Money from Something

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For more than a decade, the potential to earn revenue from climate-saving activities in agriculture has been touted throughout farm-related industries. This presentation will assume a basic knowledge of the concept of carbon markets as a kind of ecosystem service market. The focus will instead be put on current market opportunities and the importance of learning from past mistakes. Included in the discussion will be carbon offset opportunities for methane capture from manure digesters and composting and nitrous oxide reduction from controls on nitrogen fertilization. Participants will learn about voluntary and compliance market opportunities and the value of offsets versus transactions costs in today’s markets. Sources of market information will also be discussed.

http://www.extension.org/pages/67612/money-from-something:-carbon-market-developments-for-agriculture

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Money from Something

  1. 1. Money from SomethingCarbon Market Developments forAgricultureJim JensenSr. Bioenergy and Alternative Fuels SpecialistFrom Waste to Worth: “Spreading” Science and SolutionsApril 3, 2013
  2. 2. Topics• Global climate change: the recent past• Ecosystem market approaches• Utility-based valuation• Voluntary carbon markets• Compliance carbon markets• Current economics for ag methane• Conclusions
  3. 3. Climate Change – 2000sScience Coverage Media Coverage
  4. 4. Carbon Markets DevelopChicago ClimateExchangeRIP 2004-2010Chicago ClimateExchangeRIP 2004-2010
  5. 5. Key Greenhouse Gases (GHGs)Carbon dioxide (CO2)Methane (CH4)Nitrous Oxide (N2O)Perfluorocarbons (PFCs)Hydrofluorocarbons (HFCs)Sulfur hexafluoride (SF6)
  6. 6. Key Greenhouse Gases (GHGs)Carbon dioxide (CO2)Methane (CH4)Nitrous Oxide (N2O)Perfluorocarbons (PFCs)Hydrofluorocarbons (HFCs)Sulfur hexafluoride (SF6)USDA, 2004
  7. 7. Key Greenhouse Gases (GHGs)Carbon dioxide (CO2)Methane (CH4)Nitrous Oxide (N2O)Perfluorocarbons (PFCs)Hydrofluorocarbons (HFCs)Sulfur hexafluoride (SF6)USDA, 2004
  8. 8. GHG Reductions Have ValueTypes of Ecosystem Service Markets
  9. 9. GHG Reductions Have ValueTypes of Ecosystem Service Markets•Conservation Reserve Program (CRP)•Renewable Energy Credits (RECs)
  10. 10. GHG Reductions Have ValueTypes of Ecosystem Service Markets•Conservation Reserve Program (CRP)•Renewable Energy Credits (RECs)•SOX & NOX – the original cap-and-trade•Carbon Credits – from GHG reductions,avoidance, or sequestration
  11. 11. GHG Reductions Have ValueTypes of Ecosystem Service Markets•Conservation Reserve Program (CRP)•Renewable Energy Credits (RECs)•SOX & NOX – the original cap-and-trade•Carbon Credits – from GHG reductions,avoidance, or sequestrationWays to Capture Carbon Value1. Utility-based purchases2. Voluntary carbon markets3. Compliance carbon markets
  12. 12. Utility-Based Purchases• Green power/green gas collections from customers• Standard offer contracts (feed-in tariffs)• Examples: Wisconsin, Vermont, North Carolina
  13. 13. Utility-Based PurchasesVermont SPEEDHydro, solar PV, wind, biomass, landfill gas, farm methaneStandard Offer support for renewable powerCurrent: $0.14/kwh• Green power/green gas collections from customers• Standard offer contracts (feed-in tariffs)• Examples: Wisconsin, Vermont, North Carolina
  14. 14. Utility-Based PurchasesVermont Cow Power• Collects $0.04/kWh fromcustomers for “Cow Power”• Includes CO2 and CH4reduction benefits• $3.5 mil paid toparticipating farms in 8 yrs• Green power/green gas collections from customers• Standard offer contracts (feed-in tariffs)• Examples: Wisconsin, Vermont, North Carolina
  15. 15. Utility-Based PurchasesVermont SPEED• Standard Offer forrenewable power• Hydro, solar PV, wind,biomass, landfill gas, farmmethane• Current: $0.14/kwhVermont Cow Power• Collects $0.04/kWh fromcustomers for “Cow Power”• Includes CO2 and CH4reduction benefits• $ passed to participatingfarms as long as available• Green power/green gas collections from customers• Standard offer contracts (feed-in tariffs)• Examples: Wisconsin, Vermont, North CarolinaCow Powerin British Columbia•Utility (BC Hydro) pays $0.10/kWh for renewableelectricity (any kind)•Cost to produce farm methane power is closer to$0.14•Cow Power enlists business and individualsubscribers to pay $0.04/kWh to support farmprojects•Includes GHG benefit of methane reductions
  16. 16. Carbon Markets TodayVOLUNTARY COMPLIANCE
  17. 17. Carbon Markets TodayVOLUNTARY• Offsets based on existingprotocols/registries• Verification patterns vary• Private transactions retireoffsets• Business to Business (orindividual)• Carbon FundsCOMPLIANCE
  18. 18. Carbon Markets TodayVOLUNTARY• Offsets based on existingprotocols/registries• Verification patterns vary• Private transactions retireoffsets• Business to Business (orindividual)• Carbon FundsCOMPLIANCE• Government regulation• Overall cap on emissions;smaller over time• Allowances (permits)• Trading allowed to findlowest cost compliance• Offsets come from non-regulated parties• Offsets governed by rules,verification, registries
