Peter Weisberg, The Climate Trust
Weekly Policy and Finance Update – January 29, 2018
|California is changing the landscape for digester development; funding the Pilot Financial Mechanism and allowing projects to be credited for their full methane benefit, even if they make both fuel and electricity, is essential.|
On the heels of California’s Governor Brown releasing a proposal to commit $99M additional grant dollars to dairy methane reductions in the state, I wanted to review two key recommendations The Trust has been making as part of the Fostering Markets for Digester Projects group in California. The group’s recommendations are meant to ensure that environmental markets can effectively leverage private capital to help meet California’s stringent methane reduction requirements.
First, California must fund and implement the Pilot Financial Mechanism to mitigate uncertainty in environmental credit values. Significant uncertainty about the longevity and pricing in the California Low Carbon Fuel Standard (LCFS) and federal Renewable Fuel Standard RIN market heavily discounts the ability of these markets to enable the financing of dairy biogas to transportation fuel projects. As a starting point, the state needs to invest at least $25M into the Pilot Financial Mechanism to provide long-term price assurance for LCFS credits. Only by allocating actual dollars to implement the mechanism, can risk be mitigated and new projects be built.
Second, the cap and trade legislation must be updated so that biogas projects generating both electricity and fuel can be recognized for their full methane reduction. Current guidance from the Air Resources Board proposes that projects cannot generate both LCFS credits and California Carbon Offsets from Registry Offset Credits generated by the same reporting period. In practice, this means projects cannot receive credits for their entire methane benefit. The cap and trade regulation should be updated to explicitly allow projects generating both electricity and fuel to be credited for the entire methane reduction they generate.
California is changing the landscape for digester development, and has an incredible opportunity to demonstrate that public funding can be spent prudently and efficiently through both credit enhancements, such as the Pilot Financial Mechanism, and pay-for-performance mechanisms, like the offset and LCFS market. By doing so, the state will ensure that these programs incentivize effective and well-managed projects that reduce methane over the long-term.
|Dairy and Livestock Subgroup #2: Fostering Markets for Digester Projects
California Air Resources Board
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Image credit: Flickr/Mark Jensen