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FiTing Methane into America’s Future

January 11th, 2010

Global Climate Change:

FiTing Methane into America’s Future

Claire McCarthy

Masako Chen

Maura Duffy

Victoria Stulgis

Section I: Abstract

Global climate change is one of the greatest threats to the global community.  Since 1750, atmospheric concentrations of greenhouse gases (GHGs) have increased dramatically as a result of human activity (IPCC).  GHGs trap heat in the earth’s atmosphere and the increase in concentration of these gases has warmed the earth’s average surface temperature 1.2-1.4° C in the past 100 years (EPA).

Though not the largest contributor to global warming, methane (CH4) has a greater global warming potential (GWP) and shorter atmospheric lifetime than carbon dioxide (CO2). Methane is also unique in that it is the only greenhouse gas that can be used as an energy source, as it is a primary constituent of natural gas.  Positive effects from reduction of atmospheric CH4 can be seen more immediately, allowing us to “buy time” while long-term solutions to mitigate climate change are innovated and implemented.

We propose an amendment to the Clean Energy Jobs and American Power Act (S.1733) that would enact Methane Capture Payments modeled after a feed-in tariff system for electricity generated from CH4 capture sources: coal mines, landfill solid waste, and human and agricultural liquid waste.  The legislation would guarantee access to the grid and mandate that utility companies pay a fixed rate for electricity from eligible sources.  The feed-in tariff will incentivize the investment in technologies for CH4 capture, so that companies have a timeline for recouping their initial investment.  A feed-in tariff for electricity from captured CH4 avoids excessive financial burden on energy consumers and taxpayers and levels the playing field for both local and industrial methane capture projects.  In addition to the primary environmental benefits of CH4 capture, the legislation provides several secondary economic benefits that incentivize CH4 mitigation.

Section II: Conceptual Map

methan_conceptual_map

Global Climate Change and Methane

“Warming of the climate system is unequivocal, as is now evident from observations of increases in global average air and ocean temperatures, widespread melting of snow and ice, and rising global average sea level.”    – Intergovernmental Panel on Climate Change, 2007

According to the 4th IPCC, anthropogenic global greenhouse gas (GHG) emissions have increased 70% between 1970 and 2004, continuing a marked rise since pre-industrial times.  (IPCC).  The increase in concentration of GHGs has warmed the earth’s average surface temperature 1.2-1.4° C in the past 100 years (EPA).  From 1995-2006, eleven of the twelve years ranked among the twelve warmest years in recording global surface temperature since 1850 (IPCC).  Specifically, average Arctic temperatures have increased at almost twice the global average rate in the past 100 years.

The effects of climate change pose a serious threat to the global community.  Thermal expansion of the ocean, melting of glaciers, icecaps and polar ice sheets have contributed to global rises in sea level: rising at an average rate of 1.8 mm per year over 1961 to 2003 and at an average rate of about 3.1 mm per year from 1993 to 2003 (IPCC).   The IPCC determines that there is “very high confidence” that recent warming is affecting earth’s biological ecosystems.  Effects of climate change have threatened some aspects of human health, such as excess heat-related mortality, and changes in infectious disease vectors.  Furthermore, rising sea levels coupled with human development are contributing to losses of coastal wetlands and mangroves, putting coastal regions at risk for increasing damage from coastal flooding  (IPCC).

“Anthropogenic warming could lead to some impacts that are abrupt or irreversible, depending upon the rate and magnitude of the climate change” (IPCC).

Given these significant anthropogenic changes to the environment, experts within the scientific community agree that climate change is approaching or has already reached a tipping point (Walker, 2006). The processes that lead to global warming will eventually reach a point when a positive feedback loop is established.  Melting of the expansive ice sheets at the earth’s poles contributes to this positive feedback loop (Walker 2006). As the sheets are highly reflective, the loss of these sheets results in more heat being absorbed by the earth, rather than being reflected back and escaping into the earth’s atmosphere.  Because of positive feedback loops such as this, once global temperatures rise to a certain degree, climate change will transcend the scope of human intervention.

