If I told you that I wanted to introduce you to Professor Brent Haddad, what would be your reaction? Would you be perplexed by the name? Would you wonder who he was?
If you're in the energy, utility business or an environmentalist- you should know of him. Professor Brent Haddad, together with Nancy Rader, helped to develop RECs or Renewable Energy Credits/Certificates. Yes, you read that correctly; this is the man that helped to bring about a way to capture the positive environmental attributes associated with producing energy through a renewable generating resource and 'containing' or monetizing these attributes into a commodity that could be tracked, traded and counted. The result has been extraordinary, especially when integrated into a policy/mandate such as a Renewable Portfolio Standard (RPS), in propelling renewable energy technologies forward.
I found out about Professor Brent Haddad and Nancy Rader during my efforts in researching RECs. In getting in touch with Professor Haddad I wanted to know how the idea came about, the difficulty they faced in selling the idea, and, finally, about how RECs had evolved since their initial concept and the role that they will play in the future. He couldn't have been nicer in accommodating my request. What follows are his responses to my questions.
About Brent Haddad: Professor of Environmental Studies at the University of Santa Cruz, and the Founder and Director of the Center for Integrated Water Research.
Question 1: What was the original trigger/problem that led you and Ms. Nancy Rader towards conceptualizing RECs?
Nancy had just scored a huge and unexpected victory when the California Public Utilities Commission chose her concept for public support for renewable energy over the rival approaches. The usual suspects (utilities and main stream environmental groups) had advocated for a public benefits surcharge, a tax per kilowatt-hour sold that would result in creation of a big pile of money for the doing of good deeds, such as supporting renewables and providing for payment relief for poor people during cold winter months. This pile of public money would of course become a battleground for politically-connected good-guys, with whoever was powerful enough walking away with their own chunk. Of course, with sufficient oversight, good things can happen with a public benefits surcharge, but an approach like this is a band-aid on public problems, not a therapy that leads to a cure. Nothing fundamentally different happens when public money is sprinkled on a problem. The CPUC liked the idea that you could do two things at once – support renewables production while also driving down the cost of renewables through competition. Renewables' only long-term hope was to compete head-to-head with fossil-fuel electricity on a cost basis, and to do that, we needed policies that would provide strong incentives to innovate on all aspects of renewable: technology, financing, management, and integration with power grids. Nancy had submitted a concept brief on behalf of the American Wind Energy Association and her idea was adopted. This was very affirming for anybody who believes in the power of good ideas.
She had already won this big battle when her husband, Dick Norgaard, my PhD Advisor and a founder of the Ecological Economics movement, suggested that she contact me in order to help her move from concept to program. I’d been a broker of emission reduction credits when that program had just gotten launched and also been an NASD-certified securities principal (that’s a fancy way of saying salesman), and had studied why some markets worked and other failed.
Question 2: Economist think of money as a medium of exchange. Could RECs be thought of as a medium of exchange?
Yes, RECs represent the “green” in green energy. It’s what people wanted, so we named it (“RECs”) and defined it so it could be tracked, traded, and counted.
Question 3: When the two of you first proposed the concept to decision makers, how difficult was it to explain the concept to them and for them to accept the purpose of these instruments?
I had been a salesman and had also been a teacher at every level from second grade (a very hard audience) through PhD students (another hard audience for the same reasons). I’d had a couple of radio programs in college. I also remember marveling at a professor at UCLA in the 1970s and 80s named Malcolm Kerr, who would sit on stage with a benign smile and attentive eyes and take question after question from screaming, angry, saliva-dripping students. He’d rephrase the questions to the student’s satisfaction and then answer it, leaving the student slumped in his or her chair in wonder and respect. (If you want a really sad story, learn more about his life.) And my dad was a radio announcer and speech giver, so I grew up with a communicator. I was also used to getting challenged and defending my points right on the spot. I saw what could be done if you knew your topic and kept your temper and presence of mind. This was really important since early on we had some surprise attacks in public that were really vicious and personal in tone and we needed to keep our cool and quickly sort through the personal attack to find the substantive point. Then we needed to find that perfect phrase that politely made the attacker look like the nasty jerk that they actually were without making it seem like we were descending to the level of the attacker, and then when the audience had recovered from witnessing the rhetorical Aikido move, we had to explain and refute the substantive point. At that point, I'd take a sip of water. Another key point was that individually and as a team, Nancy and I hated to lose any fight. I was used to battling for sales, basketball rebounds, sweethearts, and intellectual ideas. There’s nothing worse than knowing you should have won and you didn’t, like the Lakers in ’69-ouch. We were there to win.
