BioCycle September 2006, Vol. 47, No. 9, p. 55
A Pennsylvania company partners with farmers and waste managers to implement projects to capture or destroy methane, and then sell the carbon credits created on the Chicago Climate Exchange.
CARBON credit trading is a new, market-based method to reduce greenhouse gases and, accordingly, global warming. Environmental Credit Corp. (ECC) is a new company based in State College, Pennsylvania, involved in creating these credits through a variety of different project types across the agricultural, industrial and municipal sectors. Carbon credits are entirely new commodities that represent certified reductions in the emission or accumulation of greenhouse gases in the atmosphere. These gases include carbon dioxide, methane, nitrous oxide, and other chemical compounds. Composters, dairy farmers, landfill owners and renewable energy producers are among the many groups who stand to benefit from carbon credits and the innovative, cost-saving technology they encourage.
Since May 2004, ECC has been providing carbon credits primarily from methane-producing entities such as dairy farms and landfills. When animal waste or landfill garbage decomposes, methane is emitted, which has a high global warming potential. ECC partners with farmers and waste managers to implement simple to sophisticated technologies, such as anaerobic digesters, to either harvest waste methane as energy, or to destroy it before it can enter the atmosphere. The use of that methane, or its destruction, leads to the creation of a carbon credit. One carbon credit equals one metric ton of CO2 equivalent. Greenhouse gas reductions equivalent to one million carbon credits are comparable to planting four million deciduous trees or offsetting the emissions of 20,000 cars.
Carbon credits are created under a regulatory (voluntary or mandatory) system. When there is a cap on emissions for industries and they emit more than the limit, they have to buy credits. Power companies and transportation sectors are two of the types of industries affected. Carbon credits can be traded on the Chicago Climate Exchange (CCX) in the U.S.; most other developed nations have their own carbon-trading scheme as part of the Kyoto Protocol that the U.S. has not yet ratified. Carbon credits are currently valued at around $4/ton in the U.S., up from around $2/ton during 2005.
“CCX will become the New York Stock Exchange of emissions trading,” claims Scott Subler, President of ECC. CCX members with direct emissions commit to reduce greenhouse gas emissions four to six percent per year by 2010, below their baseline, which is the average of their emissions between 1998 and 2001. During 2006, program-wide net emissions must be four percent below the baseline. Members that decrease their emissions below the required level can sell surplus emissions on the CCX or “bank” them for future use or sale. If a member is unable to meet the reduction target internally, they can meet their compliance commitment by purchasing emission allowances from other CCX members, or they can purchase project-based offsets. Offsets that are eligible can come from carbon sequestration activities such as reforestation, landfill and agricultural methane collection, and renewable fuel projects.
Big-name CCX members include Waste Management, International Paper, IBM, Ford Motor Company, Rolls Royce, Amtrak, Dupont, Dow Corning, Motorola, and Premium Standard Farms. CCX members also include the cities of Chicago, Boulder, Oakland and Berkeley, Tufts University, and the universities of Iowa, Minnesota, and Oklahoma.
“Carbon credit trading is the fastest, lowest cost way to solve environmental problems associated with greenhouse gases,” Subler says. “It’s about finding ways to give people credit for the environmental benefits they create. Once you put a price on something, typically people will run to see how they can make money on it.” The added incentive of carbon credits not only encourages emissions reductions, but also helps to develop new technologies and creates new revenue and funding sources for ecofriendly projects.
The precedent for carbon trading already has been set, through the Clean Air Act, by energy companies in the northeastern U.S. who have had NOx and SOx cap and trade programs because of acid rain problems. Carbon dioxide (CO2) emissions by the nation’s 100 largest electric power producers have increased, while sulfur dioxide (SO2) and nitrogen oxides (NOx) have dropped markedly. These companies’ overall SO2 and NOx emissions decreased 44 and 36 percent, respectively, while CO2 emissions rose 27 percent between 1990 and 2004. Due to a surge of coal plant proposals, the Energy Information Administration predicts a 43 percent increase in CO2 emissions from U.S. power plants by 2030.
Environmental organizations are applying pressure for setting limits on CO2 emissions from power plants and investors are expressing concern about climate change creating long-term financial risks. While thus far the federal government has opted for voluntary controls on carbon dioxide, last year the U.S. Senate adopted a resolution calling for mandatory emission restrictions.
“The challenge is getting companies to voluntarily participate in the CCX,” says Subler. “Those that do are very interested in offset programs.” The U.S. market for carbon credits is expected to be $15 billion to $30 billion by 2012. The European market has already exceeded $5 billion within a very short period.