The significant contributors to global warming include CO2, CH4, NO2, and fluorinated gases.  Currently, CO2 makes up 76.7% of the world’s anthropogenic GHG emissions, while CH4 contributes 14.3%.  Though CO2 emissions compose the largest percentage, CH4 has a higher global warming potential (GWP) than CO2.  GWP is a measure used to compare each GHG’s ability to trap heat in the atmosphere over a 100-year period; CH4 is 21[1] more times effective at trapping heat in the atmosphere than CO2 (EPA).  Additionally, CH4 has an atmospheric lifetime of 12 years in comparison to CO2 whose average lifespan is 50-100 years in the atmosphere (EPA).  The global atmospheric concentration of CH4 has increased from a pre-industrial value of 715 parts per billion (ppb) to 1774 ppb in 2005 (IPCC).  Specifically in the United States, CO2 emissions contribute 69.6% and CH4 emissions 22.9% to the total US GHG portfolio.  In 2007, 585.3 TgCO2eq (teragrams of CO2 equivalent) of CH4 was emitted in the United States (EPA). Amounts of non-CO2 GHGs are often reported in units of TgCO2eq, which is found by multiplying the mass of the GHG by its GWP[2].

Section III: The Methane Problem

Where does the approximate 585 TgCO2eq of CH4 emitted into the atmosphere per year in the US come from? The primary source is the digestion of organic matter in biological systems. Microbes that thrive in oxygen-depleted environments undergo anaerobic digestion, in which organic acids are broken down and into shorter organic molecules. Methane is released as a byproduct in a process called methanogenesis. The agriculture sector is the largest contributor to methanogenesis worldwide, as well as in the US. The EPA estimated that in 2007, 190 TgCO2eq of CH4 was emitted through enteric fermentation, animal waste, wetland rice cultivation, and burning of agricultural residues (EPA 2009).

Enteric fermentation occurs in the digestive tracts of ruminant animals, which include cattle, buffalo, sheep, and goats. Because of their unique digestive systems, ruminant animals have a fore-stomach or “rumen” which is a breeding ground for anaerobic bacteria. These microbes break down coarse plant material, and the CH4 generated as a byproduct is emitted into the atmosphere when the animal exhales or belches. Though all animals undergo enteric fermentation to a small extent in the large intestine, only ruminant animals have anaerobic microbes in appreciable amounts and generate significant quantities of CH4. In 2007, about 72% of CH4 from enteric fermentation came from beef cattle, about 23% from dairy cattle, and the rest from swine, sheep, horses, and goats (EPA 2009). In addition to the animal’s type of digestive tract, the amount of CH4 generated through this mechanism depends on feed quality and feed intake. In generally, lower feed quality results in higher CH4 emissions, and the more food consumed by the animal, the more CH4 it will emit (Lazarus 2008). Overall, 139.0 TgCO2eq came from enteric fermentation in 2007, accounting for about 24% of all US anthropogenic CH4 emissions (EPA 2009).

Animal waste management is another major CH4 source within the agricultural sector, accounting for 8% of total US anthropogenic CH4 emissions (about 44.0 TgCO2eq) in 2007 (EPA 2009). The waste of livestock, swine, and poultry when stored in liquid environments like lagoons, ponds, or tanks, creates favorable conditions for anaerobic decomposition. When manure is handled in solid systems like stacks or drylots, aerobic decomposition predominates, and minimal CH4 is released. Most large dairy and swine facilities in the US have liquid manure systems, and smaller farms are more likely to have solid manure systems. There was an estimated 45% increase of CH4 emissions from the animal waste sector between 1990 and 2007, which is attributed to the general trend of switching from smaller farming operations to larger farming operations (EPA 2009).

In addition to animal waste, municipal solid waste (MSW) contributes to rising atmospheric CH4 levels. In 2007, 132.9 TgCO2eq in the US came from landfills (EPA 2009). Waste, which includes paper, yard clippings, and food scraps, is buried in landfills where it is consumed aerobically until oxygen is depleted after about one year. Then, anaerobic bacteria consume the remains, breaking down organics into cellulose, amino acids, and sugars. These molecules are further fermented into gases and short-chain organic compounds, which provide optimal growing conditions for methanogenic bacteria. These bacteria convert short-chain organics into biogas, composed of half CH4 and half CO2. During its average lifetime of ten to sixty years, landfill waste releases biogas into the atmosphere. The amount of biogas produced depends on the composition of waste, size of landfill, and climate. Despite increased recycling efforts in the US, the total amount of MSW is expected to rise in the coming years as the country’s population grows (EPA 2009).