There were two camps in those early meetings, those who figured the RPS system out right away and those who needed a little more clarification. In the first, I-get-it, camp was a subset who were threatened by the RPS. They were the major opposition. The threatened group included those who believed they were first in line for major bucks from the public benefits surcharge, those who hadn’t thought up the RPS and were catching heat from their sponsors for getting cut out of the public policy process, those who thought their utilities didn’t have enough renewables already to keep their costs down and would suffer under the RPS in the coming open markets for power (they didn’t really get what was being proposed), and power producers who didn’t want to see their market share eroded by the growing renewables market. These groups would dog us as we made the rounds up and down the west coast giving presentations on the RPS. But the vast majority of people were open minded and curious and would get an a-ha moment when they figured out what was going on. We used 1990s software to make simple pictures and schematics that explained what we were proposing. I also printed up a pile of “Renewable Energy Credits” that looked like Monopoly money, and would pass them around the room so people could get the idea that RECs were tradable. I’d then collect them at the end of the meeting so I could use them the next time around. In one case, I must have been doing an awful job because two people had used the back of one of them to pass a note, and it read “When is this guy going to shut up?"
Question 4: Is there a difference between your original REC concept and their use today?
We got what is known in San Francisco as a “splash hit” the first time around. But it wasn’t due to steroids. We had spent hours talking through every scenario and thinking through every objection and complication. Nancy knew the renewables world and I knew the marketable permits world (I also knew the renewables world a little bit.) Nancy understood legislation and regulation and I understood markets. (By “knew” and “understood” I mean we had studied and worked in these arenas for a number of years, enough to have both practical and theoretical ideas about how things worked. And in case any of you are thinking about following California and dismantling your public university system, we got all the training at UC Berkeley. Your [actually your parents’] education tax dollars were at work solving environmental problems and serving society in unexpected ways.)
One difference today is that people have in some cases changed the name of RECs to certificates or some other name, which enables them to take some ownership, which is fine, as long as the program works.
Question 5: How do you see RECs shaping the future of the energy industry and, in a broader context, mitigating our effects on the environment?
RECs are a crucial stepping stone to greenhouse gas markets. They are a demonstration that major corporations as well as small entrepreneurs can successfully participate in markets created by regulations to solve social problems. They have allowed conservative political leaders to get behind GHG trading, as well as environmentalists.
If you're in the energy, utility business or an environmentalist- you should know of him. Professor Brent Haddad, together with Nancy Rader, helped to develop RECs or Renewable Energy Credits/Certificates. Yes, you read that correctly; this is the man that helped to bring about a way to capture the positive environmental attributes associated with producing energy through a renewable generating resource and 'containing' or monetizing these attributes into a commodity that could be tracked, traded and counted. The result has been extraordinary, especially when integrated into a policy/mandate such as a Renewable Portfolio Standard (RPS), in propelling renewable energy technologies forward.
I found out about Professor Brent Haddad and Nancy Rader during my efforts in researching RECs. In getting in touch with Professor Haddad I wanted to know how the idea came about, the difficulty they faced in selling the idea, and, finally, about how RECs had evolved since their initial concept and the role that they will play in the future. He couldn't have been nicer in accommodating my request. What follows are his responses to my questions.
About Brent Haddad: Professor of Environmental Studies at the University of Santa Cruz, and the Founder and Director of the Center for Integrated Water Research.
Question 1: What was the original trigger/problem that led you and Ms. Nancy Rader towards conceptualizing RECs?
Nancy had just scored a huge and unexpected victory when the California Public Utilities Commission chose her concept for public support for renewable energy over the rival approaches. The usual suspects (utilities and main stream environmental groups) had advocated for a public benefits surcharge, a tax per kilowatt-hour sold that would result in creation of a big pile of money for the doing of good deeds, such as supporting renewables and providing for payment relief for poor people during cold winter months. This pile of public money would of course become a battleground for politically-connected good-guys, with whoever was powerful enough walking away with their own chunk. Of course, with sufficient oversight, good things can happen with a public benefits surcharge, but an approach like this is a band-aid on public problems, not a therapy that leads to a cure. Nothing fundamentally different happens when public money is sprinkled on a problem. The CPUC liked the idea that you could do two things at once – support renewables production while also driving down the cost of renewables through competition. Renewables' only long-term hope was to compete head-to-head with fossil-fuel electricity on a cost basis, and to do that, we needed policies that would provide strong incentives to innovate on all aspects of renewable: technology, financing, management, and integration with power grids. Nancy had submitted a concept brief on behalf of the American Wind Energy Association and her idea was adopted. This was very affirming for anybody who believes in the power of good ideas.
