Buying clean energy and renewable credits for AI data centers

In short

An AI data center operator cannot simply say it runs on clean energy. It must hold and retire a renewable energy certificate for every megawatt hour it claims. A REC is a market-based instrument that represents the property rights to the environmental attributes of one MWh of renewable electricity delivered to the grid. EPA Renewable Energy Certificates (RECs)

Operators secure RECs and the underlying electricity mostly through physical power purchase agreements, virtual PPAs, and sometimes unbundled REC purchases. Four hyperscalers held 98.7 percent of tracked large scale corporate PPAs for U.S. nonutility buyers as of early 2025. S&P Global Commodity Insights, 2026

The legal framework is a stack of federal and voluntary rules. The FTC Green Guides address whether an environmental marketing claim is deceptive. 16 C.F.R. § 260.1 The SEC climate disclosure rule forces large accelerated filers and accelerated filers to report material Scope 2 emissions and separately requires all registrants to disclose, when carbon offsets or RECs are a material component of a plan to achieve disclosed climate targets or goals, their cost. SEC Final Rule, Mar. 6, 2024 The Inflation Reduction Act drives down the cost of the generation that feeds those RECs through the ITC, PTC, direct pay, and transferability. EPA, Summary of Inflation Reduction Act provisions related to renewable energy The voluntary RE100 standard imposes its own procurement conditions on member companies. RE100 Technical Criteria v5.0, Mar. 2025

A live risk is whether a claim of 100 percent renewable energy can stand when it relies on unbundled RECs, a question pressed by state attorneys general in 2025. Montana AG Letter, Sept. 2025 The largest operators are already moving toward hourly matched, project specific procurement that avoids that problem.

What is a renewable energy certificate

A REC is the right to claim that one megawatt hour of electricity came from a renewable resource and was delivered to the grid. Without a REC, an AI data center operator cannot call its electricity renewable for regulatory or voluntary purposes, even if the generator next door is a wind farm. EPA Renewable Energy Certificates (RECs), Harvard Law Review, Renewable Energy Credits as Property

A REC carries a unique serial number, states the fuel source and location of the generator, and shows the month or hour of generation. It is created by one of ten regional tracking systems that cover the United States. Each REC can be retired, meaning permanently removed from the market, only once. That prevents double counting of the same environmental benefit. NREL, REC Tracking Systems, 2013

The ten tracking systems are ERCOT (Texas), PJM-GATS (Mid-Atlantic and Midwest), NEPOOL-GIS (New England), NYGATS (New York), M-RETS and NAR (each with national scope), WREGIS (West), MIRECS (Michigan), NC-RETS (North Carolina), and NVTREC (Nevada). M-RETS and NAR accept generators from anywhere in the United States and Canada. CnerG, Understanding US REC Registries, 2025

A REC can be bundled, sold together with the underlying electricity through a single contract such as a power purchase agreement. Or it can be unbundled, sold separately from the electricity. Both forms give the buyer the same legal right to claim renewable electricity use. Center for Resource Solutions, RECs and Renewable Electricity Use Claims The difference matters more for additionality, which a later section explains.

How do AI data center operators buy clean energy

An operator that needs clean energy for a data center has four basic paths. The path shapes who takes the power, who takes the RECs, and where the project must sit.

Physical PPA

Under a physical power purchase agreement, the buyer takes title to the actual electricity at a delivery point on the grid and receives the associated RECs. Under a physical PPA, the buyer must be located in the same grid region as the generating facility, and physical delivery requires coordination with grid operators. In regulated electricity markets, a physical PPA may need to be a sleeved PPA where the utility acts as an intermediary between the generator and the data center. Pillsbury, Power Purchase and Interconnection Agreements for Data Centers

For example, a data center operator in Virginia that sits in the PJM Interconnection can sign a physical PPA with a new solar farm in the same PJM region. The operator receives the power and the RECs. This works well when the operator has a physical load in the same market.