Methane also exists naturally deep within coal beds, but can be released to the atmosphere during coal mining processes and when vented. Methane is already required by the Mine Safety and Health Administration (MSHA) to be vented from operational coalmines because accumulation of gas underground in high concentrations can cause explosions. Most mines, both underground and surface mines, vent the 95% pure CH4 directly into the atmosphere (EPA 2006). The EPA estimates that in 2007, 57.7 TgCO2eq of CH4 came from coal mining, 85% of which came from venting, and 15% from post-mining processes (EPA 2009). CH4 can be emitted post-mining when CH4 retained in coal is exposed during processing, storage, and transport. In 2008 23% of US energy came from coal; as long as coal is a large part of the US energy portfolio, coal bed CH4 will be a climate change issue (EIA 2009).

Methane is the primary component of natural gas, which supplied 24% of the US’s energy in 2008 (EIA 2009). The US natural gas infrastructure is made up of hundreds of wells, hundreds of thousands of processing facilities, and over one million miles of pipelines (EPA 2009). CH4 is leaked to the atmosphere as uncombusted exhaust from turbines and natural gas engines, fugitive emissions from faulty pipelines and system components, and discharge during maintenance procedures. It is estimated that the natural gas sector emitted 104.7 TgCO2eq of CH4 in 2007 (EPA 2009). Because of improved technology, management practices, and new equipment, especially plastic piping, the amount of CH4 emissions decreased 19% from 1990 to 2007 (EPA 2009). However, as long as natural gas plays a large role in fulfilling the nation’s energy needs, fugitive CH4 will continue to be a problem.

A major difficulty that impedes policy solutions that target CH4 emissions is the impracticability of measuring and verifying CH4 across all sources. For example, enteric fermentation is the most significant source of atmospheric CH4, but currently the only way to directly measure it is by placing a mask over the cow or other ruminant animal and connecting it to a calorimeter chamber, a bulky device. Thus, the technical requirements for measuring the collective CH4 output of a herd of cows make it nearly impossible for farms to measure and report their enteric fermentation gas output. In hopes of remedying this quantification problem, the EPA has come out with guidelines called the Cattle Enteric Fermentation Model (CEFM) which involves a 16-variable equation including factors like light-weight, average weight-gain per day, fat content of milk, and slaughter rate to estimate the total CH4 output of a cattle herd. However, it is risky to rely on mathematical models that remain unchecked by direct verification.  Researchers are trying to develop more practical analytical methods, but even an accurate measurement of enteric fermentation would not remedy the verification issues. For example, if a dairy farmer added a special ingredient to cattle’s diet in hopes of mitigating enteric fermentation, comparing measurements of CH4 output before and after the additive would have many confounding variables. If the winter season of one year was colder than the next, and animals were under more stress, it would be difficult to prove that the change in CH4 emitted was the direct result of the diet additive (De la Chesnaye). The “measure and verify” problem is not unique to the agriculture sector because most major sources of CH4 are the result of small and scattered emissions including smaller farms, landfills, and scattered pipeline leakages.

Methane is unique as a GHG in that is the only one that can be used as an energy commodity since it is the main component of natural gas. Advanced technology exists that is able to not only prevent CH4 from diffusing into the atmosphere, but also to harness its energy potential. One successful and proven technology is the anaerobic digester. There are various types that collect and cover different forms of waste, creating favorable conditions for anaerobic microbes that produce biogas. The CH4 in the gas can then be directed into combustion engines, turbines, or fuel cells to generate electricity. The electricity can be used on-site or sold back to the grid. In 2007, there were about 111 farms that utilized anaerobic digesters that transformed manure from cattle, swine, and poultry into biogas, outputting approximately 215 million kilowatt-hours (kWh) of electricity (EPA 2009). On average, an anaerobic digester captures 85% of CH4 that would be emitted from liquid manure systems. In addition to the direction reduction of GHGs, anaerobic digesters have the indirect environmental benefit of saving energy that would be needed from non-renewable sources like coal. Other benefits for the farmer include odor control, ammonia control, improved water quality, and improved air quality (Lazarus 2008).

