Bluesource Q3 Newsletter

October 12, 2020
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OCTOBER 2020

INDUSTRY INSIGHTS

The Manure Digester Gold Rush

The high value of renewable natural gas (also known as biogas or RNG) from manure digesters has created quite a stir among investors and dairy and swine farmers over the last two years. By capturing gas from manure lagoons, upgrading it to pipeline quality and pairing it with compressed natural gas off-takers in California, the gas from one cow can be worth approximately $600 per year. In the early 2000s, many farmers weren’t interested in carbon offset projects that saw values of only $15 to $40 per cow. Today, the same farmers are reevaluating their manure management as demand for RNG has created a veritable gold rush.

DETERMINING VALUE
The high value of manure biogas comes from its twofold climate benefits. Not only is the biogas cleaner than its diesel and gasoline counterparts, but these projects also help avoid the release of methane into the atmosphere from off-gassing lagoons. For these reasons, the carbon intensity (lifecycle greenhouse gas emissions associated with this fuel) of manure biogas can actually become negative, scoring as low as -150 to -250 grams of CO2/MJ. When compared to landfill and wastewater gas with an average carbon intensity of 30 gCO2/MJ, manure biogas generates about five times as many greenhouse gas reductions.

In the California Low Carbon Fuel Standard (LCFS) market, where manure biogas earns most of its value, alternative fuels like RNG can generate credits. Blenders and refiners of oil must reduce the carbon intensity of their oil by blending in more renewable fuels or purchasing credits to comply with the LCFS mandate, which is a part of a suite of policies to achieve reductions under AB32 – the Global Warming Solutions Act. The credits are calculated based on the difference between the carbon intensity of the fuel as compared to the 2020 diesel and standard requirement, which is now 92.92 gCO2/MJ for diesel fuel and 91.98 gCO2/MJ for gasoline. The number of LCFS credits generated is a factor of the volume of gas produced and the carbon intensity of the alternative fuel.

OFFSETS OR LCFS?
Given that the LCFS credit is trading at $200 per metric ton of CO2, the value of voluntary manure digester offsets at an average of $4-$8 per metric ton and compliance manure digester offsets at approximately $15 per metric ton pale in comparison. Offsets do have the benefit of not requiring an average $15 million investment in gas conditioning equipment and pipeline interconnections since offsets can be generated simply by flaring the gas or combusting it in a boiler or genset. However, the additional investment to upgrade the gas can easily be recovered by the annual LCFS revenues, which can total over $10 million for a 10,000 head farm.

Additionally, the Federal Renewable Fuel Standard 2 (RFS2) provides an extra financial incentive for this gas as Renewable Identification Number (RIN) credits can also be generated and stacked with LCFS credits. RINs are used for the satisfaction of the RFS2 by blenders and refiners of oil. At approximately $17/MMBtu of value from the RIN, $70/MMBtu of value from the LCFS credit and $2/MMBtu from the heating value of the gas, there is a gold rush to invest in manure digester projects all over the country.

NO EASY TASK
Even though RNG from manure digesters has an incredibly lucrative potential, collaborating with farmers to get the projects permitted, financed and constructed is a formidable task that often involves delays and setbacks. Additionally, biogas production in these digesters can be variable if a poor digester design is chosen for a particular climate or the composition of manure going to the digester is tainted by things like too much sand, too many antibiotics or too much hoof bath disinfectant.

Another complication is found in the fact that the actual potential for credits is very dependent on the carbon intensity score, which is eventually reviewed and approved by the California Air Resources Board. Nuances such as how long cows are on dry lots (and the attendant manure that decomposes aerobically and does not make it to the lagoon in the baseline), whether there are sand settling lanes or mechanical separation of solids and how often the lagoon was agitated and drawn down in the baseline can have profound impacts on the CI score of the farm. Therefore, it is essential that a thorough carbon intensity score assessment be done in conjunction with the initial vetting of the project for financing.

Lastly, projects must also be completed before SB1383, which requires all farms in California to manage the methane from animals, comes into force on January 1, 2024. After this date, farms will no longer earn the credit for the methane from their lagoons that would have gone into the atmosphere in a baseline situation. The carbon intensity of manure digesters will become similar to that of wastewater treatment plants and landfills, making manure digester projects much less attractive to investors.

VOLUNTARY CORPORATES AND RNG
At the same time that this flurry of activity is happening in LCFS compliance markets, an interesting trend has emerged among voluntary corporate buyers. Companies who want to take a direct role in reducing their emissions to meet internal greenhouse gas reduction targets, such as L’Oreal, are beginning to look to RNG to reduce Scope 1 emissions from direct, onsite combustion activities.

Most RNG contracts are virtual and the credits are counted through a book-and-claim accounting method. Even while virtual, this activity is seen as supporting the fledgling RNG industry while addressing Scope 1 emissions in a very direct way. Utilities are also offering “green gas” programs that allow customers to voluntarily pay a premium that the utility then uses to secure a long-term contract for RNG on behalf of its customers.

