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California weighs ending climate credits for cow poop

As California seeks to lead the nation on battling climate change, perhaps no debate is more fraught than the one over climate credits for cow poop.

More than a decade ago, California helped spark a boom in biofuels — produced from plants or animal waste — with its first-of-its-kind Low Carbon Fuel Standard. The program forces carbon-intensive fuel companies to pay for cleaner burning transportation fuels.

But as the state eyes an electric future, winding down support for some of the fuels the standard helped proliferate is proving highly contentious. The case of biofuel made from dairy farm manure is perhaps Exhibit A of those tensions.

The California Air Resources Board is planning to overhaul its fuel standard, including consideration of a 2040 phaseout of credits that put a premium on using methane emitted by cows to produce natural gas. About half of the state’s methane emissions come from dairy and livestock, so collecting the gases wafting off of manure keeps them out of the atmosphere and offers a renewable source of fuel.

But the paradox is that dairy biogas is used to produce a combustion fuel — which the state is on a path to phase out, especially for cars and trucks. The air board is considering a phaseout of the dairy credits because they encourage natural gas production, which emits greenhouse gases.

The manure debate has major implications for California’s role as a climate leader. During New York Climate Week last month, Gov. Gavin Newsom launched an international climate initiative aimed at reducing global methane emissions. Under a state law, California must cut its methane emissions 40% from 2013 levels by 2030.

The reason for the urgency: Methane is a potent greenhouse gas that’s responsible for up to 30% of the world’s global warming that is driving climate change. Unlike other greenhouse gases, methane breaks down in about a decade, meaning curbing it could quickly reduce some of climate change’s impacts.

California is America’s dairy capital, with more than 1.7 million cows producing about $10 billion worth of milk last year — but these cows and other livestock in California also produced the climate-altering equivalent of almost 23 million tons of carbon dioxide in 2020. Most of that is methane emitted by cow manure and from their farts and belches.

California’s strategy for cutting its methane footprint has so far hinged on providing incentives, mostly to the dairy industry. In doing so, the state has spawned a complicated, niche industry dedicated to capturing dairy methane and selling it as a renewable fuel. California does this through grants for construction of digesters — recovery systems that trap the methane from manure — and valuable climate credits from its Low Carbon Fuel Standard program.

The biofuel produced by collecting methane from dairy and swine manure is used to produce natural gas that powers heavy-duty trucks and other fleets — the equivalent of 21 million gallons of diesel fuel in the first three months of the year, according to air board data.

The state program “creates significant environmental and environmental justice impacts…The pollution of groundwater, odors, air quality, massive ammonia emissions and flies.” (Phoebe Seaton, Leadership Counsel for Justice and Accountability)

Producers of dairy biogas say phasing out the special credits for capturing methane would upend what has been a success story, devastating the industry and halting the state’s progress on methane reductions.

“If they do that, then that essentially takes away most of the value — in terms of this gas being low-carbon — and really undermines the whole reason we do this,” said Daryl Mass, chief executive of Mass Energy, a digester developer company that has built numerous methane-capturing projects on California’s dairy farms. “If the rules change, and that gas is no longer low-carbon, then we don’t really have a business model.”

But environmental groups and others are pushing for a more aggressive phaseout. They say the credits support industrial dairy farms that pollute rural, low-income communities in the Central Valley.

“The state has decided — instead of regulating methane emissions — to incentivize and provide preferences for the production of methane in a manner that also creates significant environmental and environmental justice impacts,” said Phoebe Seaton, executive director of the Leadership Counsel for Justice and Accountability, a Fresno-based environmental advocacy group. “One is the pollution of groundwater, (and) odors, air quality, massive ammonia emissions and flies.”

Phasing out credits for dairy gases

Born out of the state’s 2006 climate law, the goal of the air board’s Low Carbon Fuel Standard is reducing the climate impact of transportation fuels by 20% between 2013 and 2030. Companies that produce more carbon intensive fuels must buy credits to offset their emissions, while lower-scoring fuels produce credits that can be sold. The fuels are graded using a “life cycle” evaluation that judges not just how clean those fuels burn, but also the carbon dioxide emitted during their production and distribution.