Landfills have been utilizing CH4 capture and electricity generation technology successfully for decades. Landfill gas capture is about 60-90% effective depending on the technology used (EPA 2006). Landfill gas can be extracted using a series of wells and a vacuum system, and then directed toward a central site where it is processed, treated, and generated into electricity. The benefits include: direct reduction in greenhouse gases emitted, indirect reduction of greenhouse gases by offsetting other non-renewable energy sources, reduction in landfill odor, and reduction in explosion hazard. According to the EPA’s Landfill Methane Outreach Program, in 2008, landfill gas energy projects saved about 23 TgCO2eq of GHGs from being emitted (EPA 2009). Viable CH4 mitigation opportunities also exist in the coalmining sector. Equipment can oxidize the ventilated CH4 into CO2 and heat, which may be used for on-site electricity generation. This technology has the capacity to prevent the emission of 97% of ventilation air methane. The EPA estimates that from 1994 to 2006, coalmine CH4 projects were responsible for the capture of 18 TgCO2eq per year (EPA 2009).

As demonstrated, CH4 capture projects have successfully reduced GHG emissions while providing financial benefits to the owners, but these technologies are not utilized to their full potential because of the current economic and political climate in the US. Methane capture projects are capital-intensive, since each one must be uniquely engineered to the specific site, and requires maintenance. A study of 38 farm-based anaerobic digesters in the US found that the startup costs for a digester ranged from $69,000 to $603,000 (Lazarus 2008). The maintenance cost for a small dairy farm with 125 cows is about $8,800 per year (Burke 2001).  Though much of this investment is returned when the electricity generated is sold, the current prices offered by utility companies for captured CH4 electricity are too low to justify the investment. The unpredictability of market prices for electricity makes it difficult for potential investors to calculate the timeframe of returns on a digester and arrange their finances (Lazarus 2008). Though the EPA sponsors voluntary CH4 capture programs like AgSTAR, Coalbed Methane Outreach Program, and Landfill Methane Outreach Program, the incentives offered are not enough to encourage investment in these technologies, particularly for smaller operations.

Section IV: A Feed-in Tariff to Incentivize Methane Capture

A feed-in tariff (FiT) is a policy mechanism designed to encourage renewable energy sources; whereas the Renewable Portfolio Standard (RPS) promotes price competition between renewable energy sources, the FiT mandates fixed prices above wholesale rate that utility companies must pay different renewable generators.  The FiT in Europe has been met with great success, and as of January 2007, eighteen European Union Countries as well as Brazil, Indonesia, Israel, South Korea, Nicaragua, Norway, Sri Lanka, Switzerland, and Turkey had adopted FiTs (Rickerson 2007). Around the world, FiTs have shown their capabilities to truly revolutionize different renewable energy markets.  In Germany, Denmark, and Spain, FiTs have promoted the generation of 31 gigawatts of wind electricity capacity, that is 53% of the world’s total wind energy generation from 1990-2005 (Rickerson 2007).  Just as the renewable energy FiT in Europe has been successful in promoting the wind and solar photovoltaic (PV) industries, the methane-capture FiT will encourage sources to capture CH4 from being emitted to the atmosphere.   The FiT will incentivize the investment in technologies for CH4 capture, so that companies have a set timeline for recouping their initial investment.  While we refer to the policy as a FiT throughout this paper, in the amendment to the Clean Energy Jobs and American Power Act, we will instead refer to this policy as “Methane Capture Payments.”  The word “tariff” or “tax” may be less acceptable to the American public and would limit support for the legislation.

