Are energy companies gaslighting us? A guide to green tariffs for SMEs
“Switch to a green tariff” is common advice given to small businesses looking to reduce their carbon emissions from electricity.
You may be one of thousands of firms already paying for certified “100% renewable” electricity through a green contract. It’s the third most popular carbon-cutting action that SMEs take, according to a 2024 survey.
But it’s not quite the solution it seems.
Due to a loophole in UK regulations, energy suppliers can buy certificates that allow them to sell electricity to consumers as 100% renewable – even when it is generated entirely from fossil fuels.
Here's how the Climate Change Committee (CCC) put it in a briefing to the UK government: “Green tariffs... rarely lead to any decarbonisation of the system.”
Read on to find out why.
Green tariffs and ‘REGOs’
If your energy provider promises you a 100% renewable energy tariff, this claim is based on them buying things called REGO certificates.
REGO stands for ‘Renewable Energy Guarantees of Origin’.
Companies that generate renewable electricity receive a REGO certificate from Ofgem, the UK energy regulator, for each unit of power they add to the grid.
When an energy provider, like Octopus, buys power from a wind farm or solar park, it can also buy REGO certificates to prove to their customers that the power is from a renewable source.
This is how green tariffs work – in theory.
The problem is that REGOs can be bought separately from the electricity (called ‘unbundled’ REGOs). This means suppliers can legally buy all their electricity from, say, a gas power station, then buy enough unbundled REGOs and sell it to customers under a green tariff.
“This decoupling is leading to companies and consumers sometimes believing that they are supporting decarbonisation by purchasing renewable electricity, when they are not,” says the CCC.
How this affects emissions reporting
If your business is on a 100% renewable energy contract, you may already be reporting your emissions from electricity as zero.
This is understandable! The Greenhouse Gas Emissions Protocol – the most widely used standard for emissions accounting – allows companies to do exactly that.
But there is a mountain of evidence highlighting the problems with this approach.
Changing supplier has no bearing on the physical electricity supplied to your premises, or how it is generated.
Not least of which is the fact that changing supplier has no bearing on the physical electricity supplied to your premises, or how it is generated. Unless you have solar panels or a wind turbine, your business draws power directly from the national grid.
Many scientists argue that businesses should measure their Scope 2 emissions using the average emissions from the electricity grid where the power is consumed.
In 2024, 37% of UK grid electricity was generated by renewables.
In fact, the government's Department for Environment, Food and Rural Affairs stated in 2008 that “best practice is for businesses to use a grid average rate, unless their supplier can prove the carbon benefits are additional.”
Do green tariffs make any difference?
They can, but it depends on your supplier.
Ofgem concluded in 2023 that only three UK suppliers have a business model that helps to add more renewable energy to our national grid.
Good Energy, Ecotricity and 100Green all have long-term contracts with wind and solar farms which require that the money spent on buying power is invested in new clean energy generation.
They also commit to buying both the actual renewable electricity from the generator as well as the REGO certificate.
What should you do?
If you’re able to switch contract, consider one of the three providers mentioned above.
But as we’ve shown, changing who you buy electricity from doesn’t directly affect your firm’s carbon footprint. What matters is the national energy mix.
So, if cost is a barrier, opt for a more affordable tariff that better suits your business’s needs. For example, an evening and weekend tariff can offer cheaper electricity during peak times for pubs and restaurants.
Read this Citizens’ Advice webpage for detailed guidance on switching suppliers.
Ultimately, the fastest and most reliable way to reduce your emissions from electricity is to use less in the first place! This helps to ease pressure on the grid as the move to clean power gets underway – and saves you money.