Compliance markets are created by a policy that exists in 29 U.S. states, the District of Columbia, and Puerto Rico, called Renewable Portfolio Standard.
[5] RECs can be traded directly from buyer to seller, but third party marketers, brokers, or asset managers are commonly found in the marketplace.
[9] This differentiation is intended to promote diversity in the renewable energy mix which in an undifferentiated, competitive REC market, favors the economics and scale achieved by wind farms.
The income provided by RECs, and a long-term stabilized market for tags can generate the additional incentive needed to build renewable energy plants.
[19] RECs are known under functionally equivalent names, such as Green Tags or Tradable Renewable Certificates (TRCs), depending on the market.
Though the Center for Resource Solutions and other groups claim to offer programs to prevent double counting, allowing two entities to take environmental credit for the same electricity is, in effect, the same.
The U.S. Environmental Protection Agency (EPA) favors performance-based measures of additionality, such as the megawatt-hour (MWh) equivalent per REC.
Critics argue "additionality" amounts to a subsidy for renewable energy, that business as usual (supply and demand) prevents unnecessary/duplicative renewable energy from being sold in some markets where overgeneration (excess supply in relation to demand) threatens grid reliability.
We can learn from EPA's SOx and NOx cap and trade program regarding how the principle of additionality with a national standard provided a benchmark for measuring and validating the commodification of pollution prevention credits that lead to market-driven initiatives with proven results in improving regional and national air quality.
[citation needed] Though both sources are properly credited financially, double-counting permits states to report emissions as being up to 50% lower than they actually are, making claims of progress in meeting climate goals dubious.
Severin Borenstein, director of the Energy Institute at UC Berkeley's Haas School of Business, writes, "If the certificates are stripped off...separately from the electricity, the FTC [Federal Trade Commission] says...it is deceptive for the TPO [third party owner] to advertise or tell solar buyers they are getting 'clean', 'renewable', or maybe even 'solar' electricity with their lease or power purchase agreement.