Renewable Energy Certificates (RECS) are one of a growing number of environmental commodities. They are also sometimes known as ‘Green Tags’ or ‘Renewable Energy Credits’. The concept behind RECS is that they represent a contractual right of the holder of the REC to claim any benefit that is associated with energy created from renewable sources. Each REC is taken as proof that a single megawatt-hour of electricity was generated from renewable sources, such as wind turbines and solar cells. Possession of a Renewable Energy Credit affords the buyer the ability to make the claim they have purchased renewable energy, and as these certificates are classed as a commodity, they may be traded and sold accordingly. RECS are considered to be a key component in cap-and-trade proposals, whereby companies whose emissions are over a set limit may purchase credits from companies whose emissions levels are below the limit. This is known as carbon offsetting. RECS are therefore considered by some commodity brokers as an innovative way to further stimulate the use and production of renewable energy.
Trading in RECS is carried out at Nord Pool, the first international commodity exchange for electricity and green certificates, and the Green Exchange, which is a collaborative effort between several major corporations, including the New York Mercantile Exchange (NYMEX).
A Green Tag as a commodity has several special features. Firstly, the money generated by the sale and trade of these contracts is aimed at funding energy production initiatives that are renewable in nature. In an environmentally conscious political and social climate, this is obviously a big selling point. They also differ from traditional methods of carbon-offsetting, as instead of serving as vehicle for the government to issue penalties for those companies that do not adhere to emissions standards, RECS help to generate funding for new renewable energy technologies while simultaneously feeding this renewable energy straight into the national grid. Any profits from the RECS therefore go straight to the energy company to help them generate renewable energy technologies, rather than to the buyer of the REC, who only receives the certificate.
The main business market for RECS therefore is large corporations with concerns about their carbon emission levels. As RECS are a relatively new concept, their use and trade is mostly centred on the United States, where the idea was pioneered, although similar schemes are being put into use in the European Union.
In terms of factors that would affect the Renewable Energy Certificates price, changes in legislation is perhaps the most salient. If government legislation regarding carbon emissions changes by becoming more lax, or disappearing altogether, then the value of RECS will decrease. Conversely, if laws regarding emissions become more stringent then the RECS price will increase. Furthermore, RECS trading could be influenced by the discovery of new sources of renewable energy. Should renewable energy forms take precedence over fossil fuels, then the need for RECS will be greatly diminished, which will obviously decrease their price significantly, if not render them completely obsolete.
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