Tag: carbon markets

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Abstract

* Presentation slides are available at the bottom of the page.

For more than a decade, the potential to earn revenue from climate-saving activities in agriculture has been touted throughout farm-related industries. This presentation will assume a basic knowledge of the concept of carbon markets as a kind of ecosystem service market. The focus will instead be put on current market opportunities and the importance of learning from past mistakes. Included in the discussion will be carbon offset opportunities for methane capture from manure digesters and composting and nitrous oxide reduction from controls on nitrogen fertilization. Participants will learn about voluntary and compliance market opportunities and the value of offsets versus transactions costs in today’s markets. Sources of market information will also be discussed.

Topics:

• Ecosystem services markets: Carbon credits and more.
• Types of offsets relevant to livestock and crop producers (e.g., methane and nitrous oxide).
• Rules of the road: How to read the key parts of project protocols.
• Once and future markets: Consider the differences between voluntary and compliance markets.
• Show us the money: Have any producers really made money from carbon markets?

Purpose

During the past decade, the potential to earn revenue from greenhouse gas reductions in agriculture, especially from anaerobic digestion projects, generated some enthusiasm for this emerging ecosystem market. In 2005, dairies in Washington and Minnesota received the first carbon credit payments for their digesters through the Chicago Climate Exchange (CCX), a pilot cap-and-trade market established in 2003. With the failure of the 111^th Congress to complete passage of a national cap-and-trade law in the summer of 2010, the CCX closed shop. What has happened since that time? What is the potential today for livestock producers to benefit from carbon markets or carbon pricing? We look at current markets and summarize the opportunities.

What Did We Do?

The Washington State University (WSU) Energy Program monitors technology, policy and market developments about anaerobic digestion as part of its land-grant mission to support industry and agriculture in Washington state. Because of the potential value of digesters to dairy producers, we follow developments in a wide range of existing and potential ecosystem markets, including renewable energy and fuels, carbon/GHGs, nutrients, and water. Preparation for this presentation included surveys of academic and popular literature, interviews with project developers and market insiders, and analysis of the participation in carbon trading by existing livestock digester projects in the U.S.

What Have We Learned?

The existing landscape of livestock anaerobic digestion projects illustrates three major types or models of carbon market finance: utility-based programs, voluntary carbon markets and compliance-based cap-and-trade markets.

Utility-Based Opportunities

Vermont is home to at least 15 operational dairy-based digesters. Only two digesters serve farms with more than 2,000 cows. Of the balance, about half are below and half above 1,000 cows. All of the Vermont digesters produce renewable electricity and participate in one or more utility-based incentive programs. One example is the Vermont’s Sustainably Priced Energy Enterprise Development (SPEED) program, which establishes standard offer contracts between utilities and renewable energy project developers. The goal of the SPEED program is to support in-state production of renewable power from hydro, solar PV, wind, biomass, landfill gas and farm methane with an overall portfolio target of 20 percent by 2017.

A key mechanism of the program is the long-term (20-year) Standard Offer contract and default pricing for the different types of renewable power. Default prices were calculated to allow developers to recover their costs with a positive return on investment. The default prices established for the first two rounds of farm methane projects were $0.16/kWh and $0.14/kWh, respectively. This compares to an average retail price of $0.146/kWh for electricity in the state. The default prices do not account for the environmental attributes of the green power for farm methane projects.

Many of the Vermont digesters participate in the Cow Power Program, established by  the former Central Vermont Public Service (CVPS), now a part of Green Mountain Power, in 2004. The Cow Power Program offers customers the opportunity to purchase the environmental attributes (renewable energy and GHG reduction) from participating dairy digester projects at a rate of $0.04/kWh. This value was passed along to the suppliers of the dairy-based green power.

These two Vermont programs continue to operate in tandem and provide maximum benefit to Vermont’s diary digester projects. By one estimate, customers participating through the Cow Power program have provided to dairy digester operators more than $3.5 million in value for the environmental attributes created in the past eight years.

Other examples of this type of type of utility-based standard offer or incentive pricing for farm power can be found in North Carolina and Wisconsin.

Voluntary Carbon Offsets Opportunities

Voluntary carbon markets are built on decisions by utilities, corporations, and other businesses to offset their carbon footprint impacts through the purchase of third-party verified carbon credits. While the voluntary carbon market has suffered ups and downs, especially during the recent economic downturn, corporations continue to respond to pressures such as corporate stewardship policies or carbon disclosure programs that require accounting for environmental and greenhouse gas impacts. 

The voluntary market is inhabited by both nonprofit and for-profit organizations that bring sellers and buyers together. The types and value of offsets are more varied, depending on the appetites and budgets of the buyers.

For example, the voluntary carbon market has been a preferred option for Washington-based Farm Power, which has agreements with The Carbon Trust (Portland, OR) and Native Energy (Burlington, VT) for carbon credits generated from the capture and destruction of methane from its farm digester projects in Washington state. Both The Carbon Trust and Native Energy use designated registries and protocols, such as the Carbon Action Registry (CAR) or Verified Carbon Standard (VCS), as the vehicle through which credits are registered, verified, and eventually retired on behalf of their customers.

