The Business Case for Carbon Offsets from Waste Diversion: Waste Digestion and Composting
By implementing innovative best practices for waste management, such as composting and anaerobic digestion, waste managers can diversify their balance sheets with the addition of carbon revenues. by Scott Hernandez-Waste Advantage
For more than a decade it has been possible for farmers to generate carbon offsets for methane reduction when they replace their open manure lagoons with anaerobic digesters to capture and destroy methane emissions at dairy and swine farms. Building on this early success, protocols for emission reduction activities have emerged across the waste management sector, and today there are protocols to earn carbon offsets from organic waste digestion and organic waste composting.
Climate Action Reserve
Developing emission reduction project protocols is one of the main functions of the non-profit Climate Action Reserve (the Reserve). It does this by establishing regulatory-quality standards for the development, quantification and verification of greenhouse gas (GHG) emissions reduction projects in North America; issuing carbon offset credits known as Climate Reserve Tonnes (CRTs) generated from such projects; and tracking the transaction of credits over time in a transparent, publicly-accessible system. Adherence to the Reserve’s high standards ensures that emissions reductions associated with projects are real, permanent and additional, thereby instilling confidence in the environmental benefit, credibility and efficiency of the U.S. carbon market. While integral to the offset market, the Reserve is not a trading exchange; rather it serves as infrastructure for the issuance and retirement of CRTs.
When the Reserve launched its offset project registry in May of 2008, it quickly became the premier source for voluntary carbon offsets in the U.S. The program has rapidly expanded to include new project types and new geographic areas, especially in the development of protocols that build upon best practices in reducing GHGs in waste management. The Reserve now boasts 11 offset project protocols for use in the U.S. and two for use in Mexico (see Figure 1).
Offset Project Registry
Emissions that result from waste management have long been a focus for offset protocol development due to the potentially large volume of emissions reductions that can result from relatively low-cost, proven technologies and well established management practices. Waste-related emissions account for 2 percent of U.S. GHG emissions, yet many sources, from farms, restaurants, grocery stores to even our homes and college campuses, remain uncontrolled by regulation and continue as common practice.1Therefore, these emissions are a prime target for GHG offset projects. Moreover, it is hoped that establishing offset protocols for the waste management sector will facilitate widespread acceptance of best management practices and standards that are broadly applicable to any place where there is waste.
Offsets from Waste Diversion
In addition to the Reserve’s protocol for the management of livestock waste (see Project Eligibility for Livestock, OWD and OWC sidebar), other protocols for waste management include the diversion of organic waste from landfills to either an anaerobic digester or an aerobic composting facility. In the U.S., landfills account for approximately 23 percent of anthropogenic emissions of methane. Many landfills already control their methane emissions, but most do not unless required by law. Yet, even landfills with gas collection and control systems (GCCS), they are never unable to collect all of the gas. On average, landfill GCCS systems are only 75 percent efficient.2 By diverting the waste before it reaches a landfill, the organics can be broken down in a closed digester system whose collection efficiency is much higher. The credits from these projects are quantified based on the avoided emissions that would have occurred if they were sent to a landfill. To this end, the Reserve has developed two protocols targeting the climate benefit of reducing greenhouse gas emissions by diverting organic waste from landfills: the Organic Waste Digestion and Composting Project Protocols.
Organic Waste Digestion Project Protocol, Version 2.0
Originally adopted in October 2009, the Climate Action Reserve released version 2.0 of its Organic Waste Digestion (OWD) Project Protocol in June of 2011. The OWD protocol is designed to give credit to projects that divert eligible organic wastes, including MSW food wastes and agro-industrial wastewater, from landfills and wastewater treatment plants and send the waste to facilities with anaerobic digesters. The digesters maximize the production of methane from the anaerobic decomposition of the organic waste, and capture the methane gas so that it can be destroyed. The methane destruction can occur onsite or offsite, using a flare, generator, fuel cell, pipeline or CNG vehicle.