  19. 19. What are Carbon Offset Credits• Real, documented, verified results:– Reductions of greenhouse gas emissions– Avoidance of greenhouse gas emissions– Increases in carbon sequestration• Carbon Dioxide is the measure:1 metric ton of CO2 = 1 carbon credit• Global Warming Potential is relative:Methane – 23 times greaterNitrous Oxide – 300 times greater• The process of creating offset creditscan be complex and costly.
  20. 20. Criteria for Carbon Offsets• Measurable and verifiable• Additionality:– Regulatory surplus– Timing test– Implementation barriers (financial,technical, institutional)– Common practice• Real:– Permanence– Leakage• Clear ownership
  21. 21. Problem: Open-Air Lagoons (“baseline”)
  22. 22. Solution: Covered Lagoons or Digesters
  23. 23. Carbon Offset Project Steps1. Project boundaries2. Registry registration3. Protocol development
  24. 24. Carbon Offset Project Steps1. Project boundaries2. Registry registration3. Protocol development4. Measuring5. Monitoring6. Verification
  25. 25. Carbon Offset Project Steps1. Project boundaries2. Registry registration3. Protocol development4. Measuring5. Monitoring6. Verification7. Certification8. Credit issuance9. Credit aggregation/sale
  26. 26. • Non-profit, since 1997• Carbon offset credits, programs, consulting• Manage dedicated carbon offset funds• Protocol and policy supportOffsets: biodigesters, cogeneration, buildingefficiency, fuel switching, industrial efficiency,material substitution, renewable energy, forestsequestration, transportation efficiency
  27. 27. • Since 2000, wind and ag methane• Carbon offset and renewable energy credits, carbonaccounting software• Pay farm project up front or as you goClients
  28. 28. • Since 2004 (Univ of Penn)• Buy and sell offset credits• Manage offset projects• Farm power (methane), landfillgas, coal mine methane, wind• Clients: individuals, families,corporations, LEED/greenbuilding, universities, privateaviation• Retail price: $13.12/ metric tonof CO2e (calculators provided)Existing projectshave destroyedmore than4 milliontons of CO2e
  29. 29. Compliance Carbon MarketsRGGI California – AB 32
  30. 30. Compliance Carbon MarketsRGGI• 9 states: CT, DE, ME, MD,MA, NH, NY, RI, and VT• Electricity sector: 200power plants• U.S. short tons of CO2• Allowances are auctioned• Offsets are very limited• Current allowances: ~ $2.70
  31. 31. Compliance Carbon MarketsRGGI• 9 states: CT, DE, ME, MD,MA, NH, NY, RI, and VT• Electricity sector: 200power plants• U.S. short tons of CO2• Allowances are auctioned• Offsets are very limited• Current allowances: ~ $2.70California – AB 32• Power and industrial sectors(>25,000 metric tons/yr);transportation starts in 2015• Metric tons of CO2• Allowances are auctioned;minimum floor price of $10• Offsets: livestock methane,forestry, urban forestry, andozone-depleting substances• Current allowances: ~$13.50
  32. 32. California Carbon MarketCurrent livestock methane projectsClimate Action Reserve•Listed: 60•Registered: 36•Verified Credits: 800,000+•Early Action Projects: 13 - transitionto compliance
  33. 33. California Carbon MarketSource: Climate Action Reserve
  34. 34. Economic Factors 2013Est. Costs and BenefitsCA Compliance Market• Credits per cow per year: 2 to 3
  35. 35. Economic Factors 2013Est. Costs and BenefitsCA Compliance Market• Credits per cow per year: 2 to 3• Initial equip costs: $15,000+• Annual MMV costs: $15,000+• Transaction/partner costs: variable
  36. 36. Economic Factors 2013Est. Costs and BenefitsCA Compliance Market• Credits per cow per year: 2 to 3• Initial equip costs: $15,000+• Annual MMV costs: $15,000+• Transaction/partner costs: variable• Allowance prices: $13.50 - $15.00• Offset value: lag allowance pricesby ~25%
  37. 37. Economic Factors 2013Est. Costs and BenefitsCA Compliance Market• Credits per cow per year: 2 to 3• Initial equip costs: $15,000+• Annual MMV costs: $15,000+• Transaction/partner costs: variable• Allowance prices: $13.50 - $15.00• Offset value: lag allowance pricesby ~25%• Threshold size: 1,500 cows
  38. 38. Market Risks• Complexity• Eligibility/timing• Additionality/regulatory changes• Methane destruction systems• Monitoring systems• Data management (gaps)• Protocol choices/revisions• Verification variables• Transaction costs• Buyers
  39. 39. Carbon Market OpportunitiesUtility-based programsVoluntary carbon marketsCalifornia compliance market1,500 cows
  40. 40. The Cherry on Top• Summary• Conclusion• Lesson Learned• Key Takeaway• The Bottom Line
  41. 41. Jim JensenSenior Bioenergy andAlternative Fuels Specialist360-956-2083jensenj@energy.wsu.edu@JJensen_WSUwww.linkedin.com/pub/jim-jensen/4/294/37Proceedings: www.extension.org/pages/67612/money-from-something:-carbon-market-developments-for-agricultureThank You

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