The program has reduced the carbon footprint of fuels, particularly for medium and heavy-duty trucks. So much so that the price of the program’s credits have plummeted as producers have rushed into the market: The credits fell to a weekly average price of $62.93 last week, compared to $180.87 two years prior. A large bank of unused credits now exists.

The board’s staff is expected to unveil its plan to overhaul the Low Carbon Fuel Standard before the end of this year and the board would vote in early 2024. The agency is considering making the carbon intensity requirements for fuels more stringent, weighing a 30% reduction by 2030 and 90% by 2045.

The board also could limit credits to only dairy biogas used in California. Currently the rules allow credits if it is injected anywhere into the North American natural gas pipeline.

Most concerning for California dairies, and the dairy biogas industry, is an effort to do away with “avoided methane crediting.” Currently dairy biogas is allocated a very low carbon intensity compared to other fuels, because it comes from captured methane.

The Air Resources Board says that eliminating this crediting by 2040 will both support the digester development in the near-term while sending a long-term signal that the state support won’t last forever.

On a recent afternoon, the Calgren Renewable Fuels facility loomed over Highway 99 like an agroindustrial cathedral amid the almond orchards, cornfields, dairy farms and canals surrounding it.

Travis Lane, chief executive of Calgren near the Tulare County town of Pixley, said doing away with this crediting would likely render a considerable part of his biogas operation worthless.

“There’s no reason to do it (otherwise),” Lane said. “You’re going to push people back to fossil natural gas.”

For the last 14 years, making biofuels out of organic matter has been the company’s business model. In a county where cows outnumber people, Calgren has gone all in on making natural gas from methane captured from 20 of Tulare County’s dairy farms.

But the cost of trapping the methane from farms, transporting it, cleaning it and injecting it into the state’s natural gas pipeline makes dairy biogas uncompetitive compared to other fuels. Lane said the proposal to phase out the special treatment of dairy biogas caught him by complete surprise.

About seven miles away, the origin of Calgren’s natural gas supply sat close to the ground like a tethered balloon.

At Legacy Ranches, Jared Fernandes, 51, a third-generation dairy farmer, jumped atop his dairy digester to demonstrate the strength of the massive industrial tarp, which covers an unseen manure lagoon about the size of a football field.

“They said you can drive a car on this — they say it’s that strong,” said Fernandes, his stocky frame undulating against the relentlessly flat terrain.

Flies swarmed. Nearby a mechanical contraption whirred, pumping fresh solid manure onto a growing brown pile. The solids are saved as fertilizer while the liquid gets pumped into the covered lagoon.

Walking on the tarp — filled with the gaseous methane — was similar to stepping on a bounce house at a child’s birthday party.

“I wanted to be on the cutting edge, with a company that was going to help me do it. I would never have done this on my own.” Jared Fernandes, legacy ranches

Fernandes first saw a methane digester as an 8-year-old child in the 4-H agriculture program. He was born into the dairy business and has always appreciated technology and the latest developments in ag tech, but installing a digester on his own dairy never made financial sense — until Calgren approached him in 2018 with a plan to build his digester and lease the land.

A digester uses bacteria that feed on the waste in a covered environment, producing biogas and fertilizer for crops. Fernandes provides the cow poop to Calgren, under the terms of his “manure supply agreement,” and Calgren pays him based on the price of the biogas, largely dictated by the prices of credits created under the Low Carbon Fuel Standard.

His digester, constructed by Maas Energy and Calgren, cost $3.5 million to build, according to Calgren, paid for by a $1.5 million grant from the California Department of Food and Agriculture plus $2 million in private investment. Fernandes’ farm is one of 20 participating in a cluster that feeds into Calgren’s pipelines, which serves SoCal Gas.

Without the digester, Fernandes said he would have just kept the manure in an open lagoon, with climate-changing methane bubbling and popping and rising into the air uncontained.

“I wanted to be on the cutting edge, with a company that was going to help me do it,” Fernandes said. “I would never have done this on my own.”

At Legacy Farms, Fernandes manages 3,000 Jersey cows, the light brown breeds that can produce high-fat butter and protein-rich milk for less feed than their popular rivals, the black and white Holstein breeds.

