Renewable Energy Certificate (REC) trading is due to commence on the Bursa Carbon Exchange (BCX) on 25 June this year. While Bursa Malaysia claims that the hydrocarbon RECs being traded have zero carbon emissions “on paper”, the reality is somewhat different.
Businesses in Malaysia can use RECs to offset their “Scope 2” emissions: indirect greenhouse gas (GHG) emissions produced when electricity is used. . This measure is especially relevant for businesses in Peninsular Malaysia, where electricity generation capacity is primarily from coal power plants. By purchasing RECs, their Scope 2 emissions can effectively be “reduced” from a relatively high 0.8 Gg CO2e/kWh, to zero.
On paper, this system also works for the new hydropower RECs issued by Sarawak Energy. The hydropower RECs are certified according to the International Tracking Standard Foundation (I-TRACK) I-REC standard. At a recent stakeholder engagement webinar, BCX and Sarawak Energy noted that the hydropower electricity that backs the RECs is certified as having zero GHG emissions.
In reality, these zero emissions claims do not hold up to scientific scrutiny. A recent study by Universiti Tenaga Nasional suggests that man-made hydropower reservoirs are a significant source of methane emissions, a powerful greenhouse gas. The amount of greenhouse gasses emitted by reservoirs depends on the volume of organic material (vegetation, peaty topsoil) that has been flooded. If the reservoir is considered to be a part of the hydropower generation plant, then reservoir GHG emissions fall under hydropower’s so-called “Scope 1” emissions, and they should be counted as part of the electricity generation process.
Rather than having zero emissions, hydropower likely has an emissions intensity of around 0.2 Gg CO2e/kWh. While this impact is still much lower than the emissions from the Peninsula Malaysia electricity grid, it is not zero, and in fact similar to the emissions of electricity generated from natural gas. In Malaysia, emissions from hydropower reservoirs alone may account for around 3% of national emissions. Thus, ignoring the emissions from these reservoirs is like saying that coconuts don’t grow on trees, but simply fall from the sky.
While Bursa Malaysia and Sarawak Energy continue to point at I-TRACK for their zero emissions claim, businesses that buy RECs need to decide if these zero-emission claims are really credible. Especially if businesses use the RECs to offset their Scope 2 emissions for compliance reasons or to make public claims about having net-zero emissions, there are significant risks due to the “hidden” methane emissions from hydropower reservoirs. Regulators or customers could declare the Scope 2 emissions offsets invalid, while businesses could also face claims of greenwashing.
Fortunately, potential REC buyers do have alternatives: they can buy RECs based on solar and biogas, which have a more solid claim to zero emissions (and which the BCX plans to trade in future). Businesses can also choose to increase their investment in energy savings or their own renewable energy generation.