Understanding Renewable Energy Credits vs. Carbon Offsets

As more organizations set sustainability goals, two terms come up repeatedly: Renewable Energy Credits (RECs) and carbon offsets. They’re often mentioned together but they serve very different purposes.

For large energy users, understanding the difference matters. The choices you make can impact cost, credibility, and how meaningful your sustainability efforts actually are. We’ll break down what each one means and how it can benefit your business.

What Are RECS?

RECS represent the environmental attributes of electricity generated from renewable sources like wind, solar or hydro. When a renewable facility produces electricity, it creates both physical power and a REC. These two components can be sold separately.

Purchasing a REC allows an organization to claim that a specific amount of its electricity consumption came from renewable sources, even if the physical power delivered to the building comes from the traditional grid. In other words, RECs are renewable energy generated on your behalf. In most cases, one REC equals one megawatt-hour (MWh) of renewable electricity generated. 

RECs are commonly used to support renewable energy development and to meet voluntary sustainability goals or regulatory requirements. They are also relatively straightforward to track and report, making them a popular option for organizations looking to reduce their emissions.

What Are Carbon Offsets?

Carbon offsets work differently. Instead of representing renewable electricity generation, offsets represent reductions or removals of greenhouse gas emissions elsewhere. These projects can include reforestation, methane capture, landfill gas projects or investments in energy efficiency.

When an organization purchases a carbon offset, it is compensating for emissions it could not eliminate directly. Offsets are typically measured in metric tons of carbon dioxide equivalent (CO₂e) and can apply to a wider range of emissions.

While offsets can play a role in a broader sustainability strategy, they vary widely in quality and credibility. Not all offset projects deliver the same environmental impact, and the benefits are often harder to verify.

Key Differences That Matter

The most important distinction between RECs and carbon offsets is what they actually represent. RECs are tied directly to electricity generation, while offsets are tied to emissions reductions that occur somewhere else.

RECs are generally considered a more direct and transparent tool for addressing electricity-related emissions. Carbon offsets, on the other hand, are often used as a last step when emissions cannot be reduced through operational changes or cleaner energy sourcing.

Another key difference is market consistency. REC markets tend to be more standardized, while offset markets can be fragmented, with varying standards and verification processes.

Bottom Line

RECs and carbon offsets can both support sustainability goals, but only when used intentionally and responsibly. Understanding the difference helps organizations make decisions that are credible and align with long-term business strategy.

Figuring out which option is the right one for your business depends on your goals, budget, and energy footprint. Sustainability isn’t just about what you buy. It’s about how well you understand the impact of those decisions.