The Climate Trust – Retires registered carbon offsets on behalf of at least five Oregon-based utilities that are required by state law to offset the GHG impacts that occur from installing new power plants in the state. The Trust also sources offsets for the Smart Energy program created by NW Natural as an opportunity for customers to support production of “carbon-neutral” natural gas through farm-based biodigesters.

Native Energy – Has a diverse base of individual and business customers. They source carbon offsets for a wide range of large, environmentally conscious businesses, such as eBay, Stonyfield Farm, Brita, and Effect Partners, who provided some funding up front for offsets from Farm Power’s Rainier Biogas project. Offset values vary widely depending on demand, supply, and the “value” of the project’s story. In a few cases, offset values may loosely track the prices for compliance-grade carbon offsets with a discount for funding provided in advance of project implementation.

Compliance Cap-and-Trade Offsets Opportunities

Finally, the compliance market opportunity refers to cap-and-trade programs established by state governments to reduce GHG pollution. These are formal regulatory systems. The government establishes caps on GHGs for targeted sources and issues permits or allowances that are distributed, sold, or auctioned to regulated entities for each ton of emissions they generate. Allowances are typically tradable instruments, so entities can easily manage their allowance needs and accounts. The goal of cap-and-trade systems is to use market-based mechanisms to achieve pollution reductions at the lowest possible cost and with the least disruption to the economy.

Systems might also allow covered entities to use offsets generated voluntarily by non-covered entities to meet some portion of their emission reduction target. Allowed offsets are generated using approved protocols, verified by approved third-party verifiers, and registered/sold through approved registries. 

Two domestic cap-and-trade programs survived the past decade and are in operation today—the Regional Greenhouse Gas Initiative (RGGI), which involves nine Northeastern states, and the California market, established by Assembly Bill 32 (AB 32) and administered by the California Air Resources Board (CARB). Each of these systems operates under its own sets of rules.

The table below highlights features of these two market approaches.

Regional Greenhouse Gas Initiative (RGGI)	AB 32 – California Market
Nine states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont	California only (may establish a market connection with Ontario, Canada)
Covers the electricity sector: 200 power plants	Covers power and industrial entities that generate more than 25,000 metric tons of CO2e annually; will expand to include the transportation fuel sector in 2015
Allowances based on U.S. short tons of CO2	Allowances based on metric  tons of CO2
Allowances are auctioned	Allowances are auctioned, with a minimum floor price of $10/MtCO2e
Offsets are very limited – few types, very strict rules, only 3% of compliance allowed	Offsets are allowed in four categories: livestock methane, forestry, urban forestry, and ozone-depleting substances; entities may use offsets for up to 8% of their compliance obligation
Current auction prices: ~ $2.00	Current auction prices: ~$13.50; offset values are estimated to lag allowance prices by about 25%

 

Among farm digester project developers, interest in the California market is guarded. Agricultural methane capture and destruction is one of just four approved offset categories. The demand for these offsets could become strong, and the rules allow projects from any state to participate. On the other hand, the costs for monitoring equipment can be significant, $15,000 or more for start up, with similar sums every year for verification and registration.  These monitoring and transaction costs will tend to favor projects with larger livestock numbers (1,500+ dairy animal units, or AUs). To date, 60 existing digester projects have listed with the Climate Action Registry—a first step to participation in the California market. Of these projects, 36 have registered more than 800,000 verified carbon credits.

Conclusions:

Values for carbon (i.e., GHG reductions) can be observed in the marketplace and measured in terms of market goodwill or as prices for environmental attributes or carbon credits from voluntary and compliance markets.

Developers of smaller farm digester projects (<1,500 AUs) may find their best value through utility-based incentive programs or through participation in voluntary carbon markets.

Developers of larger farm digester projects (>1,500 AUs) should explore the potential costs and benefits of registering to participate as an offset project in the California carbon market.

Future Plans

The WSU Energy Program will continue to monitor market developments related to this topic and encourage livestock producers to consider methane capture and anaerobic digestion as means to control odors, manage nutrients, and produce valuable biogas resources.

Authors

Jim Jensen, Sr. Bioenergy and Alternative Fuel Specialist, Washington State University Energy Program jensenj@energy.wsu.edu

Additional Information

• Vermont SPEED: https://puc.vermont.gov/sites/psbnew/files/doc_library/4300-speed-program_0.pdf
• The Climate Trust: www.climatetrust.org
• Native Energy: www.nativeenergy.com
• Regional Greenhouse Gas Initiative: www.rggi.org
• California Carbon Market: www.arb.ca.gov/cc/capandtrade/capandtrade.htm
• Climate Action Reserve: www.climateactionreserve.org
• American Carbon Registry: www.americancarbonregistry.org

 

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