductions or completely eliminate an entity’s scope 2 emissions (e.g., the emissions from purchased electricity). Doing so means they don’t need to reference their regional grid’s emission factor in calculating their GHG impact. They instead use the RECs they’ve acquired, usually from remote resources—as if they somehow exist apart from their physical grid.

The challenge of this virtual accounting is that RECs suffer the same problems that carbon offsets do, namely:

1. They act as permission to avoid taking action on scope 2 emissions within an organization’s own footprint.
2. Their quality (i.e. the credibility of the “additionality” claim—that they fund RE projects that wouldn’t otherwise have been built) is nearly impossible to measure, and they are most likely not creating the impact buyers believe they create.
3. They take reduction opportunities away from other entities that may need them, and they effectively increase emissions for everyone else in that region.

Yes, investing in renewables is good

Don’t get me wrong: if you’re a large corporation or city and have RE development or procurement as a central tenet of your environmental, social, and governance (ESG) program, then keep it there! In the past, large corporate buyers have been able to effect meaningful change on the grid.

As with the intention behind carbon offsets, there’s nothing wrong with investing in projects that create positive change, and companies should indeed earn some level of ESG kudos for doing so. We want investment in the technologies and projects that we’ll need for our zero-carbon future: things like sustainable aviation fuel, low-carbon steel, long-duration storage, electrified trucking, microgrids, offshore wind, and tech transfer to the global south. We just don’t want to conflate taking action in those areas with the responsibility of reducing our own emissions in our own projects and operations.   

“Additionality” is a phantom

Beyond just the shift in scope 2 accounting, there’s also the question of whether offsite renewable procurement activities are driving “additional” renewables onto the grid, i.e., how credible they are as a credit that can be used to offset one’s own footprint.

In a world where land-based wind and solar are the cheapest option, they are also the dominant technologies for new deployment, as you can see from the capacity additions planned for this year (the data look similar for the past few years).

Especially after the passage of the Inflation Reduction Act (IRA), the primary need isn’t demand for more onshore wind and solar. Rather, the need is to clear up the supply bottlenecks. If we clear those up, then the renewables will be built. There is famously more capacity of renewable energy waiting in line in the grid interconnection queue than there is existing total capacity in the US.

It would be far more valuable if the Microsofts, Apples, and Googles of the world would transform their RE procurement initiatives to take on transmission development and nascent renewable technologies like offshore wind or enhanced geothermal. They could also support movements toward transmission planning and interconnection reform, rather than doubling down on their own 100% renewable or carbon-free energy goals through increasingly convoluted initiatives.^[1] Or they could shift gears entirely and invest in green steel, electric trucking and delivery vehicles, or long-duration storage, as we discussed in Part Three of this series.

The upshot here is that we need to disconnect corporate procurement and investments in renewables from net-zero claims, which will (hopefully) encourage those companies to put those investments wherever they can have the greatest positive climate impact.

Building owners have bigger fish to fry

Most building owners and developers aren’t Microsoft, Apple, and Google. For the rest of us, the quest for offsite renewable energy is either too easy to be meaningful or too difficult to be worthwhile.

If a skyscraper owner in New York City purchases RECs from or engages in a virtual power-purchase agreement (VPPA) contract with a wind farm in Texas, has anything meaningful actually happened? From an accounting perspective, the skyscraper can call itself 100% powered by renewable energy, while the Texas grid may have more new capacity. But even if we could prove the additionality of that project, the residents of Texas are using less renewable power and therefore have higher emissions.

Texas, as you likely guessed, has a minimal Renewable Portfolio Standard (RPS) requirement, which has already been exceeded. At the same time, Texas has amazing renewable resources, and the business-as-usual electricity sector forecast, as modeled by the National Renewable Energy Lab’s (NREL) Cambium tool, shows grid emissions in Texas declining 83% by 2030 under the mid-case IRA adoption scenario.^[2]

So in this New York–Texas scenario, we are effectively crediting a skyscraper for something that will happen anyway, while the State of Texas, because it doesn’t have any significant compliance requirements, is content with having the renewable energy but not claiming it. The upshot is that the Texas grid doesn’t need our help.

What’s more, New York City and Texas have about the same grid emission factor, according to EPA’s eGrid tool. However, projects like the Clean Path transmission line (currently under development), which would connect New York City to upstate New York—one of the cleanest grid regions of the country—would unlock real new renewable energy projects, the result being that the emissions intensity would decrease not only for the one skyscraper, but for the entire City. 

