What is the key difference between Renewable Energy Credits (RECs) and a carbon offset?

The key difference between Renewable Energy Credits (RECs) and carbon offsets lies in their fundamental purpose and trade characteristics. RECs function primarily as tradable commodities representing proof that electricity has been generated from renewable sources. When renewable energy is produced, a corresponding REC is issued, which can then be sold or traded. This system not only encourages the production of renewable energy but also provides a market mechanism for its valuation.

On the other hand, carbon offsets are often associated with specific actions or projects that reduce or remove carbon dioxide emissions, such as tree planting, energy efficiency initiatives, or renewable energy development. Carbon offsets are typically sold in projects or bundled according to the emission reductions they provide over a given period.

While both RECs and carbon offsets can contribute to sustainability and environmental goals, the trading nature of RECs as commodities differentiates them significantly in the marketplace. The focus of each tool also highlights different strategies in addressing environmental impacts: RECs focus on promoting renewable energy generation, while carbon offsets focus on specific emissions reductions.