The Methane Capture Jobs and Security Act Amendment establishes a national FiT regulatory program for electricity produced from CH4 captured from specified sources and may include but are not limited to individuals or corporate entities managing livestock, human and agricultural liquid waste, landfill solid waste, and coalmine ventilation. These methane capture entities exclude those capturing fugitive emissions from existing natural gas pipelines, because the policy should not incentivize inefficient pipelines.

Specified methane capture facilities will be guaranteed grid access; the utility companies must compensate these generators for every kWh of electricity produced and sent to the grid.  The amendment will determine a twenty-year contract between the CH4 capture sources and the utility companies.  Uniform national rates paid for electricity from CH4 capture sources will be fixed for twenty years, adjusted every two years, and calculated, based on the technology, capital investments, and maintenance costs, and market price for electricity.  There will be different prices for CH4 captured from different sources (livestock, human and agricultural liquid waste, landfill solid waste, and coalmine ventilation).  In twenty years, the FiT will be reevaluated to determine and set a phase out plan.  This will be evaluated based on the contribution of electricity generated from captured methane to the US Energy Portfolio.  The amendment also requires that each public utility administers an annual progress report that shall be submitted to the Energy Information Administration including the total amount of electricity in kWh generated from methane capture sources.

The purposes of the FiT, as defined by the amendment, are to reduce CH4 emissions by CH4 capture and electricity generation to mitigate climate change, to promote profitable development of CH4 capture facilities that use available commercialized technologies, and to prevent excessive profits for electricity generation facilities and methane capture facility operators and unnecessary costs to ratepayers.

In Germany, the FiT for renewable energy was introduced in 1991, and has since been adapted to provide a succinct and successful model for a US FiT for methane capture sources.  The Energy Feed-In Law (Stromeinspeinspeisungsgesetz) was enacted in 1991. The main drawback was that utility companies and grid operators were not required to permit free grid access to all electricity generators, so small-scale facilities were denied access to the grid.  As many renewable energy producers—wind, solar PV, hydro—are small-scale facilities and residential homes, the Act did not succeed in its ultimate goal.  The law was replaced in 2000 with the Renewable Energy Law (Erneuerbare-Energien-Gesetz, EEG), which among other logistical changes, required that grid operators guarantee free access to renewable energy suppliers, and mandated payment for said electricity fed into the grid.  Access is key to a successful FiT and will be imperative to the success of the Methane Capture Payments, as many smaller farms and landfills will be able to capture methane.  The Renewable Energy Sources Act (2009) further amended the EEG; rates per kWh for wind power were increased, while the price for solar PV was set to begin a phase out, degressing 8-10% in 2010 and 9% in 2011.  Stefan Dietrich, a spokesman for a German solar PV company Q-Cells states, “the FiT gives companies a good basis for planning but also makes them become more efficient and competitive. It is a win-win-win—for the industry, the government and individuals” (Seager 2007).

As the German model demonstrates, investors need to be assured that the capital and long-term investments are worth making.  Once the market is created for both the energy from CH4 and the technology, the prices will likely lower substantially, making the technology more affordable to smaller enterprises.  In 2006, of the 1,500 MW of solar energy produced in Germany, 240 MW were generated from residential homeowners, and 300 MW were fed into the grid from solar PV on barn roofs (Gipe 2006). In 2006, renewables accounted for 11.8% of total electricity consumption in Germany, and in 2005 they prevented the emission of 83 TgCO2 (Mendonca 2007).  As of 2007, the renewable energy industry in Germany employed 214,000 people, which was more than the number that the conventional energy sectors employed (Medonca 2007).  Germany paved the way for the US Methane Capture Payments: the FiT allows a revolutionary industry growth and development, allowing for capture of CH4, which would otherwise be emitted to the atmosphere.

The utility companies are required to pay more for the electricity per kWh, but they ultimately pass this cost to the end-use consumer.  The German Solar Energy Association estimates that the FiT in Germany currently adds $1.69 for a monthly residential bill.  The 2007 Department of Energy Data Book estimated that 31% of the average utility bill comes from heating (DOE); considering heating and air conditioning is seasonal, and energy bills can fluctuate substantially depending on the month and season, the slight increase in price is not likely to affect the consumer.