Virtual PPA (VPPA)

A virtual PPA decouples the electricity from the RECs. The buyer never takes physical delivery of power. Instead, the buyer pays a fixed price to the generator. The generator sells the electricity into the wholesale market at the prevailing price. The two parties settle the difference financially, like a contract for differences. The buyer receives the RECs. No geographic proximity is needed. Pillsbury, LevelTen Energy, 2019

This is the dominant structure for hyperscalers. The 10.5 GW framework agreement Microsoft signed with Brookfield in May 2024 is almost eight times larger than the largest single corporate PPA ever signed and covers the U.S. and Europe. Brookfield, May 2024 Google signed a portfolio of long term PPAs with Clearway in 2025 for 1.17 GW of carbon free energy across Missouri, Texas, and West Virginia. Advanced Power Alliance, Jan. 2026

A buyer should watch the accounting treatment. Under IFRS, VPPAs are often classified as financial derivatives that require mark to market revaluation, which can create income statement volatility. Under U.S. GAAP, the classification depends on specific contract features, and many VPPAs avoid derivative treatment. Flexidao, Nov. 2024

Retail sleeved PPA

This model wraps a physically delivered renewable energy supply into the buyer’s monthly utility bill. A retail energy provider manages all power marketing and balancing. The buyer gets the electrons and the RECs on one bill. It is still emerging. LevelTen Energy, 2019

Unbundled RECs

An operator can simply buy RECs on the open market, without any electricity contract. This is the fastest way to match annual consumption on paper. But it raises the additionality problem discussed below.

What rules govern making a renewable energy claim

The FTC Green Guides treat an unqualified claim that a product is made with renewable energy as deceptive unless all or virtually all significant manufacturing processes are powered by renewable energy or by non renewable energy matched with RECs. 16 C.F.R. § 260.15(c) For an AI data center, the claim that it runs on 100 percent renewable energy must meet that same standard. If it does not, the marketer must clearly state the percentage of renewable energy used.

A separate section makes it deceptive to claim that you use renewable energy if you generate it but then sell the RECs for all of it. 16 C.F.R. § 260.15(d) And to minimize the risk of deception, a marketer may specify the source of the renewable energy, such as wind or solar. 16 C.F.R. § 260.15(b)

These are the 2012 Green Guides. The FTC finalized the revised Green Guides on October 1, 2012. FTC In the meantime, state attorneys general have begun to test the boundaries. In April 2023, AGs from 15 states and D.C. urged the FTC to eliminate the REC exception for marketers that use non renewable energy and to require actual procurement and use. Utility Dive, Dec. 2024 Several states have incorporated the Green Guides into enforceable state law. Tax alert

A concrete enforcement example is a California AG settlement with a natural gas company that claimed its gas was affordable, clean, and renewable when only a small share of its portfolio was renewable. The company paid $175,000 and agreed not to state or imply that natural gas is renewable unless such statements comply with the FTC Green Guides. Snell & Wilmer, Dec. 2023

A claim of 100 percent renewable energy that rests mostly on generic unbundled RECs bought at a few cents per MWh is an increasing enforcement risk, especially after the 2025 Montana AG letter.

What does the SEC require for climate and REC disclosures

The SEC final climate rule requires large accelerated filers, (public companies with a market cap of at least $700 million), and accelerated filers, (market cap between $75 million and $700 million), to disclose material Scope 1 and Scope 2 greenhouse gas emissions. Scope 2 covers indirect emissions from purchased electricity, steam, heat, or cooling. SEC Final Rule, Mar. 2024

If a registrant uses carbon offsets or RECs as a material component of its plan to achieve disclosed climate targets, it must disclose the capitalized costs, expenditures expensed, and losses tied to those instruments in a note to the financial statements. SEC Fact Sheet, Mar. 2024

Large accelerated filers must start reporting for fiscal year 2025, filing in 2026. Limited assurance on Scope 1 and 2 starts in 2029 for large accelerated filers and in 2031 for accelerated filers. Reasonable assurance begins in 2033 for the largest companies. Smaller reporting companies and emerging growth companies are exempt from Scope 1 and 2 reporting entirely. Tax alert

The SEC voluntarily stayed the rule on April 4, 2024, while the Eighth Circuit reviews consolidated challenges. The compliance timeline may shift. Optera The rule is still the best guide to what the agency expects from public data center operators.

How do federal tax credits shape clean energy procurement for data centers

An AI data center company rarely builds and owns the renewable project itself. The developer does. But the developer’s cost of capital, and therefore the PPA price, depends heavily on federal tax credits.

