Because nuclear and fossil fuel power are subsidized and their full costs are not built into the price charged, they are cheaper than most renewable sources. The wholesale price for electricity is determined by non-renewable sources and is often less than the cost of producing it through cleaner renewable methods. This is due partially to government subsidies for the nonrenewable energy industry, and partially to a market structure that does not fully capture all social and environmental costs associated with conventional electricity generation (like air pollution, costs to maintain the military in oil-rich parts of the world, disposal costs for nuclear waste, health impacts of dirty generation, etc.) A REC represents an additional payment for producing power from renewable resources, allowing the producer to generate and sell electricity at the local market price and thus enabling more clean renewable energy to be made.

A REC might be considered analogous to a carbon credit. Under the Kyoto Protocol, a market is set up where countries which produce too much carbon can buy carbon credits from countries which have a surplus. Each carbon credit equals 1 metric ton (2205 pounds) of carbon dioxide. In the simplest sense, if a government passes the cost of Kyoto compliance on to certain industries, those industries have to pay for carbon credits to offset the CO₂ (carbon dioxide) they produce--a carbon tax. The UK does this in fact, and as a result, it's cheaper for a coal plant to trap its CO₂ than it is to let it into the atmosphere and pay for it with carbon credits. ^{(Citation needed)}

The U.S. has not ratified the Kyoto Protocol and doesn't require polluting industries to pay for their carbon emissions. However, rather than adding such a carbon tax, the U.S. may eventually accomplish something similar by instead apportioning a subsidy to non-polluting electricity producers for each ton of polluting electricity they displace. These are REC credits. Rather than paying for the right to emit, say, 1 ton of greenhouse gas, you can buy a REC and pay for the extra cost needed to make renewable energy. Critics point out, however, the flaw in this system is that it does not require any proof of displaced polluting power. Since some renewable energy sources, most notably wind power, are intermittent and variable, their production does not displace an equivalent amount of other sources, diminishing the effective value of the RECs. As more wind generators are built across vast regions of a country, however, their intermittent energy production can be averaged out.

Prices of RECs

According to the Green Power Network, prices of RECs can fluctuate greatly (2006: from $5 to $90 per MWh, median about $20). Prices depend on many factors, such as the location of the facility producing the RECs, whether there is a tight supply/demand situation, whether the REC is used for RPS compliance , even the type of power created.

While the value of RECs fluctuate, most sellers are legally obligated to "deliver" RECs to their customers within a few months of their generation date. Other organizations will sell as many RECs as possible and then use the funds to guarantee a specific fixed price per MWh generated by a future wind farm, for example, making the building of the wind farm a financially viable prospect. The income provided by RECs, and a long-term stabilized market for tags can generate the additional incentive needed to build renewable energy plants. (See What are TRC's?) One of the few non-profit U.S. organizations that sell RECs, Bonneville Environmental Foundation was instrumental in starting the market for RECs with their Green Tag product. They use the profits from Green Tags to build community solar and wind projects and to fund watershed restoration. Another non-profit currently selling RECs is Conservation Services Group, which sells ClimateSAVE RECs generated from wind, solar, and hydropower.

REC Certification

RECs are known under functionally equivalent names such as Green Tags or Tradable Renewable Certificates (TRCs), depending on the market. The U.S. currently does not have a national registry of RECs issued. Several certification and accounting organizations attempt to ensure that RECs are correctly tracked and verified and are not double-counted. Increasingly RECs are being assigned unique ID numbers for each 1,000 kWh produced. RECs are certified by Green-e and The Climate Neutral Network. REC markets are increasingly overseen through regional tracking systems such as WREGIS, NEPOOL, GATS, ERCOT, M-RETS, and CRS

Technologies That Qualify for RECs

The following generation technologies qualify as producers of RECs:

• Solar electric
• Wind
• Geothermal
• Low Impact Hydropower (small run of the river facilities, not ones that produce dams)
• Biomass
• Biodiesel
• Fuel cells (only if powered by hydrogen produced by one of the above approved generators)

Use of RECs to Claim Carbon Neutrality

Recently, with increased understanding in the United States of the concept of "additionally" more consumers are hesitant to claim that their purchase impacts their carbon footprint. This is because the UNFCCC (United Nations Framework Convention on Climate Change) asserts that a greenhouse gas emission reduction project must prove that it would not have occurred without concern for the mitigation of climate change. Clean Development Mechanism (CDM) projects must attest to their additionally by way of proof according to the CDM's "Tool for the demonstration of additionally". One main aspect of additionally is that the project was not required by way of government mandate. RECs produced in US states with RPS (Renewable Portfolio Standards) would likely not pass this test of additionally. Another test for additionally is whether or not the project is financially "business as usual". All US RECs can currently expect to receive government subsidy in the form of a $.019/kWh production tax incentive. This largely degrades the argument that the project is financially additional. Mainly, the concept is that without the project proving additionally, a REC should not be used to offset carbon dioxide emissions.

A popular incentive for buying RECs is to make the claim that your energy use is carbon neutral and hence does not contribute to global warming. Looking at the situation from a macroscopic level, buying RECs finances some portion of the increased costs of green energy producers, to reduce the producer's increase in cost as compared to sources which pollute more. However, it could be argued that the green energy production facilities which are already built today might still continue functioning and producing energy at the same rate even if no one were to buy another REC. On a microscopic level, buying a few RECs has very little direct effect on the amount of CO₂ produced at this very moment. As larger and larger numbers of RECs come into demand, however, renewable energy will become more and more cost effective per kWh in comparison to nonrenewable energy.

The EPA claims to have the highest percentage use of green power of any federal agency. It offsets the electricity use of 88% of its offices by purchasing a corresponding number of RECs. Many private corporations are also working to finance green energy and claim carbon neutrality as a result of their ongoing REC purchases.

To find the number of RECs you would need to personally claim the arguable label of carbon neutrality, you can use one of many carbon calculators available online (such as the one at An Inconvenient Truth). This can give you an estimate of how many tons of CO₂ you produce per year, based on your travel habits and home energy use. However, it will vastly underestimate your total carbon footprint. Based on the total amount of CO₂ produced by the entire country, each U.S. citizen emits 24 tons of CO₂ per year (according to U.S. Department of State (2002) U.S. Climate Action Report 2002 Popn. Pg. 10 Paragraph 2, GHG emissions Pg. 28 Paragraph 1 (note paper uses Teragrams), cited by Carbon Planet). Your carbon footprint not only involves your electricity and gasoline use but also the greenhouse emissions associated with everything else you do and consume--things you eat, wear, furnish your house with, the roads on which you drive, the hospitals, the streetlights, etc.--everything that powers the engine of the U.S. economy.

Prices for certificates currently range from $5.50 to $12 per short ton ($6 to $13 per metric ton), depending on seller.  With more "green" producers becoming financially savvy, REC brokers will see their position threatened as buyers start going directly to the source. This purchasing strategy will provide cheaper RECs allowing for a more diverse group of end-users.