Your Green Electricity Might Not Be As Green As You Think

Most energy suppliers nowadays offer green energy. In many if not most cases however, this does not mean what consumers would usually think it does and the choice for a green tariff often hardly helps create more renewable energy sources. The main reason for this is that the label ‘Green Energy’ is somewhat decoupled from the actual source of energy. In principle, this makes sense. If you generate green electricity from wind turbines in the North Sea, you cannot make sure it is this very electron that powers your oven in Munich. Rather, companies are allowed to calculate the net amount of energy they supply to the grid and sell that exact amount as ‘Green Energy’. So far so good. The problem however, is that companies are not forced to reinvest their profits in more renewable energies.

Internal Relabeling

The first thing that happens is this: Imagine a German energy supplier that has offered roughly the same portfolio for the last twenty years. About 10% of that is renewable, the rest is coal, gas and nuclear. Having some investment in renewables was a sound investment even one or two decades ago, but back then hardly anyone cared for green electricity tariffs. The green energy was sold anyway as a natural part of that companies’ energy mix. Now imagine the same company now. They still have the exact same portfolio, but now green tariffs have become en vogue. The company can now market their 10% share of green energy to consumers as 100% green energy and sell the exact same product at a higher price. And to a certain extent this is true: that share of their energy mix is indeed green energy. It just doesn’t mean that any new investments in green energy have happened. The only thing that changed is that other consumer of the same company now receive a lower share of renewables in their energy mix. A regular customer of that company had 10% green energy in his mix twenty years. Now the new green customers are being sold 100% green energy and the old consumers only have say 5% green energy in their mix.

National and International Relabeling

While that was bad, it is not the only form of relabeling that happens. The 2009 EU Renewable Energy Directive created the so-called Guarantees of Origin GO. Those are certificates that validate that a certain amount (1MWh) of energy was generated from renewable sources. This is good. Companies are allowed to sell and buy these certificates. This is at least partly bad. The problem is not that those certificates are traded. The problem is that they are traded much too cheaply, at a price of around 0.02 cents per KWh. This means our German energy company with 10% renewable energies can go to a company in Norway and buy a whole lot of Guarantees of Origin. Norway has an amount of renewable energy sources that far exceeds their national demand for green energy tariffs. Companies therefore simply sell of their GOs to the German company that can now sell its coal energy (more than the 10% renewables they have!) as green electricity because they have bought certificates to greenwash their energy sources. Note that again that in the example no company has made any efforts to increase the amount of renewable energy produced. They have simply relabeled what had already existed.

Solutions – Macrolevel

The idea of trading certificates to create incentives for investment in green energy is good in principle. 0.02 cents a KWh just simply does not provide enough of an incentive to actually invest. The price is also going to stay low in the near future as the amount of green energy produced in some regions far exceeds the local demand for green electricity tariffs. This is bad as consumer demand rather reflects personal preferences and awareness of environmental issues than the social optimum. It also means that every investment in renewable energy makes it cheaper for others not to invest in green energy. While the supply of GOs stays high others can simply buy them instead of investing themselves. The solution I would propose on a macro level is either forcing energy suppliers to reinvest the surcharge over regular tariffs in renewables. Or it would be creating something like a minimum price for GOs, or better yet a tax for every MWh of non-green energy supplied. A tax on non-green energy sources would increase the demand and therefore the price of GOs and make new investments in green energy sources more attractive.

Solutions – Microlevel

There is also a couple of things individual consumers can do. If you care about green energy, have a thorough look at energy suppliers that actually invest in green energy sources, thereby increasing the supply of green energy. In Germany, those five suppliers are definitely trustworthy:

You can find more information here, here or here (all German)

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