Energy-hungry data centres could sustain US markets for green certificates, according to the winners of Environmental Finance's Market Rankings. Michael Hurley reports

Demand from technology companies for renewable and low-carbon energy is poised to fuel the US market for green certificates, winners of Environmental Finance's Environmental Market Rankings say.

This could help sustain voluntary markets, even as regulated markets brace for headwinds from President Donald Trump's assault on renewables, they argue.

Energy attribute certificates (EACs), including Renewable Energy Certificates (RECs), are market-based instruments that certify the bearer owns one megawatt-hour (MWh) of electricity generated from a renewable energy source. Once the power provider has fed the energy into the grid, the certificates can be sold on the open market as an energy commodity. Many regions implement both compliance and voluntary schemes.

Compliance markets for RECs operate in about 30 US states according to Renewable Portfolio Standards, which oblige companies to have a specified percentage of their energy derived from renewable sources each year – either through self-generation of renewable energy or the purchase of RECs.

Jonathan Burnston, managing partner at Karbone, says the Pennsylvania-New Jersey-Maryland Interconnection, or PJM (PJM), and New England's NEPOOL – both major compliance markets – continued to be undersupplied by RECs in the last 12 months, with the situation exacerbated by backlogs to connect to the electricity grid.

PJM Tri-Qual RECs ($/ REC)

Meanwhile, the "low-hanging fruit" of renewable energy installations had already been picked in recent years, meaning developers are constrained to sites where "their resource quality is more questionable," for example where wind or solar irradiation is less abundant, he explains.

Karbone won best broker for EACs in North America and best broker for Renewable Identification Numbers (RINs) and Renewable Natural Gas (RNG).

"The way the regulatory and voluntary markets interact is that the voluntary market sits on the sidelines while prices are high – but as prices trend downward and a price point is realised that makes sense for the corporate buyer, then they'll step in.

"It has been the case for the last three-to-five years ... I think it's going to pick up significantly," he says, pointing to rising demand from large tech companies to power data centres with renewable energy, to meet the huge demand for electricity from artificial intelligence (AI).

Asked to what extent President Trump could dampen corporate demand for RECs, Karbone's Burnston suggests this is unlikely given the AI-driven "load growth story for data centres ... tech companies have been at the forefront of voluntary market activity for RECs and for carbon [credits] for many years".

He says the positive long-term sentiment for the Green-e market – the primary voluntary programme for RECs in the US – is demonstrated by the prices of futures contracts, which trade at a premium to spot prices.

"If contracts are trading at a high price, typically you would expect the traded curve to slope downward, as an expression of capacity for risk, illiquidity etc. But for Green-e RECs, it's an upward sloping traded price curve," he notes.

National CRS Listed RECs (Green-e)

However, Burnston says the new administration could hinder supportive rulemaking in compliance markets and this, together with the fact that "incremental renewables buildout" is becoming increasingly tougher, should mean natural gas is increasingly used alongside renewables to ensure continuous energy supply.

"Natural gas is a decarbonised conventional fuel that would have to fill in gaps in an intermittent-energy-resource-economy... People are talking about co-locating natural gas with solar, whereas just a few years ago the only talk was about pairing lithium-ion batteries with solar," he suggests.

Marijn van Diessen, CEO of STX Group, says most impacts of the Trump presidency on environmental commodities will be at the federal level in the Renewable Fuel Standard and the Inflation Reduction Act – "however, we will not know the extent of the impacts for a while".

STX won awards for green certificates in six categories: best trading company for EACs in North America and the Asia-Pacific region, respectively; best broker, best trading company and best advisory for EACs in Europe; and best trading company for RNG.

"Congress is currently considering budget reconciliation in the House and Senate – a process we expect to take months to come to agreement. The House budget reconciliation bill will likely include changes to IRA tax credits, so to understand the impact on EACs we will need to wait to see what negotiations occur.

"Many states have increasingly pursued renewables goals independently of federal policy, particularly 'blue states' and those with strong environmental movements.

"While the Trump administration might encourage some states to back off or slow down their programmes, others might push forward with their own renewable energy goals, regardless of federal direction," van Diessen says.

The EU last year saw increased installed capacity and elevated hydroelectric production, which drove "strongly increased annual production," he adds.

"Simultaneously, power consumption did not yet return to pre-Covid levels, resulting in limited demand increase. Together, this resulted in increasing Guarantee of Origin (GOs) inventory levels and consequently in prices dropping all year".

"Now, with the low prices regime and the Corporate Sustainability Reporting Directive (CSRD) coming into effect, demand is expected to increase in 2025," van Diessen predicts, suggesting that increased transparency requirements via CSRD will incentivise higher ambition in corporate decarbonisation.

Elsewhere, there was "limited volatility" in most of the voluntary International Renewable Energy Certificates (IRECs) markets, "with a handful of exceptions".

These include in China, were there was a "substantial slowdown in traded volumes due to the phase-out of IRECs" and the move to the Green Electricity Certificates scheme – which from this year becomes the sole instrument to prove renewable electricity consumption in the country.

Chris Halliwell, co-founder and CEO at Sydney-based CORE Markets, which won best broker for EACs in the Asia-Pacific region, says last year “was another record year for compliance and voluntary renewable energy demand … We expect this healthy activity to continue to meet renewable energy targets out to” the end of the decade.

Halliwell says market participants were “awaiting the impact of” Australia’s transition to a scheme using Renewable Electricity Guarantee of Origin (REGO) certificates, starting in late 2025 with the aim of completing the move by 2030.

