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The current state of cap-and-trade in the U.S. and the mandatory greenhouse gas reporting rule

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Where is U.S. policy and voluntary markets current at in terms of cap-and-trade? What is the mandatory greenhouse gas reporting rule and how does it apply to animal agriculture? For more on this topic, visit: http://extension.org/60702

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The current state of cap-and-trade in the U.S. and the mandatory greenhouse gas reporting rule

  1. 1. 1 2 3 4 Table of Contents The Current State of Cap-and-Trade Mandatory Greenhouse Gas Reporting Tool Conclusion References This project was supported by Agricultural and Food Research Initiative Competitive Grant No. 2011-67003-30206 from the USDA National Institute of Food and Agriculture. Livestock and Poultry Environmental Learning Center 4 IntroductionAnimal agriculture emits methane gas [CH4 ], primarily from the digestion of ruminant animals and manure decomposition, and nitrous oxide gas [N2 O] from cropland used to produce feed for the animals. Both of these are greenhouse gases (GHGs) and have the potential to influence the climate. Farmers may be aware of the concern over greenhouse gases, but are not as aware of the regulations or programs that may impact them. The current state of greenhouse gas regulations is discussed in the second section of this publication. One area of interest for farmers is the possibility of getting paid for reducing the emissions of GHGs. There are two types of programs that can result in revenue gained for reducing emissions. The first is typically referred to as Green Power Purchase and is applicable to farmers who have an anaerobic digester and are generating electricity or natural gas. With this type of program, electric or gas utilities purchase renewable electricity generated at a premium rate from farms and these rates are paid by customers who desire non-fossil fuel energy. Green power Introduction programs are very popular in some states and unavailable in others. The second way that farmers can potentially benefit from reducing greenhouse gas emissions is through programs referred to as Cap and Trade. Cap-and-trade programs can be voluntary or regulatory. In either case, participants are able to reduce their carbon emissions by purchasing carbon reductions achieved from another business. This is sometimes referred to as carbon offsets and it works because the price to reduce carbon emissions varies from business to business. Farmers participate by capturing carbon in their operation, most often through anaerobic digestion of their manure, monitoring how much they captured, and selling these carbon offsets to those needing or wanting to purchase these carbon reductions. This carbon is traded on a market similar to commodity trading. The section below summarizes some of the existing cap-and-trade programs in North America needing or wanting to purchase these carbon reductions. 1 Department of Bioproducts and Biosystems Engineering, University of Minnesota 2 Department of Biological and Environmental Engineering, Cornell University THE CURRENT STATE OF CAP- AND-TRADE IN THE U.S. THE MANDATORY GREENHOUSE GAS REPORTING RULE Neslihan Akdeniz1 , David R. Schmidt1 , Jennifer Pronto2 JANUARY 2014
  2. 2. 2 THE CURRENT STATE OF CAP AND TRADE IN THE U.S. THE MANDATORY GREENHOUSE GAS REPORTING RULE Visit www.extension.org/60702 for more information and a full list of available resources. There are currently two cap-and-trade programs in operation: Regional Greenhouse Gas Initiative (RGGI), which involves nine Northeast and Mid-Atlantic states (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont) and the California market, established by Assembly Bill 32 and administered by the California Air Resources Board (CARB). RGGI applies only to the largest coal-fired power plants over a certain size. Currently, power plants may use offsets to meet 3.3 percent of their compliance obligation, except under specific conditions when limits on use can increase to 5–10%. Five types of projects are eligible for the award of CO2 offset allowances, one of which is avoided methane emissions from agricultural manure management operations. All offset projects must be located within one of the RGGI participating states. The CARB covers major sources of GHG emissions in California, such as refineries, power plants, industrial facilities, and transportation fuels. CARB’s Compliance Offset Program allows regulated industry to meet up to 8% of its triennial compliance obligation through offsets. There are currently four offset categories, one of which includes livestock projects that focus on capturing and destroying methane emissions from manure management systems on dairy and