The relationship between electricity emission factor and renewable energy certificate: The free rider and outsider effect

Abstract

Abstract Energy generation contributes nearly 40% of global greenhouse gas (GHG) emissions, and half of energy generated is purchased and used by industrial or commercial entities (Scope 2 category emission). Other than conserving energy and upgrading energy efficiency to reduce GHG emissions, these Scope 2 entities can switch to low-carbon electricity generated by renewable sources, whether through on-site installations or through energy products purchased. An electricity tracking and certification framework, such as the renewable energy certificate (REC), can be a powerful policy instrument to promote the acquisition of low-carbon electricity by the Scope 2 users. Designing, implementing, and regulating a REC framework must be meticulous in the determination of the electricity emission factor (in CO2 equivalent per unit power generated). This article uses several simplified scenarios to illustrate the advantage of implementing a trackable REC system to avoid the “free-rider effect” in the electricity market, and the proper accounting mechanism for the inclusion of onsite installations of renewable energy to eliminate the “outsider effect”. Still in its early phase of implementing a REC instrument to reach the GHG emission reduction goal, Taiwan has a chance for successful transition from the existing fossil fuel-rich energy portfolio to a low-carbon one, through reforming its energy infrastructure and introducing incentive-driven policies. Therefore, this paper also provides constructive recommendations to the policy-makers on the deployment of the REC system.