A nod to local renewable energy programs

There are certainly examples of renewable energy programs out there that do create value of one kind or another.

If you are in an area with community-choice aggregation (CCA) or retail choice, go ahead and choose a 100% carbon-free energy provider.^[3] If your state has a virtual-net-energy-metering program (VNEM) or a community solar garden (CSG) program, go ahead and invest in those if you feel like they are creating local economic value or supporting affordability, or if you like the story they tell. Just don’t pretend they make up for your scope 1 and scope 2 emissions.

If you’re not in a state or region that offers those programs, then you’re left with the unsavory option of buying unbundled RECs or participating in the wholesale market to develop utility-scale renewable projects. But to what end?

Focus on the forest, not your tree

In the context of this low-carbon standard, every building is already energy efficient, all electric, and using onsite renewables in proportion to available roof area—or at least moving in that direction. Those buildings’ owners are also addressing embodied, refrigerant, and transportation emissions.

That means that offsite renewable energy procurement is really just so you can call yourself “net zero” while not really creating any meaningful positive impact to the grid.

The last thing a building owner should do is spend their time buying hot air (unbundled RECs) or dabbling in a renewable energy development space that is already saturated and well incentivized.

By omitting the offsite option, we eliminate the need to create confusing standards defining what flavors of offsite renewables count, whether they are additional or not (they probably aren’t), and what to do in states where regulation prevents any realistic procurement option. And—more than anything else—we no longer deceive ourselves into believing that our projects have a supply of clean electricity that is different from what is otherwise in the grid mix, just because we’ve acquired the RECs to say so.

We can’t have zero-emission electricity until the entire grid is zero emissions, and that’s a reality we need to be aware of and a goal to remain focused on.

What should we do instead?

This means that all corporate entities and other organizations would shift to location-based accounting, as defined in the GHG Protocol Scope 2 Guidance. If your carbon accounting is based on the grid region you’re in, your efforts should go toward cleaning the region. That way, you benefit along with everyone else in that region, which would have a much greater positive impact than staking out a claim for your own purposes while the balance of your region remains the same.

Letting go of RECs and 100% renewable goals ultimately frees building owners from holding their noses and pretending that there are high-value RECs to purchase when there aren’t, and it allows them to focus on the areas that matter, namely the six areas described in Part Three of this series.    

What About Grid Interactivity?

There’s been a lot of interest lately in “grid-interactive” or “grid-harmonized” buildings.^[4] Often, this involves a focus on the “time-of-use” (TOU) impact of grid emissions.

This is because when we use energy matters as much as how much we use: utilities supply energy in different ways throughout the day and year.

If I’m in a grid region with an abundance of midday solar capacity, then it makes sense to use energy when the sun is out. Conversely, if I’m installing onsite solar and exporting my unused production to that same grid, it’s not nearly as valuable as it would be if I stored that energy in a battery and then released it or used it later in the day, when the grid was dirtier.

Grid interactivity? Yes, and …

While this concept is important, and I am an advocate for the building industry moving in this direction, I think we need a simple, scalable approach for inclusion in the Universal Low-Carbon Building Standard.

In the absence of a coordinated effort from a utility to incentivize buildings to act in the aggregate, building operators are left trying to hack the system based on inconsistent data, confusing metrics,^[5] and limited scalability.

Buildings can only play a meaningful role in creating grid stability in a renewable-dominant grid when coordinated by an entity that can aggregate buildings as a single resource. This aggregated load that can shift or respond to utility signals is what we mean by a “virtual power plant.”

Aggregators can be utilities themselves, who may incentivize buildings to “shape” loads based on TOU energy rates, or they can be any number of aggregation entities, from smart-home hubs, battery manufacturers, electric vehicles companies, or EV charging companies, to dedicated aggregation companies.

As renewables become more and more dominant on the grid, the opportunities for aggregation and load shifting will increase. Increasing renewables will lead to periods of oversupply, which will in turn cause periods of low, zero, or negative wholesale electricity prices.

This trend is already happening with Nord Pool (a large European energy aggregator) and in California. Low intermittent prices will, over time, incentivize building owners to shift their demand to the low-cost, low-emission periods. That can be more or less successful depending on how well suppliers can communicate the price signal to end users. This can happen directly via the utility or through aggregators and virtual power plants. 