While this trend is certainly interesting, the incredibly high price of RNG makes it difficult for some companies to participate. Even the least valuable RNG from slaughterhouse digesters and mixed waste like FOG and glycerin commands a price of about $10/MMBtu, whereas pairing high-cost forestry offsets with natural gas usage can be achieved for approximately $0.58/MMBtu. Therefore, some corporates eagerly begin down the road of direct RNG purchases and then swerve to offset pairing with natural gas.

WHAT’S NEXT?
Navigating compliance and voluntary RNG markets is complicated. Let Bluesource simplify it for you. Our team of experts produces quarterly RIN and LCFS market briefings, connects producers and consumers of RNG and completes the RIN and LCFS registration, monitoring, reporting and monetization. See the RNG webinar hosted by Bluesource with experts from Green-e and M-RETS to learn more about voluntary and compliance renewable fuel markets and new certifications and systems to track RNG.

WHAT’S NEW AT BLUE

BLUESOURCE TO HEAD MICHIGAN DNR PILOT PROJECT
The Michigan Department of Natural Resources chose Bluesource to head its pilot carbon marketing project, Pigeon River Improved Forest Management Project. We are excited to get started on the project and work alongside such a creative and innovative organization.

HUDSON TECHNOLOGIES AND BLUESOURCE PARTNER TO REDUCE GREENHOUSE GAS EMISSIONS ASSOCIATED WITH HFC REFRIGERANTS
Hudson Technologies, Inc. (NASDAQ: HDSN), the nation’s largest refrigerant services provider and largest reclaimer of refrigerants, and Bluesource, the nation’s leading carbon offset developer and retailer, today announced they are teaming up to scale Greenhouse Gas emission reductions associated with HFC refrigerants.

BLUESOURCE.COM GETS AN UPDATE
Did you know that Bluesource has revamped its website? Visit us online to see our new site, reorganized for clarity into environmental Products and Services. You’ll learn more about the many ways that Bluesource can partner with your company for environmental action. You may find the project map particularly helpful as you can filter projects by type and greater explore what we do.

PIEDMONT AND BLUESOURCE PARTNER TO MAKE RNG AVAILABLE AT NASHVILLE FUELING STATION
Bluesource will pair RNG available in the pipeline system with Piedmont’s station, bringing the environmental benefits of RNG to Piedmont’s customers.

A COVID-19 SOLUTION
COVID-19 has created a world of uncertainty in most markets, carbon offsets included. Companies are faced with unknown emissions as some industries ramp down and others ramp up. If this sounds familiar, give us a call; we’re now offering flexible solutions to create more certainty and allow you to continue your sustainability journey, worry-free.

COVID IMPACTS ON OFFSETS
Bluesource’s Kevin Townsend was featured in the Carbon Pulse article entitled “CORSIA impacts weighing on otherwise resilient voluntary offset prices – developer.”  The article summarized Kevin’s remarks about the impact of COVID-19 on voluntary and compliance North American carbon and renewable fuel markets made in the last Bluesource webinar. Watch the full recording of the webinar here.

Past Webinars

Renewable Natural Gas: A Compliance and Voluntary Solution to Lower Greenhouse Gases

SEPTEMBER 29, 2020

Renewable natural gas has become a lucrative commodity with interest from both obligated entities and green-minded businesses. This webinar offers a digest of RNG (pun intended) with speakers Will Overly, Benjamin Gerber and Rachael Terada. We dive into project types, markets, standards and tracking systems for RNG sales. Watch the webinar here.

An Updated Look at COVID-19’s Impact on Environmental Markets

SEPTEMBER 1, 2020

Join Bluesource, Verra and Bank of America for an in-depth look at how the COVID-19 crisis has affected the demand for offsets from both unregulated corporate buyers and regulated compliance entities. We also discuss potential future impacts on these markets as we move forward in the new, post-crisis landscape. Kevin Townsend, Chief Commercial Officer of Bluesource, discusses the impacts on the California cap-and-trade, RIN and LCFS markets. David Antonioli, Chief Executive Officer of Verra, describes the effect that COVID-19 has had to date on voluntary markets. Beth Wytiaz, SVP, Global Environmental Operations Director at Bank of America, explains how a company with an ambitious greenhouse gas reduction goal is navigating this current landscape. 

FEATURED PROJECT

Burnt Mt 3 Heather Furman

Burnt Mountain Improved Forest Management Project

In August of 2020, Bluesource’s newest forestry project issued credits. This Vermont-based project on over 5,000 acres contains a “forever wild” easement, ensuring that the land will never be developed. The property also provides a valuable link to create an 11,000-acre block of forest for habitat protection. The project will be maintained and managed by The Nature Conservancy and allow for recreation while maintaining the ecological integrity of the forest.

WHERE TO MEET US

We are closely monitoring the ever-evolving COVID-19 situation and have postponed all travel plans until it is safe. We eagerly await the time when we can meet again in person. Until then, give us a shout via Zoom, Teams or whatever platform you prefer.

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