What is a Renewable Energy Certificate (REC)?

Quick Answer: A Renewable Energy Certificate (REC) is a market-based instrument that certifies one megawatt-hour (MWh) of electricity was generated from a renewable source and delivered to the grid. Each certificate carries the environmental attributes of that generation, separate from the physical electricity itself. Organisations purchase and retire RECs to substantiate renewable electricity use claims and reduce their reported Scope 2 emissions under the GHG Protocol's market-based method.

What is a Renewable Energy Certificate (REC)?

A Renewable Energy Certificate is a tradeable certificate issued every time a renewable energy facility generates one megawatt-hour of electricity and feeds it into the grid. The certificate represents the environmental and social attributes of that generation: the fact that the electricity came from wind, solar, hydro, biomass, or geothermal rather than fossil fuels.

Once a registry issues a REC, buyers and sellers can trade it independently of the physical electricity. This separation is what makes RECs useful. Because electricity on a shared grid is indistinguishable by source, RECs provide the paper trail that allows an organisation to say, with evidence, that renewable generation matched a specific quantity of its electricity consumption.

Each REC carries a unique identification number and a set of data attributes, including the fuel type, the facility location, the generation date, and the tracking system it belongs to. This prevents double-counting: once a buyer retires a REC, permanently claiming it, no one can sell or use it again.

How do RECs work in practice?

When a wind farm or solar installation generates electricity, the relevant tracking registry issues one REC per MWh produced. The generator can then sell those RECs separately from the electricity itself, either bundled with a power purchase agreement or as standalone unbundled certificates.

A buyer purchases RECs to cover their electricity consumption. To make a legitimate renewable energy claim, they must retire the RECs through the tracking registry. Retirement is the formal act of taking the certificate out of circulation permanently. Without retirement, the claim has no standing.

RECs come in two main forms:

• Bundled RECs: sold together with the underlying electricity, typically through a green tariff or power purchase agreement (PPA). The buyer receives both the power and the certificate in one transaction.
• Unbundled RECs: sold separately from the electricity. The buyer purchases commodity electricity from the grid and acquires RECs independently to cover the environmental attributes of that consumption.

Unbundled RECs are generally cheaper and more flexible, but they attract more scrutiny in corporate sustainability reporting because the link between the certificate and actual electricity supply is less direct.

How do RECs relate to Scope 2 emissions reporting?

Under the GHG Protocol's Scope 2 Guidance, organisations must report their electricity emissions using two methods: the location-based method and the market-based method.

The location-based method uses average grid emission factors for the region where the organisation consumes electricity. The market-based method uses contractual instruments, including RECs, to reflect the specific attributes of the electricity an organisation has chosen to purchase.

RECs apply specifically to Scope 2 emissions. When an organisation retires RECs that cover its full electricity consumption, it can report a market-based Scope 2 figure of zero for that portion of its footprint. This is the mechanism behind corporate claims of '100% renewable electricity.'

One important constraint: RECs only address Scope 2 emissions. They have no effect on Scope 1 emissions (direct emissions from owned or controlled sources) or Scope 3 emissions (value chain emissions). An organisation using RECs to claim renewable electricity use still needs to account for and reduce emissions across the rest of its footprint.

How do RECs differ from carbon offsets?

RECs and carbon offsets are both market-based instruments used in emissions accounting, but they measure different things and serve different purposes.

The key distinction is that a REC does not represent a tonne of carbon removed from the atmosphere. It represents the environmental attributes of a megawatt-hour of clean electricity generation. Using RECs reduces a reported Scope 2 figure; it does not neutralise emissions in the way a carbon offset aims to.

Both instruments have a role in a credible carbon strategy, but they should complement genuine emissions reductions rather than substitute for them.

What are the limitations of RECs?

The main criticism of RECs, particularly unbundled RECs, is that purchasing them does not automatically drive construction of new renewable energy capacity. If a wind farm would have gone ahead regardless of REC revenue, buying its certificates provides limited additional climate benefit beyond the accounting entry.

The concept of additionality captures this concern: whether the purchase of a REC actually drives new clean energy generation that would not otherwise have occurred. Bundled RECs from new projects, or RECs purchased through long-term PPAs, generally carry stronger additionality than spot-market unbundled certificates.

A second limitation is geographic mismatch. In some markets, an organisation can purchase RECs generated in a different region from where it consumes electricity. The certificate may represent clean generation that has no practical effect on the grid the buyer is actually connected to.

For organisations building a credible, GHG Protocol-aligned carbon footprint, understanding these limitations matters. Seedling's carbon accounting process helps companies correctly classify and report REC-based claims under the market-based method, so that Scope 2 figures are both accurate and defensible to stakeholders.

How are RECs tracked and verified?

Regional tracking registries manage RECs, issuing, recording, and retiring certificates. In the United States, these include systems such as WREGIS (Western Renewable Energy Generation Information System) and NAR (North American Renewables Registry). In Europe, the equivalent instrument is the Guarantee of Origin (GO), managed through national registries.

Each certificate carries a unique serial number that follows it through the market. When a buyer retires a REC, the registry records the retirement against that serial number, making it impossible to claim the same certificate twice.

Third-party certification programmes, such as Green-e Energy in the US, add an additional layer of verification by auditing whether RECs meet defined quality standards before sellers can offer them to voluntary buyers.

For organisations reporting under frameworks such as the GHG Protocol, CDP, or SECR, the ability to point to retired, verified RECs in a recognised tracking system is what makes a market-based Scope 2 claim credible rather than aspirational.