Why Biogas?

Biogas projects allow farms to diversify revenue by monetizing manure while promoting clean, renewable energy. A combination of federal and state incentives has been drawing developers towards low carbon fuel projects for more than a decade. Two primary incentive mechanisms currently at play are fuel credits generated from Renewable Fuel Standard (RFS) and Low Carbon Fuel Standard (LCFS). The RFS program was adopted by Congress in 2005 to reduce US greenhouse gas emissions. Agricultural credits under this program are typically classified as D3 RIN. LCFS programs were put in place to set a benchmark for the carbon intensity of fuels on a state level, with the largest one being in California. If someone produces fuel with a carbon intensity (CI) above the set limit, they must purchase LCFS credits from someone who is producing fuels with a CI below the benchmark. For entities selling renewable fuels, the credits from RFS and LCFS are additive. These lucrative incentives resulted in a growing increase in the number of producers generating renewable fuel credits. That's good for the farmers and good for the planet.

More about California's LCFS Program

In 2011 the California Air Resources Board (CARB) implemented the Low Carbon Fuel Standards program, which is intended to provide a framework to encourage the reduction of carbon dioxide (CO2) emissions caused by transportation in California. This program aims to decrease CO2 emissions in California by reducing the carbon intensity of the fuels in use. CI is a measure of the amount of CO2 released per unit of energy delivered. The LCFS contains both direct and indirect provisions to reduce the carbon intensity of California's fuels. Direct provisions encourage businesses to switch to less carbon intensive fuels (compared to diesel or gasoline) such as hydrogen, electricity or compressed natural gas (CNG). Indirectly, CARB allows entities inside or outside of California to provide fuels that offset CO2 emissions occurring in California.

What Is the Compliance Offset Protocol?

The LCFS regulations contain provisions known as the Compliance Offset Protocol which among other things, allows dairy and swine farmers to create offsets and participate in the program. When we talk about offsetting CO2 emissions, we are primarily talking about capturing methane (CH4). Methane has a global warming potential (GWP) that is 25 times higher than CO2. Therefore, capturing a metric ton (MT) of methane will have as much environmental benefit as preventing 25 MT of CO2 from being emitted. For this reason, all carbon intensity calculations include an "e" in their units (i.e. CO2e) that indicates equivalent. Here it accounts for the GWP benefits associated with preventing methane from being released into the atmosphere.

How Can We Directly Reduce Our Carbon Intensity?

Let's look at an example for a diesel fuel powered delivery truck. The LCFS program defines a gallon of diesel to have a CI of 90.41 gCO2e/MJ (for the year 2022). Note, the carbon intensity of an energy source does not account for the lifetime emissions related to the construction or demolition of that energy source, thus energy produced from a windmill would have a CI of 0 gCO2e/MJ. If this delivery truck is converted to electric, and one gallon of diesel is then replaced by the same amount of energy from a windmill, a participant in this voluntary program is provided with financial incentives (through credits). The first step in determining the value of these credits is to calculate a "CI Score" which is the comparison of the low carbon intensity fuel vs. the reference fuel (in this case diesel). The math in this example would be:

0 gCO2e/MJ – 90.41 gCO2e/MJ = -90.41 gCO2/MJ

These credits can then be traded on the Credit Clearance Market (CCM). LCFS CCM pricing has ranged from $76 to $217 per metric ton of CO2e. Assuming CCM price of $100/MT of CO2e, this example would yield a credit value of $1.21/gallon of diesel substituted (for a full calculation, refer to Note 1 below). This example illustrates the value that one can obtain by switching from diesel to renewable electric vehicles in California.

How Can We Indirectly Reduce or "Offset" Our Carbon Intensity?

As mentioned earlier, the Compliance Offset Protocol allows dairy and swine farms to create offsets and participate even when they are located in different states. They can do this by installing a biogas control system (BCS), typically referred to as an anerobic digester, to capture biogas that would have otherwise been released to the atmosphere from lagoons and pits. Once captured, this biogas is processed to remove impurities (primarily Water, CO2, and H2S) yielding clean renewable natural gas (RNG). To qualify for participation within the LCFS program this RNG must have a viable pathway into the California transportation market. The LCFS program will accept RNG that has been injected into utility or transmission pipelines.