The Investment Tax Credit gives a base credit of 6 percent of a project’s taxpayer’s basis, rising to 30 percent when the developer meets prevailing wage and apprenticeship requirements for projects of 1 MW or greater. IRS Publication 6045, Investment Tax Credit, 26 U.S.C. § 48(a)(2)(A)(i), (a)(9) Bonus adders can push the credit even higher. An extra 10 percent for domestic content, 10 percent for siting in an energy community, 10 percent for a low income community or Indian land site of less than 5 MW, and 20 percent for a qualified low income residential or economic benefit project. A small project can reach 70 percent. EPA summary of IRA renewable energy provisions

The Production Tax Credit gives a base credit of 0.5 cents per kWh, rising to 2.75 cents per kWh with the same wage and apprenticeship rules, plus parallel bonus adders. It is claimed for 10 years from the date the facility is placed in service. EPA, Renewable Electricity PTC Information

On January 1, 2025, the technology specific ITC and PTC were replaced by technology neutral clean electricity credits, the Clean Electricity ITC at Section 48E and the Clean Electricity PTC at Section 45Y, which apply to any generation facility with a greenhouse gas emission rate of zero. These remain available at least through 2032. 26 U.S.C. § 45Y(d)(3), 26 U.S.C. § 48E(e)

Direct pay and transferability

Tax exempt entities such as municipal utilities and rural electric cooperatives can receive a direct payment from the IRS equal to the full credit value under Section 6417. IRS, Elective Pay and Transferability FAQ

Taxable developers can sell all or part of a credit to an unrelated party for cash under Section 6418. The sale is formalized through a transfer election statement, which may be incorporated into the purchase and sale agreement. Crux, Transferable Tax Credits Guide, Mar. 2026, 26 C.F.R. § 1.6418-2(b)(5) Credits typically trade at 89 to 95 cents on the dollar. Transferability has driven more than $500 billion in private capital since 2022. Crux

Both mechanisms let a developer turn a tax credit into cash without waiting for its own tax liability. That lowers the cost of a project and flows through to the PPA price an AI data center operator pays.

OBBBA deadlines

The One Big Beautiful Bill Act accelerated the phase out for solar and wind. To qualify for the ITC or PTC, a solar or wind project must now begin construction before July 5, 2026 or be placed in service before January 1, 2028. Novogradac, About Renewable Energy Tax Credits Transferability is retained, but new restrictions on prohibited foreign entities take effect in 2026. Novogradac

These deadlines squeeze the pipeline of new renewable projects that data center PPAs depend on.

What is RE100 and what does it require

RE100 is a voluntary initiative where member companies commit to sourcing 100 percent renewable electricity. Its technical criteria, version 5.0 from March 2025, impose rules that go beyond baseline federal law.

In a market where energy attribute certificates, the international term for RECs, are in common use, all grid purchased renewable electricity must be supported by certificate cancellation. The United States and Canada are listed as such markets. RE100 Technical Criteria App. C, Mar. 2025

The generating facility must have been commissioned or re powered within 15 years of the procurement year. An exemption exists for the original off taker of a project. Procurement of renewable electricity generated by co firing with coal is prohibited. RE100 Technical Criteria § 5.3, Mar. 2025

For an AI data center operator that is an RE100 member, these rules limit how it sources RECs. It cannot simply buy cheap RECs from a decades old hydro plant. The 15 year rule and the prohibition on coal co firing effectively require procurement from newer, additive projects.

Why are unbundled RECs controversial

The question is whether buying a REC from an existing wind farm that would have operated anyway causes any new clean energy. Critics say it does not. A data center operator can buy enough unbundled RECs to match its annual consumption for a few cents per MWh, claim 100 percent renewable, and add zero new capacity to the grid. That is the additionality problem.

