One of the biggest challenges in the global transition away from fossil fuels is the absence of a standardized tracking and verification mechanism for renewable and clean energy sources. This is where renewable energy certificates can make a contribution. The United Arab Emirates, which will host the United Nations Climate Change Conference, COP28, in November, Saudi Arabia, and Oman are among a number of Middle Eastern and African countries that have adopted the international renewable energy certificate.
International renewable energy certificates are tailored tools to promote and track renewable energy production and use and ensure that energy produced by renewable sources is actually delivered. The International REC Standard Foundation provides a widely used framework for the use of international renewable energy certificates and other energy attribute certificates.
Carbon Credits Versus Renewable Energy Certificates
Carbon offsets or credits and international renewable energy certificates are similar but serve different purposes.
International airlines favor carbon offsets as a tool to neutralize the impact of emissions from aircraft because it is almost impossible for them to reach net-zero emissions with their current fuel mix and operational methodologies. However, many claims of carbon offsets’ climate benefits have been dismissed as falling short of their promises. The UAE’s Etihad, among other airlines, was recently censured by the United Kingdom’s advertising regulator for “exaggerated” environmental claims, with the regulator stating in its April decision that there are “currently no initiatives or commercially viable technologies” that would “adequately substantiate” Etihad’s claim of providing “sustainable aviation.” Aviation, a major growth area for many Gulf states, having established airlines and international travel hubs, is one of the most difficult industries to decarbonize. The engines of aircraft currently in service and those on order run on jet fuel and will be operating for decades to come. Sustainable aviation fuel has been tested on some aircraft but is blended with jet kerosene, which fails to sharply lower emissions.
The UAE, which set a target of reaching net-zero emissions by 2050 but currently has a very high per capita carbon footprint, is reportedly considering establishing a carbon-trading mechanism. In January, Maryam Al Suwaidi, the CEO of the UAE’s Securities and Commodities Authority, which has held discussions with the Ministry of Climate Change and Environment to develop a carbon market, said, “Due to the large footprint of the carbon sector in the country, it would be useful to have a carbon-trading mechanism in the UAE.”
Under the Clean Development Mechanism, adopted under the Kyoto Protocol in 1997, emission-reduction mechanisms generate carbon credits used by industrialized countries to meet part of their emission targets. But there is still a huge gap in green finance, and developing countries still lack access to affordable climate financing on the international market. If the UAE goes ahead with establishing a carbon market, it may develop into a regional carbon exchange like the emissions trading system in the European Union. It could also serve as a mechanism to manage the very high per capita emissions of Gulf oil and gas producers and help to provide some of the green finance that the developing world sorely needs.
With renewable energy production increasing rapidly across the world, tracking and verification tools are essential to ensure that emission targets are aligned with energy policy. In centralized energy systems, renewable energy is often injected into a power grid and mixed with energy from other sources, such as liquid fuels, natural gas, and coal; the Gulf states are adopting this pathway. Once an energy source enters a grid and is distributed to end users, it is impossible to determine what portion is renewable. Renewable energy certificates are among the tools available to address this challenge.
Unlike offsets or credits, international renewable energy certificates are not emissions trading tools and cannot be used for “greenwashing,” in which large businesses tout their sustainability credentials but do not deliver commensurate emission reductions. International renewable energy certificates are typically used to track and verify compliance with renewable energy targets or mandates, such as those set by governments or the private sector. They include information about the type, source, and location of renewable energy generation as well as the date and time of delivery. For example, a wind farm that generates 1 megawatt hour of electricity can receive one international renewable energy certificate, which can then be sold to a buyer, who can in turn prove that renewable energy has been used in manufacturing a product or for any other purpose. International renewable energy certificates provide a way to track and verify the renewable portion of the energy mix, allowing a power generator to benefit from the associated environmental dividend and sell the certificate on to a buyer separately from the physical energy produced.
While international renewable energy certificates are not tools for reducing greenhouse gas emissions, they allow companies and individuals to support the development of renewable energy and are often used by businesses that aren’t required to use renewable energy but want to reduce their carbon footprint. An international renewable energy certificate is retired when it is sold, meaning that the environmental benefits associated with renewable energy generation are attributed solely to the buyer and cannot be claimed by anyone else.
The UAE, the Gulf Arab state with the highest percentage of renewables in its energy mix, requires international renewable energy certificates issued in the UAE to be redeemed within the country. In accordance with the requirements of the International REC Standard Foundation, the UAE’s Department of Energy created a regulatory policy to establish local implementation guidelines and specify the features and guiding ideals of a clean energy certification program for Abu Dhabi.