How Does One Calculate the Carbon Intensity and CI Score of an Offset Protocol Project?

As shown above one can reduce their carbon intensity to 0 gCO2e/MJ by using on-site wind or solar energy to power a California vehicle. Offsets, however, can be significantly more environmentally beneficial (and, thus, more lucrative), since the GWP of methane is 25 times higher than CO2. The carbon intensity for these offset projects is calculated by estimating the net amount of methane (in grams) that is captured via the BCS system (since that volume is prevented from entering the atmosphere that figure is a negative value) and multiplying that value by 25 to account for the GWP of methane thus converting it to gCO2e. Next step is offsetting that value by the amount of CO2 that was released by the various energy sources required to operate the anerobic digester, the refining equipment, and the transportation of that RNG to the California market. This resultant value is then divided by the number of MJ of energy contained within the captured methane to achieve a carbon intensity in the units of gCO2e/MJ. And as a final step, we must subtract the reference fuel (again, typically diesel, as shown above 91.66 gCO2e/MJ) to get a CI Score.

How Does the Marketing of These Low Carbon Intensity Fuels Work?

It goes without saying these fuels are in high demand with California CNG vehicles, which can achieve lucrative CI Scores (for dairy projects values of -150 to -350 gCO2e/MT are typical). Typically, California CNG vehicle filling stations that are participating in the LCFS program will work with a marketer who provides the link between them and the farm that produced the RNG. Marketing fees may vary but a marketer is typically going to get ~5% of the value of those credits, while the operator of the CNG filling station will get about 15%, and the remainder will go back to the farmer (or the entity that is producing the RNG from manure).

The "Bucket of Money" Concept

For a farm where the headcount and BCS control process are static (which is typical), it will be found that there is a fixed number of MT of methane per year that will be captured. Since the CCM markets MT of CO2e, let's conceptualize this as a bucket of money that is given to keep methane from lagoons and pits from escaping to the atmosphere. Let's assume that 100 MT CO2e/d of methane is captured by the anerobic digester, and the energy required to process this requires the release of 15.5 MT CO2e/d with 400 Dth/d (dekatherm per day) of RNG produced. The CCM is purchasing MT of CO2e, and here we find our net offset is:

15.5 MT CO2e – 100 MT CO2e = - 85 MT CO2e

If CCM Credits are at $100 / MT CO2e this project would qualify for $8500 (technically it would likely receive 80% of this figure due to marketing costs as explained earlier). These credits, however, are tied to the RNG, and in the US natural gas is sold by the Dth. If 400 Dth were produced as described above, their LCFS value would be:

$8500/400 = $21.25/Dth

If instead half that amount of RNG were produced and sold, their LCFS value would be:

$8500/200 = $42.50/Dth

The CI Score for the 400 Dth example would thus be half as high as the CI Score for the 200 Dth/d scenario, and yet the revenue from the LCFS program will be the same. Let's take a quick look at the calculation of the CI Value. The carbon intensity of this example would be:

((15.5 MT CO2e – 100 MT CO2e) x 1,000,000 g/MT) / (400 Dth x 1055 MJ/Dth) = -200 gCO2e/MJ

Again, let's assume the CCM value for LCFS is $100/MT. Thus, when you sell this day's credits you will receive:

200 gCO2e/MJ x 1055 MJ / Dth x 0.000001 g/MT x 400 Dth/d x $100 / MT = $8500/d

Now let's instead assume that you burn 50% of that gas to heat your anerobic digester, leaving only 200 Dth/d. The carbon intensity for this example would be:

((15.5 MT CO2e – 100 MT CO2e) x 1,000,000 g/MT) / (200 Dth x 1055 MJ/Dth) = -400 gCO2e/MJ.

Thus, when you sell this day's credits you will receive:

400 gCO2e/MJ x 1055 MJ/Dth x 0.000001 g/MT x 200 Dth/d x $100/MT = $8500/d.