As with all methane destruction protocols adopted by the Reserve, credits are given for the baseline avoided emissions, minus any emissions associated with the project itself, such as transportation emissions of delivering eligible waste streams to the digester. There are four main components involved in determining the eligibility of an OWD project:
- Location: The project must be located in the U.S. or its territories (versions for Mexico and Canada may be developed at a later date)
- Project start date: The project must be submitted no more than 6 months after their operational start date (i.e. the date in which the eligible feedstock is first loaded into the digester).
- Additionality: The project must meet the performance standard (above and beyond business as usual) and not be required by any federal, State or local regulation.
- Environmental Compliance: The project must be in compliance with any and all relevant environmental regulations.
See Figure 2 for a comprehensive chart outlining the activities that are included in a project.
The Protocol allows for multiple forms of biogas utilization as long as its ultimate fate is combustion in a form that can be independently verified. As a result, many project operators are able to displace grid electricity with renewable energy from biogas use. However, the Protocol does not quantify and give credit for any emissions reductions associated with the displacement of grid-connected electricity. Because electricity is already regulated for its embedded GHG emissions in California, and the mission of the Reserve is to develop protocols with the intent to serve into the California compliance market, such emissions reductions are not eligible for crediting under the Reserve program.
In cases where the digester facility is accepting waste as part of a State, local or federal mandate, the Reserve cannot issue credits for the resulting emissions reductions. In short, any legally-binding waste diversion mandate violates the protocol requirements foradditionality. That is to say that if the project is required by law, then it would have occurred irrespective of the incentive provided by the carbon finance. Nevertheless, in such instances partial crediting is allowed for any additional emissions reductions that occur as a result of waste diversion that goes above and beyond that required by the mandate. For example, in jurisdictions that are under a mandatory organic waste diversion target, no credit will be given until that target is achieved. However, the project can earn credits for the waste diversion once the target has been achieved. For instance, under California’s Assembly Bill 939, local jurisdictions must meet a target of 50 percent organic waste diversion. As a result, organic waste will only be credited if originating from jurisdictions that already meet this target without the diversion of the project waste. It is important to note, that projects located within jurisdictions that have waste diversion “goals” or “targets” are fully eligible to earn credits as long as the non-binding diversion goals do not impose any sort of penalty.
Moreover, opportunities for co-digestion of livestock manure and eligible organic waste exist as long as the project meets the requirements of the most recent versions of both respective Reserve protocols for each waste stream. Therefore, a facility such as a wastewater treatment plant that has the capacity to co-digest manure with other organic waste can do so and earn additional credits. However, in such a case, the project must satisfy the requirements of both the Livestock and Organic Waste Digestion Project Protocols in order to receive additional CRTs for co-digestion of livestock manure and organic waste and/or organic loaded wastewater.
Organic Waste Composting Project Protocol
Adopted in June 2010, the Reserve’s Organic Waste Composting (OWC) Project Protocol builds upon the OWD protocol. It provides a standardized approach for quantifying and monitoring the GHG reductions from projects that avoid methane emissions to the atmosphere through the diversion and composting of municipal food waste and non-recyclable food soiled paper that would have otherwise been sent to a landfill.
Similar to the OWD protocol, wherein waste is diverted from landfills to an anaerobic digester to capture and destroy methane emissions, the OWC projects divert waste to an aerobic composting facility where the waste is composted in a system that complies with best management practices such as forced aeration and turned windrow composting, arranging the compost in long piles that are periodically aerated by driving along the row and turning it..2 By treating the waste in this manner, it decomposes aerobically, thereby eliminating the production of methane gas. To date, just under 25 waste diversion projects have been submitted to the Reserve. Of these projects, only 1 OWD and 2 OWC projects have been registered accounting for just under 45,000 CRTs issued. Currently, the Reserve’s Organic Waste Protocol is undergoing a revision. The Reserve will be soliciting public comments on the proposed protocol update, beginning in January, and plans to release Version 1.1 of the protocol in March or April of 2013. For more information, visit www.climateactionreserve.org/how/protocols/organic-waste-composting/rev.