In September 2025, the Montana Attorney General, joined by other state AGs, sent a letter to Amazon, Microsoft, Meta, and Google. The letter asserted that purchasing unbundled RECs does not mean the companies are using renewable energy or reducing emissions, and that such claims are deceptive. Montana AG Letter, Sept. 2025

The industry has already started to move. Microsoft announced in February 2025 that it had ceased purchasing non additional, unbundled RECs. Microsoft Blog, Feb. 2025 Meta limited short term unbundled REC purchases to less than 5 percent of its 2023 renewable procurement. Meta Sustainability, Oct. 2024

The market itself prices additionality. Generic national unbundled RECs trade at $0.31 to $0.70 per MWh. Premium RECs with specific vintage and region can trade much higher. NEPOOL Class I RECs hover near $40 per MWh. PJM Tier I RECs hit similar highs, up from a long term average of $8.74 per MWh. AFS Commodities, Nov. 2025

Green e Energy, the most widely recognized third party certification, certifies about 60 percent of the voluntary REC market. Its certification requires that the REC be from a facility with a recent vintage, within a 21 month window tied to the customer’s usage year, and that the REC be sold only once. Green-e Standard A Green e certified REC signals a higher quality claim. The EPA Green Power Partnership strongly encourages but does not require Green e certification. EPA, Green Power Partnership

The upshot is that an AI data center operator making a broad 100 percent renewable claim faces enforcement risk if the claim depends mainly on generic unbundled RECs.

The move to 24/7 carbon free energy

Annual matching, even with high quality RECs, hides the fact that an AI data center runs on fossil fueled grid power at nights and calm days. The emerging standard is hourly matching, also called 24/7 carbon free energy. The goal is to match every hour of electricity consumption with carbon free generation in the same grid region.

Google committed in 2020 to operate on 24/7 carbon free energy by 2030. Its data centers consumed 30.8 million MWh in 2024, up from 14.4 million MWh in 2020. Yet it reduced AI data center carbon emissions by 12 percent in 2024 through hourly matching. RE24, Oct. 2025 Microsoft set a goal of 100 percent electricity matched 100 percent of the time with zero carbon sources by 2030. Silverback Data Center Solutions Both Google and Microsoft signed agreements with AES to supply their Virginia AI data centers with at least 90 percent hourly matched carbon free energy. Google indicated it paid a modest premium for that product. WRI, 2023

Hourly matching requires granular REC tracking. Three U.S. registries can now track hourly data, including M-RETS, NAR, and PJM-GATS. Most other systems estimate a one to two year phase in if they start implementation. WREGIS, covering the West, estimates three to five years. Center for Resource Solutions, Readiness for Hourly REC Tracking, June 2023

To support a market for hourly certificates, Google and Microsoft are founding members of the Granular Certificate Trading Alliance, which was convened by LevelTen Energy in partnership with ICE, with AES and Constellation as fellow founding members. LevelTen Energy, 2023 The UN 24/7 Carbon Free Energy Compact has more than 100 signatories, and Executive Order 14057 directs federal agencies to seek to match 50 percent of their electricity use with carbon pollution-free electricity on an hourly basis by fiscal year 2030. UN 24/7 CFE Compact, Exec. Order No. 14057, 86 Fed. Reg. 70935

Operators that sign PPAs now should consider how their contract will support hourly matching in the future. A VPPA that delivers RECs with monthly or annual vintage may need to be restructured to provide hourly granular data.

State laws that reach AI data center clean energy

State law is fragmenting. The most consequential statute is California’s SB 253, the Climate Corporate Data Accountability Act, signed in October 2023. It requires any company with more than $1 billion in annual revenue that does business in California to disclose Scope 1 and 2 emissions starting in 2026 and Scope 3 emissions starting in 2027. Unlike the SEC rule, it covers both public and private companies and mandates Scope 3 reporting. California SB 253

In 2025, 113 bills across 30 states addressed AI data centers. Eleven of them specifically sought to require AI data centers to procure green energy. None had become law as of May 2025, but the legislative activity shows growing pressure. Climate XChange, May 2025

Operators should track these bills because a single state mandate could reshape procurement strategy for every data center in that state. And the FTC Green Guides remain the backstop, incorporated into the enforceable law of several states.