So what should all buildings do?

There are only a few really impactful load-shifting activities out there. And they should go along with the well established load-reducing measures that are hopefully already in place.

The biggest one takes advantage of the amazing storage capacity of electric vehicles. From a grid-management or load-aggregation perspective, EVs can be load-shifted through either managed charging (V1G), or bidirectional chargers that can export power back to the grid (V2X).

EVs have battery packs ranging from 60 to 200 kWh, compared to a Tesla Power Wall, with storage of 14 kWh. And Level 2 EV chargers range from 7 to 19 kW of charging power. If only 5% of the nearly 300 million vehicles in the US were EVs that participated in peak reduction or load shifting (which is reasonable given that peaks happen when everyone comes home from wherever they’ve been all day), that would represent 150 GW of dispatchable load on a grid system that has a total capacity of 1,000 GW. A third of all vehicles could power the entire existing grid.

As NREL’s Electrification Futures Study illustrates, EVs are by far the biggest resource that the grid will utilize as we electrify and decarbonize (see chart). And as the title of a paper in Nature from earlier this year notes, “Electric vehicle batteries alone could satisfy short-term grid-storage demand by as early as 2030.”

If you are installing commercial charging for a building or campus, then you will likely install a separate meter for the EVs and will have access to rates explicitly intended to shift charging to off-peak hours.

For example, Xcel Energy in Colorado has an EV rate called S-EV,  allowing customers to charge EVs at a cost of 1 to 3 cents/kWh for off-peak hours and then between 6 and 13 cents/kWh for on-peak hours (2:00 to 10:00 p.m.). Customers can also use charging-management software to control how and when the vehicles that are plugged into the system are charged.

Building owners in this program have a lot of options: they can pass on the TOU rates, set a maximum demand limit, limit charging during critical periods, etc. This is why the transportation section of the low-carbon standard includes a provision requiring separate metering, charge management, and utilization of utility rates where available.

After EV charging, the other load-shifting options are (in order of most to least cost effective):

1. Adjusting of HVAC setpoints
2. Thermal storage, including ice storage, hot and cold water tanks (including residential water heaters), and ground-source heat pumps (in most applications,  just a thermal storage measure)
3. Electric storage (batteries) that can provide local backup in an increasingly unstable grid environment, including a new wave of appliances with built-in battery capability

These can all participate in aggregation or time-of-use rate optimization and will—like EVs—be valuable grid resources. To unlock these resources, grid regions will need to establish market rules or create the appropriate incentive programs to enable aggregation entities to do their thing.  

Including aggregation in the low-carbon standard

If a building standard requires you to analyze the current and future grid and make detailed design and operational decisions based on a nuanced understanding of the grid’s dynamic and evolving characteristics, then it’s too complicated to expect any meaningful participation from most building owners.

Further, if there’s no centralized entity or market operator facilitating aggregation, then buildings will likely act asynchronously, limiting any value they may be trying to generate.

Maybe a future standard would require that buildings allow utilities or aggregators to control HVAC setpoints or other loads, or enable bidirectional EV charging. But in the meantime, we should require the load reductions and managed EV charging described in Part Three of this series, focusing our actions on the areas that can be universally applied and have the biggest impact with the least complexity.

Keep It Simple

Simply put, the six building blocks of the Universal Low-Carbon Building Standard do not require or allow offsets, RECs, or offsite renewables to be used. It’s time to let go of them in all of our rating systems and standards.

And while we should continue to explore opportunities for buildings to support the resilience of a grid that is increasingly dominated by renewable energy, we shouldn’t overcomplicate what can otherwise be a simple approach. Instead, we should allow the market for grid interactivity and load aggregation to naturally evolve to a scalable level.

Next time, we’ll talk about how to bring the entire building sector into alignment not only within itself but also with global decarbonization frameworks.

You can link to the other parts of this series here:

1. Net Zero Has Failed. We Need a Universal Carbon Standard for Buildings.
2. This is the Universal Low-Carbon Building Standard We Need
3. The Universal Low-Carbon Building Standard Does Six Things
4. The Universal Low-Carbon Building Standard Avoids RECs and Unnecessary Complications (this one)
5. The Universal Low-Carbon Building Standard’s Path to Adoption