Throughout its relatively brief history, the carbon market has been beset by significant price variability and instability, resulting in financial uncertainty for waste managers, farmers, project developers and investors. During the latter half of the past decade, however, new, more stringent standards have emerged, instilling greater confidence and environmental integrity. At the same time, buyers’ preferences have shifted toward offset programs that use stringent standards and operate in an open and transparent manner. The Reserve has been instrumental in this “raising of the bar” for transparency, offset quality and integrity in the North American offset market.
In addition, there have been significant steps forward in the formal development and implementation of compliance markets for carbon offsets. In particular, the state of California finalized the regulations for its cap-and-trade program, creating a new market for carbon offsets to be used for compliance. For waste managers and dairy farmers this means significant increases in the growth and stability in the demand for their credits, resulting in upward pressure on prices. Prices for compliance-eligible offset credits have recently been trading in the range of $6 to $9/tonne (as of late August 2012; this is subject to change). This price premium is especially pronounced in comparison to non-compliance offset credits which are currently trading in the range of $1 to $4, reflecting perceived demand for offsets for use in compliance markets. Analysts expect the prices for offset credits that are eligible for use in California cap-and-trade program to rise steadily as the program matures and the “cap” on emissions comes down.
California Cap-and-Trade Program and the Role of Offsets
In 2006, the state of California adopted Assembly Bill 32 (AB32), the California Global Warming Solutions Act, which mandates the state to reduce statewide greenhouse gas emissions to 1990 levels by 2020 (a reduction of about 15 percent from current emissions). In order to achieve the ambitious emissions reductions targets mandated under AB32, the California Air Resources Board (CARB) developed a statewide cap-and-trade regulation which was formally adopted in October of 2011. The program is scheduled to take effect in January 2013 and run through 2020.
The main component of California’s compliance market will be tradable emissions permits known as allowances, each representing 1 metric ton of CO2 equivalent (mtCO2e). In addition, the regulation allows emitters to satisfy their annual compliance obligation with carbon offsets for up to 8 percent of their emissions. For example, a regulated entity in California that emits 1 million mtCO2e, can use 80,000 offsets to meet their compliance obligation for that year, effectively reducing their cost of compliance. So far the CARB has adopted four of the Reserve’s project protocols for use as compliance offsets: Livestock, Forestry, Urban Forestry and Ozone Depleting Substances. These projects may be located anywhere in the U.S. and its territories, which is important because it means that utility plant operators, farmers and waste facility managers across the country can develop and sell to regulated entities in California. Once the program has successfully launched, the CARB has indicated that it will consider additional protocols, including Organic Waste Digestion and Organic Waste Composting, for possible inclusion in the cap-and-trade regulation. However, currently, credits from organic waste digestion and composting projects are only bought and sold in the voluntary market.
The cap-and-trade program will consist of three compliance periods, the first running from 2013 to 2014. Beginning in January 2015, the “cap” on emissions will expand from a “narrow scope”, covering only large, stationary-sources, to a “broad scope” when transportation fuels and electricity will be brought under the cap. At that point, 85 percent of economy-wide emissions in California will be covered under the cap.
As illustrated in Figure 3, CARB anticipates the market demand for offset credits to be used for compliance in California will be 13 million tonnes per year for the first two years, rising to approximately 27 million tonnes at the start of the second compliance period in 2015. The regulation includes a minimum price (price floor) of $10 per tonne for allowances, so offset projects can expect similar prices when they sell their credits. That said, many market analysts predict robust demand for compliance offsets to drive prices to upwards of $70. For example, Barclay’s Capital estimates that prices for compliance offsets will reach $68 during the third compliance period (2018-2020).3 If such forecasts are realized, then the prices for compliance offsets, such as those generated by the Reserve’s Livestock Project Protocol and potentially others, should provide ample incentive for waste managers and dairy farmers—not to mention cities and municipalities—to invest in proven technologies to capture and destroy greenhouse gas emissions.