Key takeaways

• Under the FTC Green Guides, an AI data center should not make unqualified renewable energy claims if any part of its operations uses fossil fuel, unless it has matched that non-renewable energy use with renewable energy certificates. Selling the RECs for all the renewable electricity you generate makes it deceptive to claim you use renewable energy. 16 C.F.R. § 260.15
• Unbundled RECs face increasing legal risk. State AGs view claims based solely on cheap generic RECs as potentially deceptive. Montana AG Letter, Sept. 2025
• A physical PPA or VPPA that brings new generation online provides a stronger foundation for a 100 percent renewable claim and aligns with the RE100 15 year rule. RE100 Technical Criteria, Mar. 2025
• Large public AI data center operators that are large accelerated filers must prepare for REC cost disclosure beginning with fiscal year 2025 and SEC Scope 2 reporting beginning with fiscal year 2025. SEC Final Rule, Mar. 2024 Private companies of sufficient scale face separate California SB 253 obligations.
• The IRA’s transferable tax credits have lowered financing costs and broadened capital access for clean energy developers. CRS, August 2024, Bipartisan Policy Center Deadlines under the One Big Beautiful Bill Act are tightening the window for solar and wind, so the pipeline is front loaded.
• The market is moving toward hourly matching. Operators negotiating long term PPAs should build in the ability to track and trade hourly granular certificates, because that is where the largest buyers are heading.

Frequently asked questions

Q:What is a REC and why do I need it to claim renewable energy?

A:A renewable energy certificate represents the environmental attributes of one megawatt hour of renewable generation delivered to the grid. You must own and retire a REC for every MWh you claim as renewable. Without a REC, the claim is legally unsupported. EPA Status and Trends Report, Jan. 2025

Q:Do I need a physical PPA or is a virtual PPA enough?

A:A virtual PPA delivers the RECs without physical power delivery. It is enough to support a renewable electricity claim as long as you retire the RECs. The FTC Green Guides do not distinguish between physical and virtual delivery. 16 C.F.R. § 260.15

Q:Can I just buy unbundled RECs to say my AI data center is 100 percent renewable?

A:Legally, the certificate itself gives you the right to make the claim. But the claim may be challenged as deceptive under state consumer protection laws, and the Green Guides do not preclude such a challenge, if the RECs are cheap, unbundled, and do not cause new generation. Montana AG Letter, Sept. 2025 The leading operators are moving away from this approach.

Q:What is the SEC climate rule and does it apply to private AI data center companies?

A:The SEC rule mandates Scope 1 and 2 disclosure for large accelerated and accelerated filers, public companies only. Private companies are not covered, but California’s SB 253 reaches both public and private companies with annual revenue over $1 billion that do business in the state. SEC Final Rule, Mar. 2024, California SB 253

Q:How do IRA tax credits lower my PPA price?

A:Developers who can monetize the ITC or PTC, either directly or by selling the credit for 89 to 95 cents on the dollar, need less revenue from the PPA to make the project work. That lower cost flows through to the data center operator in the form of cheaper electricity. CRS, Jun. 2025, CRS, Jun. 2025

Q:What is RE100 and do I have to follow it?

A:RE100 is a voluntary membership organization. It is not law. But if your company has joined RE100, you must comply with its criteria, including EAC cancellation, the 15 year commissioning limit, and the prohibition on coal co firing. RE100 Technical Criteria, Mar. 2025

Q:What does 24/7 carbon free energy mean and is it required?

A:It means matching every hour of electricity consumption with carbon free generation in the same region. No federal law requires it today, but Google and Microsoft have committed to it by 2030, and the federal government is moving toward hourly procurement. WRI, 2023 Building hourly matching into new PPAs now can avoid a costly retrofit later.

Q:Are there any state laws that require AI data centers to buy clean energy?

A:As of May 2025, no state has an enacted data center specific green energy procurement mandate, though 11 bills were introduced in 2025. Climate XChange, May 2025 California’s broad emissions disclosure law, SB 253, is the closest active obligation.

Q:What is Green e certification and should I get it?

A:Green e Energy certifies that RECs meet standards for vintage, source, and non double counting. It covers about 60 percent of the voluntary REC market. Industry analysis It is not legally required, but it strengthens the credibility of a claim.

Q:What happens to my renewable claim if I sell the RECs from the solar panels on my AI data center?

A:You lose the right to claim that you use renewable energy from that generation. The FTC Green Guides make it deceptive to claim renewable use when you have sold the RECs. 16 C.F.R. § 260.15(d)

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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.