Money from SomethingCarbon Market Developments for AgricultureJim JensenSr. Bioenergy and Alternative Fuels Specialist

From Waste to Worth: “Spreading” Science and SolutionsApril 3, 2013

Topics• Global climate change: the recent past

• Ecosystem market approaches

• Utility-based valuation

• Voluntary carbon markets

• Compliance carbon markets

• Current economics for ag methane

• Conclusions

Climate Change – 2000s

Science Coverage Media Coverage

Carbon Markets Develop

Chicago Climate Exchange

RIP 2004-2010

Chicago Climate Exchange

RIP 2004-2010

Key Greenhouse Gases (GHGs)

Carbon dioxide (CO2)

Methane (CH4)

Nitrous Oxide (N2O)

Perfluorocarbons (PFCs)

Hydrofluorocarbons (HFCs)

Sulfur hexafluoride (SF6)

Key Greenhouse Gases (GHGs)

Carbon dioxide (CO2)

Methane (CH4)

Nitrous Oxide (N2O)

Perfluorocarbons (PFCs)

Hydrofluorocarbons (HFCs)

Sulfur hexafluoride (SF6)

USDA, 2004

Key Greenhouse Gases (GHGs)

Carbon dioxide (CO2)

Methane (CH4)

Nitrous Oxide (N2O)

Perfluorocarbons (PFCs)

Hydrofluorocarbons (HFCs)

Sulfur hexafluoride (SF6)

USDA, 2004

GHG Reductions Have Value

Types of Ecosystem Service Markets

GHG Reductions Have Value

Types of Ecosystem Service Markets•Conservation Reserve Program (CRP)

•Renewable Energy Credits (RECs)

GHG Reductions Have Value

Types of Ecosystem Service Markets•Conservation Reserve Program (CRP)

•Renewable Energy Credits (RECs)

•SOX & NOX – the original cap-and-trade

•Carbon Credits – from GHG reductions, avoidance, or sequestration

GHG Reductions Have Value

Types of Ecosystem Service Markets•Conservation Reserve Program (CRP)

•Renewable Energy Credits (RECs)

•SOX & NOX – the original cap-and-trade

•Carbon Credits – from GHG reductions, avoidance, or sequestration

Ways to Capture Carbon Value

1. Utility-based purchases2. Voluntary carbon markets

3. Compliance carbon markets

Utility-Based Purchases

• Green power/green gas collections from customers• Standard offer contracts (feed-in tariffs)• Examples: Wisconsin, Vermont, North Carolina

Utility-Based Purchases

Vermont SPEED

Hydro, solar PV, wind, biomass, landfill gas, farm methane

Standard Offer support for renewable power

Current: $0.14/kwh

• Green power/green gas collections from customers• Standard offer contracts (feed-in tariffs)• Examples: Wisconsin, Vermont, North Carolina

Utility-Based Purchases

Vermont Cow Power• Collects $0.04/kWh from

customers for “Cow Power”

• Includes CO2 and CH4 reduction benefits

• $3.5 mil paid to participating farms in 8 yrs

• Green power/green gas collections from customers• Standard offer contracts (feed-in tariffs)• Examples: Wisconsin, Vermont, North Carolina

Utility-Based Purchases

Vermont SPEED• Standard Offer for

renewable power

• Hydro, solar PV, wind, biomass, landfill gas, farm methane

• Current: $0.14/kwh

Vermont Cow Power• Collects $0.04/kWh from

customers for “Cow Power”

• Includes CO2 and CH4 reduction benefits

• $ passed to participating farms as long as available

• Green power/green gas collections from customers• Standard offer contracts (feed-in tariffs)• Examples: Wisconsin, Vermont, North Carolina

Cow Power in British Columbia

•Utility (BC Hydro) pays $0.10/kWh for renewable electricity (any kind)•Cost to produce farm methane power is closer to $0.14•Cow Power enlists business and individual subscribers to pay $0.04/kWh to support farm projects•Includes GHG benefit of methane reductions

Carbon Markets Today

VOLUNTARY COMPLIANCE

Carbon Markets Today

VOLUNTARY

• Offsets based on existing protocols/registries

• Verification patterns vary

• Private transactions retire offsets

• Business to Business (or individual)

• Carbon Funds

COMPLIANCE

Carbon Markets Today

VOLUNTARY

• Offsets based on existing protocols/registries

• Verification patterns vary

• Private transactions retire offsets

• Business to Business (or individual)

• Carbon Funds

COMPLIANCE

• Government regulation

• Overall cap on emissions; smaller over time

• Allowances (permits)

• Trading allowed to find lowest cost compliance

• Offsets come from non-regulated parties

• Offsets governed by rules, verification, registries

What are Carbon Offset Credits• Real, documented, verified results:

– Reductions of greenhouse gas emissions

– Avoidance of greenhouse gas emissions

– Increases in carbon sequestration

• Carbon Dioxide is the measure:

1 metric ton of CO2 = 1 carbon credit

• Global Warming Potential is relative:

Methane – 23 times greater

Nitrous Oxide – 300 times greater

• The process of creating offset credits can be complex and costly.

