California Can Reduce Dairy Methane Emissions And Keep the Livestock Carbon Offset Sector

Matt Baird, The Climate Trust
As published by Triple Pundit -November 2, 2015

On September 30^th, 2015 California’s Air Resources Board (ARB) released a draft of their Short-Lived Climate Pollutant Reduction Strategy (the Strategy). The final plan is due by the end of the year, as required by CA Senate Bill 605. The Strategy does a great job of outlining the need to address short-lived climate pollutants (SLCPs) in a timely fashion, which include black carbon (soot), methane, and fluorinated gases. The Climate Trust (The Trust) is concerned with how the Strategy proposes to change the regulation of California dairy methane emissions, and therefore the Livestock Protocol used to incentivize dairy methane capture via generation of carbon credits at dairies across the United States.

The Strategy explains that the “dairy and livestock industries account for roughly half of the State’s total methane emissions,” and half of these methane emissions result from manure management practices. Most dairies manage manure via a lagoon storage system; creating an anaerobic environment in which the manure produces methane that is released into the atmosphere as it breaks down. Atmospheric methane is a greenhouse gas that traps much more heat per unit than carbon dioxide.

ARB uses the Livestock Protocol under the cap-and-trade compliance market to incentivize dairies to change their practices through the production and sale of carbon offsets. The dairy industry’s manure management baseline, or business-as-usual, creates methane emissions. A carbon credit is generated at a dairy by the capture and productive use of methane, such as electricity generation. The difference between the lagoon baseline emissions and the project emissions, measured in metric tons, is the number of credits generated in a given year. The resulting credit, or California Compliance Offset, may then be sold to organizations required to offset their emissions by California law and increases revenue for the dairy.

Since The Climate Trust contracted with its first biogas project in 2009, the sector has grown to comprise one third of The Trust’s portfolio of offsets under contract since 2010. The Trust is building on that legacy by developing a new carbon fund that will invest capital into early-stage dairy digester projects in return for an ownership stake in the resulting carbon credits; essentially leveraging the Livestock Protocol to capture more methane and reduce financial barriers for dairy owners. However, a new dairy manure management regulation would undermine one of The Trust’s core sectors and make an existing incentive obsolete.

The Strategy, proposes to “develop a regulation by 2018 that would establish requirements for manure management best practices for new dairies and expansions at existing dairies.” The regulation will therefore alter the baseline for new dairies after the effective date, thus eliminating the delta between carbon project and baseline that produces the carbon credits. Footnote 102 of the Strategy continues, “Requiring emission reductions from the sector would mean that offsets under the cap-and-trade program would no longer be issued for new projects.” The Strategy proposes to alter the baseline for new dairies in California, but at the same time eliminates the potential for all U.S. dairies to generate offsets for California’s compliance market.

While the low baseline of lagoon-stored manure must change in order to combat methane’s effect on the climate, it is not necessary to make the Livestock Protocol obsolete in the process. The Trust estimates that carbon offset sales represent 20 to 40 percent of revenue generated by a dairy digester, and the percentage will increase in conjunction with carbon credit prices over time. Removing dairy digester projects from California’s carbon market will eliminate or significantly reduce this revenue stream, making dairy digester projects less viable. The removal of this incentive to capture methane for all dairies in the U.S. is a step back for global methane emissions; a step that will work against the goals of the Strategy. However, there are alternatives to removing the livestock sector from the market.

One option is to allow for multiple baselines. The proposed regulation only changes the baseline for new dairies in California. Therefore, the 1,000 large dairies currently in operation will continue to manage manure in open lagoons until they expand or cease to exist. Allowing new carbon offset projects to be created on existing dairies seems like a simple solution to simultaneously move toward better manure management, while also maintaining the incentives for existing dairies to improve their practices.

A similar option would be to allow use of the Livestock Protocol in other states, as the regulation only affects California dairies. For example, The Trust manages several dairy digesters in Oregon and Washington, and the baseline manure management rules are not likely to change in the near future. Eliminating all U.S. dairies from California’s cap-and-trade market in order to reduce California’s livestock emissions seems like a small step forward for California and big step back for reining in U.S. methane emissions. Allowing for existing dairies and out of state dairies to have independent baselines would be a good way to move the regulations forward (stick), but maintain current incentives (carrot).

Another alternative involves the current discussion on how to compare various greenhouse gases, especially as it becomes clear the effects of climate change are not something to be left for future generations. There is no single answer on best methods for comparison. The Strategy addresses this, and uses a 20 year time horizon for methane with a Global Warming Potential (GWP) of 72 (compared to the 20 year GWP of 1 for carbon dioxide). However, the current livestock protocol uses a 100 year time horizon with a GWP of 25 for methane.

As the Strategy’s use of the 20 year time horizon better captures the importance of immediately mitigating methane, and the 100 year timeframe has no scientific basis, it is recommended that the Strategy consider collaborating with stakeholders to update the GWP value used in the Livestock Protocol. If the number of offsets generated by biogas projects doubled, or tripled, this would greatly increase the incentive for new biogas digesters to be built and utilized across the U.S. The change would also synergize with other manure management goals in the Strategy, such as aligning financial incentives with improved manure management practices, fostering markets to increase cost effectiveness, and ensuring reductions at existing dairies—instead of making the goals more difficult.

The Trust agrees that business-as-usual manure management practices need to change, but there are alternatives to those proposed in the Strategy; ideas that build off of existing incentives, rather than making them obsolete. ARB recognizes the need for collaboration from many stakeholders in order to achieve significant reductions in SLCPs, and The Trust will be following the Short Lived Climate Pollutant Reduction Strategy as it progresses towards a final version; providing input where possible. The impact of removing a carbon offset sector from the California cap-and-trade market deserves more than a footnote.