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Capitalizing on carbon credits

Among the myriad of challenges livestock producers face on a day-to-day basis, there is at least one constant – the issue of manure management, including capturing its full value.

Among the myriad of challenges livestock producers face on a day-to-day basis, there is at least one constant – the issue of manure management, including capturing its full value.

Livestock operators and managers considering advanced manure management techniques, specifically the adoption of anaerobic bio-digester systems, frequently partner with carbon credit management firms to both evaluate project feasibility and commercialize the “carbon credits” on behalf of the farms.

Due to recent federal climate change legislation (see American Clean Energy and Security Act of 2009, H.R. 2454, Waxman-Markey Bill), attention is now focused more than ever on the agricultural sector in the United States to play a critical role in assisting regulated entities to achieve compliance with greenhouse gas (GHG) emission reduction targets. Also, in advance of federal GHG regulation, voluntary and pre-compliance markets have emerged facilitating demand for GHG emission reductions from livestock operations. Specifically, farms that host advanced manure management systems may be eligible to generate carbon credits from the installation of anaerobic bio-digesters. Because U.S. bio-digester systems, including those planned or in construction, cover less than three percent of dairy operations and less than one percent of swine farms, opportunities to capitalize on carbon credits will exist for many years.

Carbon credits are a tradable environmental commodity that represents a reduction of one metric ton of carbon dioxide, or carbon dioxide equivalent. Carbon credits are also known by several other names, including carbon offsets, verified emission reductions (VERs) and GHG credits and are valued utilizing each carbon credits’ full set of attributes, including location, date of generation, emission reduction technology and verification standard. Carbon credits are used by both voluntary and compliance market participants to fulfill demand for environmental claims and regulatory compliance associated with GHG emission reduction targets, respectively.

In order for bio-digester projects to qualify to create carbon credits, and therefore create a new revenue stream, each project is independently evaluated and must meet certain baseline emissions characteristics. The baseline manure management practice that has the most potential to reduce GHG emissions is anaerobic lagoon manure waste treatment and storage. Farms that manage their waste in this manor are eligible to earn carbon credits by installing biogas control systems that capture and destroy methane gas that would have otherwise been emitted into the atmosphere – provided that there are no state or federal regulations, or local agency ordinances or rulings requiring the installation of the system. If regulations or requirements to manage biogas do exist, although the project reduces GHG emissions, it will not qualify for carbon credits do to voluntary and compliance market standards requiring each project to be regulatory surplus, or beyond business-as-usual. The digesters can range from simple covered systems that prevent oxygen from entering the system to complete digesters with circulation, heating, and manure monitoring systems. The digester is designed to mimic natural processes in which bacteria decomposes the organic material and emits methane gas in the process, a greenhouse gas 21 times more potent than carbon dioxide. The cover or more complex digester systems simply helps capture, concentrate, and increase the amount of methane captured. Application of the various technologies is dependent upon the use of the biogas or destruction process.

In the lagoon retrofit, manure will continue to be scraped and/or flushed, but will now be diverted to an anaerobic digestion system. Following the bio-digester, the manure will flow to uncovered lagoon systems for further waste management. Following the entire process, the manure will continue to be spread on nearby fields for fertilizing needs. Some studies have actually found that the manure following digesters is actually more affective as a fertilizer than simply treated through open lagoons. This is based on the fact that the nutrients are more concentrated and, in the absence of organics, help make the nutrients more readily available.

Provided your operations currently manage manure aerobically and a biogas control system would be regulatory surplus, additional characteristics should be considered in order to create ideal conditions for a project. First, farms in warmer climates typically have a higher GHG emissions baseline, due to the fact that higher temperatures equal more bacterial activity, so there’s more potential for GHG emissions reductions, and carbon credits. Second, ideal sizes for (a) dairy farm projects are greater than 2,000 head and (b) swine farm projects are greater than 20,000 head. When performing financial due diligence on a biogas project, carbon credit revenue is one of several factors that are considered to determine feasibility, usually representing between five to 50 percent of the expected financial return over the project lifetime.

Methane utilization should also be evaluated as dairy farms typically consume more electricity than gas, therefore power production is usually more economic. However, combined heat and power (CHP) projects are also attractive and are often evaluated to offset onsite electricity and gas demand. Although farms that utilize the energy component of biogas projects typically make more economic sense, farms that only flare the methane typically need various types of financial assistance of various sorts (i.e., grants) or carbon credit revenue to support acceptable economic returns. Captured methane will primarily be used as a fuel for electricity generation and excess gas can be flared. Electricity can also be sold under a long-term purchase contract to local utilities.

Bio-digester projects can serve an excellent function for farms seeking a combined sanitation and energy solution – and carbon credits can help play a significant role in financing. Given the opportunities present to reduce GHG emissions at livestock operations, manure managers can play a key role in mitigating local environmental challenges and help fight global climate change.

For additional information, visit the U.S. EPA AgSTAR Program (www.epa.gov/agstar/index.html) and Element Markets (www.elementmarkets.com).

Marcus Krembs and Ross Stegemoeller are with Element Markets LLC.