A proliferation of dairy digesters

California has 120 digesters operating on dairy farms, serving 128 dairies, according to Dairy Cares, which promotes the digester approach to methane reduction. An additional 99 are under development. Most of these projects are in the Central Valley, where California’s industrial scale dairy industry is situated. The state has 17 other clusters with a model similar to Calgren’s serving ancillary dairies.

While the technology has existed for decades, the industry took off in earnest in the Central Valley when the California Department of Food and Agriculture began providing grants for digesters in 2015.

Big players, including the oil industry, have taken interest in digester investment. BP in 2021 announced a plan to develop renewable natural gas in partnership with three California dairies. Shell said it has similar plans with dairies outside of California.

Chevron, which last year announced a joint venture with California Bioenergy, wrote to the Air Resources Board that removing the credits for biogas “will lead to cancellations of future digester projects and shutdown of existing projects.”

But environmental groups say the Low Carbon Fuel Standard incorrectly treats the methane from the large manure lagoons as a naturally occurring phenomenon rather than as the result of deliberate industry practices. The use of lagoons to store manure slurry flushed out of animal pens has proliferated in recent decades as farms have consolidated and increased in size.

Maria Arevalo, 74, a former agricultural industry worker turned environmental advocate, said people in Pixley, where she lives, suffer from diseases and discomforts from air pollution, including asthma, sleep apnea, burning noses and eyes, and headaches.

She said the smells and flies from the large dairies surrounding her town have gotten worse. She doesn’t believe the digesters have helped.

“The aroma smells like ammonia, and when you smell that ammonia smell you can really feel it. Your nose burns when you breathe it in,” Arevalo said in an interview with CalMatters.

Inside Climate News reported that processed manure from the digesters might be responsible for increased ammonia emissions. Ammonia is a toxic gas that can cause respiratory effects and aggravate asthma.

Reward an industry or regulate it?

The debate over rewarding or regulating the dairy industry comes down to which is better: a carrot-or-stick approach.

Earlier this year, state Sen. Ben Allen, a Redondo Beach Democrat, introduced Senate Bill 709 at the behest of environmental groups seeking to require the board to directly regulate the dairy sector like it does other methane-producing industries, like landfills. It’s a two-year bill to allow for more discussion of the issue, a spokesperson for Allen said.

“No other industry is treated as if their pollution is naturally part of a baseline and then lavished with incentives to essentially stop polluting…That’s problematic,” James Duffy, a now-retired Air Resources Board transportation fuels branch chief told CalMatters. He has written letters in support of the demands by environmentalists to eliminate the credits.

“If you excessively reward an industry for poor historic environmental performance — that itself is troubling — but it also serves to distort the market against potentially more sustainable alternatives.”

Last month the air board held an eight-hour meeting with extensive public comments. At the end of that meeting, some board members were left grappling with the complexities of encouraging the development of a biogas market, if only to a point and temporarily. Other board members appeared determined to end the subsidies for dairy biogas.

“No other industry is treated as if their pollution is naturally part of a baseline and then lavished with incentives to essentially stop polluting… That’s problematic.” James Duffy, former Air Resources Board branch chief

Gideon Kracov, a board member who represents the Los Angeles basin’s air quality board, said he supports the change, adding that California should not support any biofuels past 2040, because the fuels were meant to serve as a temporary solution.

“These are bridge fuels that we do not want in the transportation sector after 2040,” Kracov said.

An air board report indicated the dairy industry was on track to reduce methane emissions by the equivalent of 4.6 million metric tons of carbon dioxide, achieving those declines through the use of the state’s digesters and an expected decline in herds.

That’s well short of the 9 million that the industry needs to reach by 2030 to comply with California law. One option that many are banking on is approval of a feed additive by the Federal Drug Administration that will reduce so-called enteric emissions, which are cow burps and farts.

But Michael Wara, director of the Climate and Energy Policy Program at Stanford University, said the board isn’t accurately measuring emissions because its estimates are based on herd surveys and projections and not actual measurements.

Wara told the board at an environmental justice meeting last month that California needs more exact data from farms if it is to accurately track progress toward a 40% methane emissions reduction target, as required by law.

“We believe that something substantially more accurate is required to know whether we are in compliance,” Wara said.


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