Understanding the Roles and Differences of Renewable Energy Certificates and Carbon Credits in Climate Action

Overview:

As companies strive to meet climate and sustainability targets, two widely used tools often come into play: Renewable Energy Certificates (RECs) and Carbon Credits. While they are sometimes confused or used interchangeably, they represent fundamentally different environmental claims — and serve different purposes in decarbonisation strategies.

1. What Are RECs?

A Renewable Energy Certificate (REC) represents 1 megawatt-hour (MWh) of electricity generated from a renewable source — such as solar, wind, hydro, or biogas — and delivered to the grid.

Since all electrons on the grid are indistinguishable, there’s no way to tell whether the electricity you use came from a clean or dirty source. RECs act as the instrumental proof that a specific amount of electricity was generated from a renewable source. Whoever owns the REC can claim they used that renewable electricity — provided they are connected to the same grid where the generation occurred.

Analogy:
Imagine a box full of identical rocks. If Harry and Sally each place a rock in the box, and Tom later removes one, he can’t tell whose it was. But if Sally issues a certificate confirming Tom took her rock, and no one else makes that claim, Tom can legitimately say he took Sally’s rock. RECs work the same way to ensure no double-counting of green electricity.

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2. What Are Carbon Credits?

A carbon credit represents one tonne of CO₂-equivalent (tCO₂e) emissions that has been reduced or removed from the atmosphere through a certified sustainability project.

These projects include:

Avoidance projects – e.g. renewable energy displacing fossil-fuel generation on dirty grids
Removal projects – e.g. reforestation, soil carbon, or direct air capture

Each credit provides evidence that a project delivered verified climate impact. When a buyer retires a carbon credit, they are claiming that they have reduced their own emissions by the amount of climate benefit that was generated by the project.

Carbon credits are often used by companies or governments to cover emissions they cannot yet reduce directly. While this allows flexibility in decarbonisation strategies, such credits should complement, not replace, efforts to cut emissions at source.

Further to this, carbon credits serve as a mechanism to finance climate solutions, where a purchase of carbon credits is essenitally an investment into environmental action that may not have occurred at scale without such support.

3. Carbon Credits from Renewable Energy: The Avoidance Pathway

When renewable energy replaces electricity from a fossil-fuel-heavy grid, it avoids emissions that would have otherwise occurred.

Take South Africa, where the electricity grid is predominantly coal-powered. The grid emissions factor is in the range of 0.96 to 1.03 tCO₂ per MWh. That means for every 1 MWh of electricity consumed from our grid, approximately 1 tonne of CO₂ was produced to create that 1 MWh. However, should one rather use 1 MWh from their own renewable energy sources, such as solar or wind, 1 tonne of CO₂ is avoided.

In contrast, countries with cleaner grids — such as Zambia, where hydro dominates — may have a grid factor below 0.2 tCO₂/MWh. In such contexts, you would need to generate 5+ MWh of renewable energy to avoid 1 tonne of emissions. This impacts the viability of renewable energy carbon credits across different regions.

4. Timing and Usage: Key Differences

5. Standards + Registries: Ensuring Integrity

To avoid double-counting, maintain credibility and ensuring high integrity, both instruments are issued through formal Standards:

Carbon Credit Standards:
Verra Standard, Gold Standard, Clean Development Mechanism (CDM)
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REC Standards:
International REC Standard (I-RECs) and ZARECs (South Africa)

Once the Standard has issued a REC or Carbon Credit, these are then tracked in registries. Such registries give unique serial numbers to the assets, create various important timestamps, manage all ownership transfers and facilitate retirements — ensuring that once an asset is claimed or retired, it can’t be used again.

Carbon Credit Registries:
Verra Registry, Gold Standard Impact Registry, Carbon Offset Administration System of South Africa
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REC Rgistries:
I-Track, GAE Connect

6. Verification and Process Complexity

Carbon credits go through a rigorous and multi-year process, while RECs are generally simpler and faster to issue.

Carbon Credit Projects Require:

Approved methodology selection
Baseline and monitoring plan development
Independent third-party validation and verification
Audit reports
Ongoing data submission and updates
Timelines: typically 12–24 months from start to issuance

REC Projects Typically Require:

Basic registration
Metering from an approved third party
Minimal or one-time site validation
Timelines: issuance can take a few weeks

7. Cost and Price Comparison

The Prices provided are indicative and subject to supply and demand, quality, standard, methodology, hour of generation, year of issuance and various other factors.

8. Challenges and Improvements in the Market

While both RECs and carbon credits are important tools in climate strategies, they are not without challenges:

Challenges with Carbon Credits:

Credibility Concerns: Some projects have been criticised for overstating impact, and/or fraud
Time Lags and Cost: Long development, verification cycles and international audits drive costs up
Price Volatility: Varies widely by type, geography, and market type (compliance vs voluntary)

How it’s improving:
Reforms are underway through organisations like the Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI), aiming to standardise high-integrity claims and improve transparency while Standards and Registries are eveolving to becoming more digitised and efficient.

Challenges with RECs:

Credibility Concerns: Due to limited physical inspections, facilities can commit fruad in reporting
Location Matching: Using RECs from other countries may not reflect local grid emissions
Hourly Matching: Annual or monthly RECs may not cover peak grid use (especially in regions with solar)

How it’s improving:
The move toward hourly RECs, local sourcing, and digital traceability (e.g. via blockchain or smart registries) is helping improve the environmental credibility of REC use.

Final Thoughts

RECs and carbon credits are complementary tools for driving sustainability — not interchangeable ones.

RECs allow buyers to claim that the electricity they use came from renewable sources.
Carbon credits allow buyers to claim they have reduced their net emissions by supporting climate-positive projects.

Used thoughtfully, both instruments can support decarbonisation pathways. The key lies in understanding what each represents, how it’s generated, and how it aligns with broader climate goals — including transparency, credibility, and continuous emissions reduction.

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