Green Certificates Market Poised for Growth
According to recent Environmental Finance Market Rankings winners, the US market for green certificates looks set to be fueled by increasing demand for renewable and low-carbon energy, particularly from technology companies. This trend is expected to bolster voluntary markets, even as regulatory markets prepare for potential challenges from changes in federal policy.
Energy attribute certificates (EACs), including Renewable Energy Certificates (RECs), are market-based instruments that certify the holder possesses one megawatt-hour (MWh) of electricity generated from a renewable energy source. Once the power provider has supplied the energy to the grid, these certificates can be sold on the open market. Both compliance and voluntary schemes exist in many regions.
Compliance Markets and Voluntary Demand
Compliance markets for RECs operate in approximately 30 US states. These markets, guided by Renewable Portfolio Standards, require companies to source a specified percentage of their energy from renewables either via self-generation or REC purchases. Jonathan Burnston, managing partner at Karbone, notes that major compliance markets like the Pennsylvania-New Jersey-Maryland Interconnection (PJM) and New England’s NEPOOL continue to experience REC undersupply, a situation exacerbated by delays in grid connections.
Andy Brosnan, President of Low Carbon Fuels at Anew
Karbone won best broker for EACs in North America, as well as for Renewable Identification Numbers (RINs) and Renewable Natural Gas (RNG). While the “low-hanging fruit” of renewable energy installations has already been harvested, meaning that developers must build on sites with lower resource quality, increased demand from large tech companies to power data centers could drive growth in voluntary REC markets. Andy Brosnan, president of low carbon fuels at Anew, explains that the interaction between compliance and voluntary markets in the US is a reason for optimism as voluntary demand is forecast to rise.
The way the regulatory and voluntary markets interact is that the voluntary market sits on the sidelines while prices are high – but as prices trend downward and a price point is realised that makes sense for the corporate buyer, then they’ll step in.
Brosnan adds that this pattern, which has held for the past three to five years, is likely to intensify due to rising demand from large tech companies seeking renewable energy to meet the massive electricity needs of artificial intelligence.
The Impact of Federal Policy
When asked about the potential impact of the Trump administration on corporate demand for RECs, Karbone’s Burnston suggests that this is unlikely given the AI-driven “load growth story for data centres.” He also points to the “upward sloping traded price curve” for Green-e RECs, the primary voluntary program for RECs in the US, as a long-term indicator of market strength.
Burnston also predicts that the new administration could potentially hinder future rulemaking in compliance markets. This, along with increasing difficulties in implementing new renewable projects, could increase the use of natural gas alongside renewables to ensure consistent energy supply.
Marijn van Diessen, CEO of STX Group, notes that the impacts of any changes at the federal level on environmental commodities will likely be seen in the Renewable Fuel Standard (RFS) and the Inflation Reduction Act (IRA).
Renewable Natural Gas and RINs
Renewable Natural Gas (RNG) is a biomethane produced from organic matter, for example from landfills, animal manure, food scraps, and wastewater sludge. Like EACs, RNG certificates let companies make claims about their renewable fuel use.
In the US, the Environmental Protection Agency (EPA) uses Renewable Identification Numbers (RINs) to track the production and use of renewable fuel to implement the RFS program. The RINs market has been characterized by fluctuations in the past year. Randy Prati, vice president of strategic initiatives at EcoEngineers, notes that increased renewable diesel production contributed to an oversupply of D4 RINs, which led to a price decline. Proposed EPA rules could also affect the market.