Criteria for Carbon Offsets• Measurable and verifiable

• Additionality:– Regulatory surplus

– Timing test

– Implementation barriers (financial, technical, institutional)

– Common practice

• Real:– Permanence

– Leakage

• Clear ownership

Problem: Open-Air Lagoons (“baseline”)

Solution: Covered Lagoons or Digesters

Carbon Offset Project Steps

1. Project boundaries2. Registry registration 3. Protocol development

Carbon Offset Project Steps

1. Project boundaries2. Registry registration 3. Protocol development

4. Measuring

5. Monitoring

6. Verification

Carbon Offset Project Steps

1. Project boundaries2. Registry registration 3. Protocol development

4. Measuring

5. Monitoring

6. Verification

7. Certification

8. Credit issuance

9. Credit aggregation/sale

• Non-profit, since 1997 • Carbon offset credits, programs, consulting• Manage dedicated carbon offset funds• Protocol and policy support

Offsets: biodigesters, cogeneration, building efficiency, fuel switching, industrial efficiency, material substitution, renewable energy, forest

sequestration, transportation efficiency

• Since 2000, wind and ag methane• Carbon offset and renewable energy credits, carbon

accounting software• Pay farm project up front or as you go

Clients

• Since 2004 (Univ of Penn)• Buy and sell offset credits• Manage offset projects• Farm power (methane), landfill

gas, coal mine methane, wind• Clients: individuals, families,

corporations, LEED/green building, universities, private aviation

• Retail price: $13.12/ metric ton of CO2e (calculators provided)

Existing projects

have destroyed

more than

4 million tons of CO2e

Compliance Carbon Markets

RGGI California – AB 32

Compliance Carbon Markets

RGGI

• 9 states: CT, DE, ME, MD, MA, NH, NY, RI, and VT

• Electricity sector: 200 power plants

• U.S. short tons of CO2

• Allowances are auctioned

• Offsets are very limited

• Current allowances: ~ $2.70

Compliance Carbon Markets

RGGI

• 9 states: CT, DE, ME, MD, MA, NH, NY, RI, and VT

• Electricity sector: 200 power plants

• U.S. short tons of CO2

• Allowances are auctioned

• Offsets are very limited

• Current allowances: ~ $2.70

California – AB 32

• Power and industrial sectors (>25,000 metric tons/yr); transportation starts in 2015

• Metric tons of CO2

• Allowances are auctioned; minimum floor price of $10

• Offsets: livestock methane, forestry, urban forestry, and ozone-depleting substances

• Current allowances: ~$13.50

California Carbon Market

Current livestock methane projects

Climate Action Reserve•Listed: 60•Registered: 36 •Verified Credits: 800,000+•Early Action Projects: 13 - transition to compliance

California Carbon Market

Source: Climate Action Reserve

Economic Factors 2013

Est. Costs and BenefitsCA Compliance Market• Credits per cow per year: 2 to 3

Economic Factors 2013

Est. Costs and BenefitsCA Compliance Market• Credits per cow per year: 2 to 3• Initial equip costs: $15,000+ • Annual MMV costs: $15,000+• Transaction/partner costs: variable

Economic Factors 2013

Est. Costs and BenefitsCA Compliance Market• Credits per cow per year: 2 to 3• Initial equip costs: $15,000+ • Annual MMV costs: $15,000+• Transaction/partner costs: variable• Allowance prices: $13.50 - $15.00• Offset value: lag allowance prices

by ~25%

Economic Factors 2013

Est. Costs and BenefitsCA Compliance Market• Credits per cow per year: 2 to 3• Initial equip costs: $15,000+ • Annual MMV costs: $15,000+• Transaction/partner costs: variable• Allowance prices: $13.50 - $15.00• Offset value: lag allowance prices

by ~25%• Threshold size: 1,500 cows

Market Risks

• Complexity• Eligibility/timing• Additionality/regulatory changes• Methane destruction systems• Monitoring systems• Data management (gaps)• Protocol choices/revisions• Verification variables• Transaction costs• Buyers

Carbon Market Opportunities

Utility-based programs

Voluntary carbon markets

California compliance market

1,500 cows

The Cherry on Top

• Summary

• Conclusion

• Lesson Learned

• Key Takeaway

• The Bottom Line

Jim JensenSenior Bioenergy and

Alternative Fuels Specialist

360-956-2083jensenj@energy.wsu.edu

@JJensen_WSUwww.linkedin.com/pub/jim-jensen/4/294/37

Proceedings: www.extension.org/pages/67612/money-from-something:-carbon-market-developments-for-agriculture

Thank You