She had already won this big battle when her husband, Dick Norgaard, my PhD Advisor and a founder of the Ecological Economics movement, suggested that she contact me in order to help her move from concept to program. I’d been a broker of emission reduction credits when that program had just gotten launched and also been an NASD-certified securities principal (that’s a fancy way of saying salesman), and had studied why some markets worked and other failed.
Question 2: Economist think of money as a medium of exchange. Could RECs be thought of as a medium of exchange?
Yes, RECs represent the “green” in green energy. It’s what people wanted, so we named it (“RECs”) and defined it so it could be tracked, traded, and counted.
Question 3: When the two of you first proposed the concept to decision makers, how difficult was it to explain the concept to them and for them to accept the purpose of these instruments?
I had been a salesman and had also been a teacher at every level from second grade (a very hard audience) through PhD students (another hard audience for the same reasons). I’d had a couple of radio programs in college. I also remember marveling at a professor at UCLA in the 1970s and 80s named Malcolm Kerr, who would sit on stage with a benign smile and attentive eyes and take question after question from screaming, angry, saliva-dripping students. He’d rephrase the questions to the student’s satisfaction and then answer it, leaving the student slumped in his or her chair in wonder and respect. (If you want a really sad story, learn more about his life.) And my dad was a radio announcer and speech giver, so I grew up with a communicator. I was also used to getting challenged and defending my points right on the spot. I saw what could be done if you knew your topic and kept your temper and presence of mind. This was really important since early on we had some surprise attacks in public that were really vicious and personal in tone and we needed to keep our cool and quickly sort through the personal attack to find the substantive point. Then we needed to find that perfect phrase that politely made the attacker look like the nasty jerk that they actually were without making it seem like we were descending to the level of the attacker, and then when the audience had recovered from witnessing the rhetorical Aikido move, we had to explain and refute the substantive point. At that point, I'd take a sip of water. Another key point was that individually and as a team, Nancy and I hated to lose any fight. I was used to battling for sales, basketball rebounds, sweethearts, and intellectual ideas. There’s nothing worse than knowing you should have won and you didn’t, like the Lakers in ’69-ouch. We were there to win.
There were two camps in those early meetings, those who figured the RPS system out right away and those who needed a little more clarification. In the first, I-get-it, camp was a subset who were threatened by the RPS. They were the major opposition. The threatened group included those who believed they were first in line for major bucks from the public benefits surcharge, those who hadn’t thought up the RPS and were catching heat from their sponsors for getting cut out of the public policy process, those who thought their utilities didn’t have enough renewables already to keep their costs down and would suffer under the RPS in the coming open markets for power (they didn’t really get what was being proposed), and power producers who didn’t want to see their market share eroded by the growing renewables market. These groups would dog us as we made the rounds up and down the west coast giving presentations on the RPS. But the vast majority of people were open minded and curious and would get an a-ha moment when they figured out what was going on. We used 1990s software to make simple pictures and schematics that explained what we were proposing. I also printed up a pile of “Renewable Energy Credits” that looked like Monopoly money, and would pass them around the room so people could get the idea that RECs were tradable. I’d then collect them at the end of the meeting so I could use them the next time around. In one case, I must have been doing an awful job because two people had used the back of one of them to pass a note, and it read “When is this guy going to shut up?"
Question 4: Is there a difference between your original REC concept and their use today?
We got what is known in San Francisco as a “splash hit” the first time around. But it wasn’t due to steroids. We had spent hours talking through every scenario and thinking through every objection and complication. Nancy knew the renewables world and I knew the marketable permits world (I also knew the renewables world a little bit.) Nancy understood legislation and regulation and I understood markets. (By “knew” and “understood” I mean we had studied and worked in these arenas for a number of years, enough to have both practical and theoretical ideas about how things worked. And in case any of you are thinking about following California and dismantling your public university system, we got all the training at UC Berkeley. Your [actually your parents’] education tax dollars were at work solving environmental problems and serving society in unexpected ways.)
One difference today is that people have in some cases changed the name of RECs to certificates or some other name, which enables them to take some ownership, which is fine, as long as the program works.
Question 5: How do you see RECs shaping the future of the energy industry and, in a broader context, mitigating our effects on the environment?
RECs are a crucial stepping stone to greenhouse gas markets. They are a demonstration that major corporations as well as small entrepreneurs can successfully participate in markets created by regulations to solve social problems. They have allowed conservative political leaders to get behind GHG trading, as well as environmentalists.
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