Renewable Energy Certificates (RECs) are commonly mentioned in New Zealand’s electricity market and featured in EVA’s posts on how to support renewable energy and power purchase agreements (PPAs). So, what are RECs, and what challenges and opportunities do they present?
A REC is a ‘market instrument’ that tracks and verifies the ownership of attributes associated with one unit (e.g. 1 MWh) of renewable electricity.
RECs are a type of Energy Attribute Certificate (EAC) that specify attributes for a unit of renewable electricity, such as the generation’s energy source (e.g. wind, solar), location, plant age, carbon emissions and, sometimes, whether it is PPA-backed. When a generator produces a unit of electricity, an EAC can be issued to them, and then sold to a consumer (typically via a retailer). The consumer then owns those attributes.
Importantly, EACs do not change the electrons supplied to a consumer from the electricity network. EACs combined with their associated physical electricity in the same contract (such as a PPA) are called ‘bundled’. EACs separated from their associated physical electricity are called ‘unbundled’ - these are the most common EACs sold in NZ.
Currently, EACs and other market instruments (e.g. PPAs, green tariffs) allow consumers to make environmental claims and report lower emissions from electricity (‘Scope 2’ emissions).
EACs, including RECs, first emerged in the US, Europe and Australia in the early 2000s. REC is a term used in the US and widely adopted outside of Europe. In Europe, such certificates are called Guarantees of Origin (GO).
The creation of EAC markets was driven by a desire to allow organisations to achieve renewable targets without requiring a direct physical connection to a generator. EAC markets can be broadly categorised into mandatory and voluntary markets:
NZ does not have a mandatory market for EACs, which reflects our market-driven approach to renewables deployment. Currently, an unregulated, voluntary market operates. NZ’s small but growing RECs market was first established by Brave Trace in 2018. Since 2024, EMS has been offering an alternative service under the i-REC framework. Both Brave Trace and EMS charge small transaction fees for each REC issued.
In NZ, RECs are typically purchased from an electricity retailer but they can also be sourced directly from a renewable generator.
A key challenge for RECs is ensuring they are used effectively to support renewables and incentivise actual emissions reductions. When used ineffectively, they may threaten the integrity of corporate emissions targets and action1.
The GHG Protocol is the predominant standard that businesses use for emissions accounting and reporting. The protocol is currently under review with an update planned for 2026. Some review respondents have identified that the Scope 2 Guidance (which covers electricity) is too lenient given that RECs vary greatly in quality and price (“all EACs are not equal”). Specific issues raised were:
The respondents cite a growing body of research indicating that RECs (in particular, those not bundled with a PPA) can allow organisations to overstate their emissions reductions2,3, and show the importance of granular (e.g. half-hourly) time matching of RECs to consumption. Such issues are more acute in highly renewable electricity markets where there is an oversupply of RECs,4,5 but additional research in NZ’s context would be beneficial.
Brave Trace and EMS are working to resolve the ‘additionality’ issue. Brave Trace is developing a new ‘impact’ attribute that quantifies avoided systems emissions, informing Scope 2 emissions reporting. EMS plans to introduce labels for new generation (expires 5 years after commissioning) and PPA-backed generation (must meet strict additionality criteria). It is widely accepted that PPAs with not-yet-constructed projects do lead to additional renewables and real emission reductions.
There is an opportunity to resolve the time matching issue by introducing time-based EACs (T-EACs). T-EACs are used by Google to track progress towards their global goal of 24/7 clean energy by 2030.
Regardless of the GHG Protocol review outcome, businesses that use unbundled RECs to make environmental claims or report lower emissions should be careful not to overstate their impact. The RMI has developed an approach to quantifying impact, where the calculated impact is proportional to the REC price (lower price equals lower impact) and considers time matching.
NZ has the opportunity to be a world leader in EACs/RECs if we address the additionality and time matching issues, and establish a common EAC registry for Scope 2 reporting (to avoid ‘double counting’).
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In future posts, we’ll explore renewable electricity procurement options for businesses and their emissions impact in the context of NZ’s highly renewable electricity market. It is generally recognised that on-site generation and PPAs have the highest impact6, reflected in their higher complexity, risk and longer-term commitment.