“Ahead of its launch, we are seeing large-scale energy users actively exploring the concept of hourly matching their energy demand with renewable energy generation,” he adds.

The Australian government will transition from the existing Large-Scale Generation Certificate system, a move which is seen as necessary to ensure real-time energy matching.

RINs

In the US, RINs are used to track the production and use of renewable fuel by the Environmental Protection Agency (EPA) to implement the government's Renewable Fuel Standard (RFS) programme.

RINs are generated by renewable fuel producers or importers and are bought and sold 'attached' to the renewable fuel until the fuel is purchased by an 'obligated party' – a refiner or importer of gasoline or diesel fuel – or blended with a petroleum-based transportation fuel.

The RIN is then 'separated' from the fuel and may thereafter be independently bought or sold until it is retired to meet an obligated party's renewable volume obligation (RVO).

The EPA set the RVO schedule for three years (2023-25) for the first time, as part of plans to strengthen and expand the RFS. They had previously been set annually.

The RINs market in the last year was characterised by several "notable fluctuations," says Randy Prati, vice president of strategic initiatives at EcoEngineers, which was voted Best verification company for RINs.

"A key trend was the substantial increase in renewable diesel production, which led to an oversupply of D4 RINs [for biodiesel] and a corresponding 70% decline in D4 RIN prices over the course of 2024," he says.

"Another factor shaping the market was a proposed rule by the US EPA towards the end of 2024. The sustained undersupply of D3 cellulosic RINs throughout the year drove the EPA to propose a waiver for the 2024 cellulosic RVO, and D3 RIN prices dropped in response to this news."

Karbone's Burnston notes this "huge price crash", of about 20% in a few days, came after industry lobby group American Fuel & Petrochemicals Manufacturers argued that the EPA's supply mandates were too high to meet, adding that the market was "still dealing with the fallout from that event".

D3 RINs (S/RIN)

EcoEngineers' Prati adds: "As for D5 [for 'advanced' biofuels] and D6 [corn-based ethanol] RINs, prices are moving with the D4 RINs almost exclusively on shifts in commodities prices.

"Changes to California's Low Carbon Fuel Standard (CA-LCFS) in late 2024 introduced new constraints on certain feedstocks, which may influence CA-LCFS credit pricing and future RIN markets as producers adjust their operations," Prati predicts.

Anew's Brosnan says future prices will be largely determined by the EPA's upcoming decision on its RVO for 2026 onward.

"If they set it aggressively, then we should see some price appreciation," he notes.

Prati suggests that the new federal administration and EPA administrator, Republican Party politician Lee Zeldin, could set RVOs lower than anticipated production, thereby cutting prices.

Meanwhile, "one of the key areas of uncertainty is the implementation of the Section 45Z tax credit under the IRA, which is set to replace the $1-per-gallon biodiesel blenders tax credit (BTC). Any delays or modifications to this provision could impact investment decisions and project economics in the biobased diesel sector," Prati says.

"At the state level, California's amendments to the LCFS could prompt other states or Canadian provinces with similar programmes to follow suit. This could lead to additional constraints on feedstock eligibility, requiring producers to diversify their supply chains and invest in new technologies," he adds.

Renewable natural gas

RNG is a biomethane that is produced from the breakdown of organic matter from sources such as landfills, animal manure, food scraps, and wastewater sludge. As with EACs, RNG certificates enable companies to make renewable fuel claims and integrate clean energy into their fuel mix.

"The primary driver right now of biomethane supply is the RFS market [for RINs], so a lot of what's newly built is being driven by" pricing particularly in the market for 'D3' RINs," Brosnan at Anew says.

"In a variety of settings, the desire to reduce the carbon intensity of products will continue to play a major role in determining the value of biomethane and other low-carbon gases.

"You see this already in state LCFS programmes, where the lower carbon intensity [of biofuels], the higher the value.

"You also see that the IRA and carbon border adjustment mechanisms [as in the EU] are coming into play. Then there will be the International Maritime Organisation (IMO) targets that will be rolled out in the next couple of quarters, and CORSIA for aviation – all these industries are starting to focus on [reducing] carbon intensity."

However, the prospect of tariffs could feed higher prices for fuels, he warns.

US President Trump has threatened to introduce tariffs on goods from Canada, China and the EU.

"A lot of liquid fuels that are traded in both the US and Canada have feedstocks that come from abroad, so any constraints on those feedstocks would have an impact on the total costs to produce that fuel, which obviously is going to play out in the value of the finished fuel and can affect supply and demand," Brosnan says.

STX's van Diessen says changing political sentiment was combined with "oversupply in the US, driven by record development of RNG-producing assets to take advantage of very strong RIN prices over the past few years and a rush to break ground before the start of 2025 to take advantage of" the Section 48 tax credit in the IRA.

"The potential repeal of major environmental policies has slowed deal activity and is casting doubt on the longevity of demand from these markets," he suggests.

Elsewhere, the "sluggish European economy is slowing uptake of biomethane across all the downstream sectors, but demand is still growing," van Diessen says.

"However, supply continues to grow and over the past two years supply growth has outpaced demand, causing prices to fall across the board.

"Lower prices have reduced demand for offtakes, causing financing of new projects to become delayed. This slowing the pace of new capacity installations over the next couple of years should actually boost prices again, as it allows demand to rise faster than supply.

"However, demand is growing in other markets. FuelEU Maritime [to increase the share of renewable and low-carbon fuels in the fuel mix of international maritime transport within the EU] begins this year, so maritime demand for biomethane should kick in later this year, which will help clear out the remaining oversupply currently seen on the manure market," van Diessen adds.