NEW BUSINESS MODEL
According to the U.S. EPA, almost seven percent of total U.S. greenhouse gas emissions are due to agriculture, especially livestock manure management practices. Methane gas emissions can be significantly reduced with lagoon covers and anaerobic digesters, which are increasingly being used by dairies to control odors, generate energy, and supply organic soil amendments and animal bedding. With over eight million dairy cows in the United States, prospective revenues to dairy farmers from carbon credits could exceed tens of millions of dollars per year.
The potential to reduce methane emissions from agricultural operations via anaerobic digestion is one reason why ECC targeted livestock farmers with its service early on. ECC’s business model allows it to avoid charging its clients for services rendered. It does the upfront work for its project partner, be it a farmer or a company; in return, ECC gets a share of carbon credits produced from a project. Subler explains that ECC is not a broker, selling something that already exists on the market. ECC creates the carbon credits – a certified financial instrument – from the raw emissions reduction activity.
Several dozen dairy farmers already have applied to enroll in the carbon credit program to obtain this new source of revenue. Last November, ECC distributed the first payments ever to U.S. dairy farmers for greenhouse gas reductions as registered CCX offset projects. Darryl Vander Haak, of Lynden, Washington, and Dennis Haubenschild of Princeton, Minnesota, received checks for capturing methane from dairy manure using anaerobic digesters. The two farmers were credited with preventing the release of a total of 720 tons of methane to the atmosphere which, at that time, was worth more than $26,000. Additional credits will be generated as the farm projects continue to operate. ECC monitored and certified the farmers’ methane emission reductions, registered them with the CCX in October, and delivered the checks in November.
In June, four Indiana dairies jointly signed a contract with ECC to create over one million carbon credits from greenhouse gas reduction projects. The Bos, Herrema, Hidden View, and Windy Ridge dairies located in Fair Oaks, Indiana, have 17,000 cows that produce more than 100,000 gallons of milk daily. They sell milk to Southeast states and sell high-quality cheese locally. Committed to sustainable waste management, each of the dairies installed biogas digesters manufactured by GHD, Inc. of Chilton, Wisconsin. The biogas produced is about 65 percent methane and is used by the dairies for heat and electricity. Getting money for clean air credits is an added bonus.
ECC features a team of agricultural and pollution control veterans. Several of the eight people currently involved have backgrounds in the composting, waste management, renewable energy and agriculture industries. Two of the partners, Subler and Jim Jensen, had separate large-scale vermicomposting operations in the Northwest. Paul Sellew and Sharad Deshpande have deep roots with Synagro Technologies, Inc. Ed Heslop previously developed Ecovation, an innovative technology company in the wastewater and energy sector. Together, the team’s experience helps put them at the cutting edge of a brand new field – carbon trading.
TRADE CREDITS FOR COMPOSTING
The Chicago Climate Exchange does not currently have a protocol for composting activities; however, work by Sally Brown at the University of Washington and others, suggests a good possibility for one. Composting could have a significant potential for carbon credits because it involves diverting organics from landfills as well as providing organic inputs to soils. ECC is working to create new protocols for composting activities that will meet CCX and international standards, and maximize the credit opportunity for the industry.
“Just because you’re doing something that reduces emissions doesn’t necessarily mean you are entitled to credits,” says Subler. “There are specific rules that limit the eligibility of offset projects. So a composter cannot necessarily get credits if a state has already diverted organics from landfills through a ban. But it could work for someone who wants to divert food waste because there are no regulations banning it from landfills.” ECC is involved with discussions about where the credit lies with composting and how it would be measured and verified.
Besides composting, the ECC team is looking to expand carbon credit trading in several different areas, including biofuels, landfill gas, renewable power, and energy efficiency. There may also be credit opportunities in improved nutrient management in agriculture.
It also expects to expand its reach in agricultural methane. “One hope is that we don’t just gain credits from existing projects, but that the financial opportunity the carbon credit market provides draws debt and equity capital towards these kinds of projects,” add Jim Jensen. “For example, for a segment of the market, lagoon covers become attractive because they are a relatively inexpensive way to keep methane out of the atmosphere and produce carbon credits for revenue.”
For more information about Environmental Credit Corp., go to http://www.envcc.com. The Chicago Climate Exchange’s website is http://www.chicagoclimateexchange.com. Rhonda Sherman is a freelance writer, consultant and university faculty member in Raleigh, North Carolina.
September 20, 2006 | General
Trading Carbon Credits For Methane Reovery
BioCycle September 2006, Vol. 47, No. 9, p. 55