Implementing a Project: The Reserve Process
The Reserve’s project protocols each provide protocol-specific guidance regarding the monitoring, reporting and verification requirements. Every year, the project operator must submit project documentation—each individual project must go through verification by an independent third-party. It is only after this verification is successful that CRTs are issued. To this end, the Protocol should serve as a step-by-step guide to walk the developer through the process of listing, verifying and registering the project.
The process of submitting a project is very straightforward. The system is designed to streamline the complex process of carbon offset quantification, making it easier for project developers to make emissions reductions occur at a faster rate. Developers will open an account on the Reserve system, submit the documentation for their project, which is then reviewed by Reserve staff for completeness and general eligibility, and then the project is publicly listed in the Reserve system. Once the project has been operational and reductions have occurred and been quantified, the developer will hire an accredited verification body to verify their project. The verification documents are submitted to the Reserve and reviewed by the staff. Upon successful completion of verification the project attains the status of “Registered”, and the appropriate number of CRTs are issued into the developer’s account. At that point they are active credits which can be held, transferred, or retired. The process, from the time a project is submitted to the time it begins earning CRTs varies by project-type, generally takes between 6 and 24 months.
Time to Get on Board
Despite a checkered past, carbon markets are strong and there is consistent demand for livestock CRTs, and digester technology has matured greatly in the past few years. There are many resources available to farmers who want to learn more and get involved. The timing has never been better for livestock and organic waste operations to install renewable energy technologies such as anaerobic digesters to begin managing their GHG emissions not only to benefit the environment, but also to enhance their bottom-line. By implementing innovative best practices for waste management outlined in the Reserve offset protocols for waste management, such as composting and anaerobic digestion, waste managers can diversify their balance sheets with the addition of carbon revenues.
Scott Hernandez is the Business Development Manager for the Climate Action Reserve (Los Angeles, CA). He works on the development and implementation of strategies to promote the Reserve and its protocols to a wide range of audiences, including project developers, regulated businesses and voluntary offset buyers. Prior to joining the Reserve, Scott worked as an Energy and Climate Change Specialist at the Association of California Water Agencies (ACWA) in Sacramento. In addition to advocating to the California’s state regulatory agencies on behalf of public water agencies, Scott lead initiatives to facilitate the adoption and implementation of onsite renewable energy and water -and-energy efficiency technologies at water agencies throughout California. He can be reached at (213) 542-0295 or via e-mail email@example.com.
Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007. http://epa.gov/climatechange/emissions/usinventoryreport.html
Organic Waste Project Protocol, Version 1.0; The Climate Action Reserve: www.climateactionreserve.org/how/protocols/organic-waste-composting.
Brinson, J. P., S. Renas, and D. Firger. 2011. California’s Cap-and-Trade Regulations: Design Elements and Outstanding Issues. J. BNA. Daily Env. Report. 245.
U.S.-Mexico project map.
OWD Protocol GHG assessment boundary. Methodology: To quantify the amount of methane that would have occurred had the food waste gone to a landfill (the baseline emissions), a first order decay (FOD) model is used. For each reporting period, the FOD model calculates how much methane the diverted food waste would have produced in the first 10 years after being sent to a landfill. In addition, to create a widely-applicable performance standard, the conservative assumption is made that the landfill would have had a GCCS. It assumes that none of the methane is captured from the newly deposited food waste for a period of three years at the landfill, after which point gas is captured at a rate of 75 percent for the remaining seven years. This standardized approach, recommended by the Reserve’s stakeholder work group, is a conservative assumption considering that it is assumed that all landfills have GCCS and are assumed to be operated as if they are regulated according to stringent federal NSPS regulations.
Figures courtesy of the Climate Action Reserve.
Forecasted compliance offset demand (2013-2020).
Figure courtesy of CARB Final Cap-and-Trade Regulation, October 2011. California Code of Regulations. Subchapter 10 Climate Change, Article 5: California Cap on Greenhouse Gas.