swine farms. Projects developed under CARB’s protocols, anywhere in the United States, are eligible to sell carbon credits to regulated emitters in California. The RGGI’s carbon prices remain low, in the $3 per short ton CO2 e range ($3.21, Auction 20, June 2013), while in its fourth auction (August 2013), California sold 13.8 million carbon permits ranging from $10.71 to $50.01 per allowance, with the settlement price at $12.22 per metric ton CO2 e. The CARB’s Livestock Project Protocol (v. 4.0 released on January 23, 2013) outlines all of the eligibility requirements for livestock projects. According to the protocol, a livestock project is defined as the installation and operation of a biogas control system that captures and destroys CH4 that would otherwise have been emitted to the atmosphere in the absence of the project from uncontrolled treatments and/or storage of manure. Depending on the price at which producers can sell their carbon credits, the California market can become a major incentive for livestock biogas generation. The USDA estimates that at a carbon price of $13/metric ton of CO2 e, half of the dairy operations with more than 500 cows can profitably operate digesters. The capital requirements to install a biogas control system vary widely depending on a number of site-specific variables. The estimated capital cost ranges from $1,000 to $2,000 per cow depending on herd size. Plus, the costs for monitoring equipment are estimated to be around $15,000 for start-up with similar sums each year for verification and registration. Jim Jensen, Sr. Bioenergy and Alternative Fuel Specialist at Washington State University, reported that larger farm owners (1,500 animal units) should explore the potential costs and benefits of participating in the California carbon market while smaller farm owners (1,500 animal units) may find their best value through participating in voluntary carbon markets. In the past few years, the CARB has been trying to broaden California’s GHG program. On April 19, 2013, Governor Jerry Brown and CARB both gave their approval to link California’s cap-and-trade program with that of Quebec. As of January 1, 2014, California and Quebec will accept each other’s carbon allowances and approved offsets and auctions of allowances will be done jointly by California and Quebec. The integrated system will become the largest cross-border carbon trading market established since the European Union Emissions Trading Scheme became operational in 2005. The link to Quebec may raise California carbon allowance prices between 2013 and 2020. The Current State of Cap-and-Trade Neslihan Akdeniz
  3. 3. 3THE CURRENT STATE OF CAP AND TRADE IN THE U.S. THE MANDATORY GREENHOUSE GAS REPORTING RULE Visit www.extension.org/60702 for more information and a full list of available resources. Mandatory Greenhouse Gas Reporting Tool In response to the 2008 Consolidated Appropriations Act, on October 30, 2009, the U.S. Environmental Protection Agency (EPA) issued the Greenhouse Gas Reporting Rule (40 CFR Part 98). This rule requires reporting of greenhouse gas (GHG) data and other relevant information from sources that emit more than 25,000 metric tons of carbon dioxide equivalent (CO2 e) per year. The gases with relation to agriculture that are covered by this rule are carbon dioxide (CO2 ), methane (CH4 ), and nitrous oxide (N2 O). Reports are submitted to the EPA electronically using an electronic greenhouse gas reporting tool (e-GGRT). The EPA verifies the data submitted through the use of statistics, algorithms, ranges and other verification checks and when needed contacts the facilities directly concerning potential data quality issues. The EPA publishes the data using the FLIGHT tool (Facility Level Information on Greenhouse Gas Tool), which allows users to review information by facility, industry, location, and type of gas. All other data is published through ENVIROFACTS. The rule does not regulate GHG emissions but it collects data on large emission sources for the purpose of deciding if future regulation is necessary. On December 15, 2009, the EPA announced its Endangerment Finding that GHGs threaten human health and welfare. This finding is still under review, but if approved, such a finding will allow the EPA to regulate GHG emissions under the Clean Air Act. The rule covers different source categories including livestock and poultry operations. Subpart JJ of the rule requires owners and managers of facilities containing manure management systems that emit at least 25,000 metric tons of methane and nitrous oxide (measured as CO2 e) per year to report emissions from all source categories at the facility. The EPA is currently not implementing subpart JJ due to a Congressional restriction prohibiting the expenditure of funds for this purpose. Since the day the rule was