This approach allows companies to report emissions reductions or renewable energy purchases even when the physical flow of materials or energy doesn’t directly correspond to the reported attribute. For example, a company might purchase renewable energy certificates (RECs) associated with a wind farm in a different location to offset its electricity consumption from a non-renewable source. This separation between the physical flow and the environmental attribute is central to its function.
Decoupling physical delivery from environmental attributes offers flexibility and expands market access to sustainable practices. It can facilitate investment in renewable energy projects by broadening the pool of potential buyers and streamlining transactions. Historically, this mechanism has played a vital role in the growth of various environmental commodity markets, enabling participation from entities that might otherwise lack direct access to specific projects or technologies. This broadened participation can drive greater investment and accelerate the transition to a more sustainable future.
