California has been struggling with how to implement its requirement that a certain percentage of energy consumed in the state come from renewable (e.g., solar, wind, biomass) sources. So-called renewable portfolio standards (RPSs) have become a popular way for states to try to wean themselves off energy derived from burning fossil fuels, thereby avoiding the resulting carbon dixoide emissions.

California ostensibly embraces a policy that increases the use of energy generated from renewable sources within the state. As implemented, however, California's RPS does not necessarily increase the amount of renewable energy that is actually delivered into the state. A recent proposal would further clarify that utilities need not deliver more renewable energy into California in order to meet their obligations under the state's RPS.

In general, state RPS programs encourage the development of renewable energy sources by requiring in-state utilities to purchase renewable energy credits (RECs) and submit them to the state for compliance purposes. RECs are certified and potentially tradable environmental commodities. Each REC is derived from a unit (typically one megawatt hour) of electricity generated by a renewable energy source. When a state RPS requires a REC to be "bundled" with the underlying energy, the underlying renewable energy must be "delivered" into the state to satisfy the state's RPS. Allowing the use of "unbundled" RECs so that an electricity retailer need only purchase the RECs derived from renewable energy generated elsewhere in order to meet the state RPS makes RPS compliance far easier. Among the many states with RPS programs, only Arizona, Illinois, and Iowa are in the bundled camp. The public policies that drive states to adopt the bundled approach include a desire to promote in-state generation of renewable energy and to encourage long-term financeability of renewable power projects over short-term REC purchase contracts with out-of-state REC producers.