published, Congress has stopped the EPA’s ability to use the following fiscal year’s appropriations for implementing subpart JJ. However, the restriction needs to be renewed every year to remain in effect. Producers should remain aware of the requirements in the event that the restriction is not renewed. If the prohibition is allowed to expire, beef, dairy, swine, and poultry facilities emitting over 25,000 tons of CO2 e would be required to report annual aggregate CH4 and N2 O emissions for the following manure management system components at the facility: • Feedlots • Liquid/slurry systems • High-rise houses for poultry production (poultry without litter) • Storage pits • Poultry production with litter deep bedding systems for cattle and swine • Digesters • Manure composting • Dry lots • Solid manure storage Facility Components to Report Neslihan Akdeniz Continued on page 4
  4. 4. 4 THE CURRENT STATE OF CAP AND TRADE IN THE U.S. THE MANDATORY GREENHOUSE GAS REPORTING RULE Visit www.extension.org/60702 for more information and a full list of available resources. An opportunity exists for animal agriculture to benefit from GHG cap-and-trade programs, since regulated entities will be looking for carbon offset credits to purchase, and this will drive up the value of the offsets. Credits could be more valuable in the future with legislation to regulate certain sectors—they will look to agriculture as one of the voluntary sources from which to be able to offset those emissions. Table 1. Reporting Thresholds Conclusion Beef 29,300 Dairy 3,200 Swine 34,100 Poultry-layers 723,000 Poultry-broilers 38,160,000 Poultry-turkeys 7,710,000 Emissions unrelated to the stabilization or storage of manure (such as emissions from enteric fermentation from cattle, field application of manure, or pasture/range manure management practices) would not have to be reported. Facilities below threshold populations (Table 1) would not be required to report, but facilities that exceed thresholds would need to calculate their emissions to determine if they emit more than 25,000 tons of CO2 e. The EPA estimates that 100-110 of the largest livestock facilities would be required to report at the 25,000 metric tons CO2 e per year threshold level. Neslihan Akdeniz California Environmental Protection Agency. 2013. Air Resources Board sets date for linking cap-and-trade program with Québec. Online available at http://www.arb.ca.gov/ newsrel/newsrelease.php?id=430 (access date 8/29/2013). California Environmental Protection Agency. 2013. Auction information. Online available at http://www.arb.ca.gov/cc/ capandtrade/auction/auction.htm (access date 8/29/2013). EPA (Environmental Protection Agency). Greenhouse Gas Reporting Program-Basic Information. Online available at http:// www.epa.gov/ghgreporting/basic-info/index.html (access date 8/1/2013). EPA (Environmental Protection Agency). Greenhouse Gas Reporting Program Implementation. Online available at http:// www.epa.gov/ghgreporting/documents/pdf/2009/FactSheet.pdf (access date 8/1/2013). EPA (Environmental Protection Agency). Manure Management Systems-Proposed Rule: Mandatory Reporting of Greenhouse Gases. Online available at http://nmplanner.missouri.edu/ regulations/EPA_GG_ManureManagementSystems[1].pdf (access date 8/1/2013). Jensen, J. 2013. Money from Something: Carbon Market Developments for Agriculture. Online available at http://www. extension.org/pages/67612/money-from-something:-carbon- market-developments-for-agriculture (access date 8/29/2013). Lazarus, W.F. 2013. Economics of Anaerobic Digesters for Processing Animal Manure. Online available at http://www. extension.org/pages/19461/economics-of-anaerobic-digesters- for-processing-animal-manure#.Uh9s_mwo6po (access date 8/29/2013). Regional Greenhouse Gas Initiative (RGGI). Auction 20 Results. Online available at http://www.rggi.org/docs/ Auctions/20/PR060713_Auction20.pdf (access date 8/29/2013). U.S. Livestock Project Protocol Version 4.0. Online available at http://www.climateactionreserve.org/how/protocols/us- livestock/ (access date 8/29/2013). References Animal species Threshold # of head
  5. 5. 5THE CURRENT STATE OF CAP AND TRADE IN THE U.S. THE MANDATORY GREENHOUSE GAS REPORTING RULE Visit www.extension.org/60702 for more information and a full list of available resources. Extension programs and employment are available to all without discrimination. Evidence of noncompliance may be reported through your local Extension office. ThisprojectwassupportedbyAgriculturalandFoodResearch Initiative Competitive Grant No. 2011-67003-30206 from the USDA National Institute of Food and Agriculture. Participating Universities Cornell University Texas AM University University of Georgia University of Minnesota University of Nebraska–Lincoln Washington State University ANIMAL AGRICULTURE CHANGING CLIMATEIN A