The Benefits of Biodigesters for a Carbon Offset Market

1. The Benefits of Biodigesters for a Carbon Offset Market Faisal Vellani Austin Berliner Sharda Sharma Mariana Nardon Sinan Pismisoglu July 20, 2009

2. What is a Biodigester? • Used by dairy farmers to • store & dispose of manure • reduce waste odor • create fertilizer • burn methane • produce renewable energy • Process: • A hollow container fed by organic material, e.g., animal manure • Resulting anaerobic bacteria eat & digest the organic material • After digesting its “food,” the anaerobic bacterium emits its waste: methane, CO2, and nitrous oxide • The methane and CO2 combine to create the ultimate end product: biogas

3. What is a Carbon Offset? • With a cap-and-trade scheme, regulated entities will be “capped” at a set amount • When regulated entities cannot meet this requirement, they turn to a carbon offset market • An unregulated entity may undertake a project to reduce carbon emissions and receive a number of carbon offset credits

4. 4 General Requirements of a Carbon Offset • Reductions must be . . . • Measurable • Verifiable • Permanent • Additional • Is the project business-as-usual? • Source of contention to be discussed later in the presentation

5. Biodigesters as Carbon Offset Projects • Biodigesters are . . . • Measurable • EPA provides formulas for calculating tons reduced • Verifiable • 3rd parties can use meters to verify reductions • Permanent • Digests methane and converts it into CO2, thereby reducing the amount of CO2 emission • Additional

6. Biodigesters are currently Additional • Key Question: • Is the project business-as-usual? • Would the project have occurred if the project was not implemented as a carbon offset project? • Currently recognized as additional • High costs make business-as-usual unlikely • Need access to a carbon offset market to overcome the costs

7. Biodigester as a Renewable Energy Source • Biodigesters can produce renewable energy, creating further financial incentives • But, current regulations cause roadblocks for making biodigesters economically feasible • Today’s proposed changes can improve financial profitability as well as accomplish the goal of reducing emissions • These changes will present challenges to the Additionality requirement • However, this requirement should overlooked to promote goal of reducing GHG emissions

8. Roadblocks for Biodigesters • Interconnection fees • Demand charges • Net Metering • Renewable Energy Certificates (RECs)

9. Roadblock: Interconnection Fees • Amount paid to utility for connecting to the power grid • Initial connection fees • Protective measure for the safety of the farm and utility personnel • To ensure that the entity has electricity at all time • E.g., if a power line near the farm is broken • Proposed change – eliminate or reduce interconnection fees for biodigester projects

10. Roadblock: Demand Charges • Incurred during biodigester downtime • Biodigester owners required to shut-off the system for maintenance, mechanical failures, etc. • Average: 3 days out of the year • During downtime, system receives electricity from utility • Maximum amount of energy the owner would demand in any fifteen-minute interval • The highest recorded demandis used to determine the demand charge for the month • Substantial fee charged by utility

11. Roadblock: Demand Charges • Example, California dairy farm • Before biodigester = $180,000 • Ater biodigester = $90,000 • 3 days of energy usage in 1 year • Farm produced 25% surplus & contributed to the power grid • Proposed change – eliminate demand charges and charge based on actual energy usage

12. Public Utility Regulatory Policies Act (PURPA) • Selling surplus energy from a renewable energy source is a necessary financial incentive • Act promotes: • Use of renewable energy and energy efficiency • Reduction of dependence on foreign oil • Diversification of the electric power industry • Requires electric utility companies to purchase renewable power from non-utililites • Biodigesters are qualified facilities • Act sets the ground work for state net metering and REC regulation

13. Roadblock: Net Metering • Occurs when the renewable energy source provides electricity to the utility company • The “net” = • Difference between the electricity supplied back by this customer & the electricity supplied by the utility to the qualified customer • States regulate the agreement made between the utility and the customer • Issue – vast variation in net metering laws state-to-state • Some states require utilities to purchase surplus of renewable energy at an “avoided cost” • Other states allow overage to be zeroed out at the end of the year • Proposed change – consistent, favorable net metering laws; customer should be compensated for energy they contribute

14. Roadblock: RECs • Certificates issued for clean power production from a renewable energy source • By purchasing a REC, an entity pays the difference between the market rate for clean energy and the production cost of clean energy. • Only a few states address the issue & those that do vary on their treatment of RECs • Issue – REC ownership • Proposed change – allow project owners (dairy farmers) to retain REC ownership

15. Impact on Additionality • Proposed changes challenge the carbon offset requirement that projects be Additional • In general, biodigester projects present many profit-generating avenues • Changes proposed will provide financial benefits that may adequately outweigh start-up & maintenance costs • So, will biodigester projects become business-as-usual? • Would the project have occurred but for its certification as an offset project? • If the project would have been undertaken regardless of its ability to generate offsets, then it is not additional

16. Examples of financial incentives • Carbon offsets • Reduction in interconnection fees • Reduction in demand charges • Renewable energy production • For on-farm use, avoiding electricity costs • Compensation for surplus sale with net metering agreement • REC ownership • Sale of fertilizer • Reduction in odor maintenance costs

17. However… • Goal: Reduce GHG Emissions • Biodigesters provide tremendous environment benefits • Reduce GHG emissions from dairy farms by 96% • Produce 100% clean-burning energy • PERMANENTLYeliminate GHGs, compared to other carbon offsets • Emissions reduction outweigh Additionality requirement • Technicality should not discourage carbon offset certification of biodigester projects • Promotion of biodigesters needs immediate attention, • To reduce emissions • To increase a sustainable source of renewable energy

18. Beacon of Hope • Example: Vander Haak Dairy Farm • Washington • 10,000 square-feet, capable of handing 1,500 cows • $1.2 million Biodigester • Financial support up to 50% of cost • 15-year investment • $16,000 carbon offsets in 2006 • Capable of serving electricity to 180 homes • Sold to the power grid • Manure obtained from neighboring farms to make it cost-efficient • Supplemental income from fertilizer, tipping fees, bedding for cows

19. The Benefits of Biodigesters for a Carbon Offset Market Faisal Vellani Austin Berliner Sharda Sharma Mariana Nardon Sinan Pismisoglu July 20, 2009 Contact Info: Faisal Vellani: frvellani@gmail.com Austin Berliner: austinberliner@yahoo.com