International renewable energy certificates were issued for power generated by nuclear energy, among other technologies, for the first time under the terms of the agreement between the International REC Standard Foundation and the Abu Dhabi Department of Energy. This option is quite valuable to Abu Dhabi, especially with the opening of the Barakah nuclear power station, which when fully operational is expected to meet “up to 25% of the UAE’s electricity needs.”
Furthermore, international renewable energy certificates generated in other countries cannot be used to meet renewable energy targets in the UAE. So, the policy seems to be aimed at supporting the UAE’s domestic renewables industry and bolstering the country’s energy security amid the global transition away from fossil fuels. Another possible motivation is to ensure the credibility of renewable energy claims made by companies operating in the UAE.
According to Climate Action Tracker, the UAE’s new nationally determined contribution “sets a 31% emissions reduction target below a business as usual scenario (BAU) in 2030,” … “a 13% decrease compared to its previous target.” However, the agency stated that, “The UAE will not be able to achieve its NDC with current policies. It would need to implement additional policies and significantly reduce its 2030 emissions to reach its NDC target.”
Saudi Arabia and Oman are also among Gulf states participating in the International REC Standard Foundation’s framework.
Market Incentives for Renewables
Electrification – the process of replacing technologies that use fossil fuels directly with technologies that use electricity as a source of energy – is one of the most important pathways for reaching net-zero carbon emissions by 2050, which much of the world has pledged to do. Renewable energy sources in the electricity sector are making inroads because falling costs over the past two decades have made them competitive with fossil fuels (and even cheaper than natural gas in some countries). Scaling up electrification and replacing fossil fuels with renewable energy sources has been the focus in the Gulf, a region with immense solar potential.
But with only 20% of the world electrified and the Middle East lagging behind in the development and deployment of renewables, incentives are needed to scale up the infrastructure investments necessary to transition to a global economy that runs on renewable energy sources. Renewable energy certificates are designed to support the growth of renewable and clean energy by encouraging companies and organizations to demonstrate their commitment to sustainability and reducing their carbon footprint. Technology companies, retailers, universities and municipalities, and energy companies are just some of the entities that rely on these certificates as evidence that they have used renewable energy in their operations.
More broadly, one of the biggest challenges of the global energy transition is raising the trillions of dollars needed to expand renewable energy production and supporting infrastructure. In its net-zero scenario released in 2021, the International Energy Agency projected that global annual clean energy investments must rise from the current average of $2 trillion to almost $5 trillion by 2030 and $4.5 trillion by 2050. Here, again, international renewable energy certificates can play a key role. According to the International REC Standard Foundation, energy attribute certificate schemes “can accelerate a country’s energy transition by putting an additional, marketable value on the production of renewable energy.” Producers can sell both energy and related certificates, providing a complementary income stream that can reduce their reliance on government support and allow governments to direct funding more efficiently.
Energy Attribute Certificate Schemes
Most national energy attribute certificate schemes are voluntary and can differ across jurisdictions, but their underlying principles – the issuance, trade, and cancellation of certificates, allowing end users to claim the use of a given unit of renewable energy – are the same. A standard set of rules and regulations provides transparency, simplifies claims, and eliminates the problem of double counting.
The concept of “additionality” – that the sale of a certificate represents the additional environmental benefit of a renewable energy project beyond what would have occurred in the absence of the project – is essential to the renewable energy certificate system. In other words, a renewable energy certificate should not be sold if the associated renewable energy project would have been built anyway, regardless of the revenue generated by the sale of the certificate. For example, if a wind farm would have been built regardless of the sale of renewable energy certificates, then the environmental benefit of the wind farm is not considered additional and the sale of the certificates does not represent an additional environmental benefit. On the other hand, if the revenue from the sale of certificates is needed to make the project financially feasible, then the sale is considered additional and represents a new environmental benefit.
The UAE hopes to position itself as a regional leader in the renewable energy sector, and COP28 President-designate Sultan Ahmed Al Jaber and other Emirati officials have been laying the groundwork to do so in the run-up to November’s summit. Among the more contentious issues to be negotiated at COP28 are bridging the climate finance gap and the role of fossil fuels in the energy transition.
The energy transition is complex and will require an overhaul of the ways in which energy is produced, transported, and consumed. Going forward, accounting and measuring tools will have to grow and reflect the changing energy portfolios being designed to support a more sustainable environment. The Gulf Arab states will need to prove that they are taking the energy transition seriously and use all tools available to show that their net-zero targets are more than just aspirational.