The FiT will stimulate industries that currently emit CH4 to capture and generate electricity, in hopes of reducing the 585.3 TgCO2eq that are emitted in the US each year. The EPA estimates of 2007 GHG emissions in the US were assumed to be good indicators of yearly CH4 emissions over the next twenty years, even though in reality yearly emissions are dynamic. The theoretical potential, meaning the hypothetical upper limit of emissions targeted is 264.6 TgCO2eq of CH4 per year, which is the sum of emissions that come from the specific sources in our amendment i.e. landfills, coalmines, animal manure, and wastewater treatment (IEA 2008). The technical potential encompasses the engineering constraints for CH4 capture and electricity generation technology in each sector (IEA 2008). Though hopefully the technical efficiency will be improved in the coming years, the current average technology efficiencies in terms of percent CH4 able to be captured out of total CH4 emitted was used in this calculation. The prediction also factors in the economic costs and benefits, planning constraints, and existing barriers to technology (de la Chesnaye). Based on European FiT models and US Department of Agriculture research, the estimate for participation rate, meaning the number of businesses that adopt CH4 capture technology out of the total number of businesses that contribute to that source, was assumed at worst 5% and at best 30%. The exception is abandoned coalmines, where the lower participation rate is 1% and the upper participation rate is 10%, since this CH4 source has significantly more boundaries due to questions of ownership issues. Encompassing all parameters, the realizable potential of the amendment is between 10.3 and 62.1 TgCO2eq per year by the time it is reevaluated in twenty years. These figures signify a reduction in US CH4 emissions by between 1.8 and 10.6%; this is roughly equivalent to the CO2 emissions from the gasoline used to power 2% to 10% of passenger cars in 2007 (EPA 2009). This calculation only includes direct reductions in CH4, and not the indirect benefit that the electricity generated will offset the GHGs from “dirty” energy sources.

Table 1. Theoretical, technical, and realizable potentials for CH4 mitigation.

Source

Theoretical Potential (TgCO2eq/year)

Technology Efficiency1

Technical Potential (TgCO2eq/year)

Lower Participation

Upper Participation

Lower Realizable Potential (TgCO2eq/ year)

Upper Realizable Potential (TgCO2eq/year)

Landfill

132.9

0.75

99.7

0.05

0.30

5.0

29.9

Coal

57.6

0.82

47.5

0.05

0.30

2.4

14.2

Coal Abandoned

5.7

0.97

5.5

0.01

0.10

0.06

0.6

Manure

44.0

0.85

37.4

0.05

0.30

1.9

11.2

Wastewater

24.4

0.85

20.7

0.05

0.30

1.0

6.2

TOTAL

264.6

210.8352

10.3

62.1

(1) Sources: EPA 2006, 2009

Realizable Potential = (Theoretical Potential) * (Technology Efficiency) * (Participation Estimate)

Section V: Policy Options Passed Over in Favor of the Feed-in Tariff

One possible approach to reducing CH4 emissions is the formation of an organization modeled after the CIA’s “In-Q-Tel” program. This organization would invest in the research and development of new technologies for CH4 emission reduction. The actual investment process would be outsourced to this organization within the private sector, rather than remaining under direct governmental observation. Since there is already a substantial amount of research in developing technologies to mitigate climate change, this option may not be the most expedient.  In 2007, the Advanced Research Projects Agency-Energy (ARPA-E) was established for this exact purpose and this agency has received $400 million under the American Recovery and Reinvestment Act. Furthermore, reliable technologies to capture CH4 from a variety of sources already exist (DOE 2009). Considering CH4 reduction has the potential to make a rapid impact due to its short half-life, we would be remiss not to focus on tapping into this potential as soon as possible using existing technology.

Another policy up for consideration is an outreach program that would focus on propagating technology for the reduction of fugitive emissions from natural gas pipelines abroad, specifically in the former Soviet Union, which has a massive but antiquated natural gas pipeline infrastructure. (Leliveld 2005). The US has the technology to make these pipelines more efficient. However, this policy lacks the scope of potential impact offered by the FiT. While fugitive pipeline emissions are substantial, a US FiT targets a number of different sources. Domestically, the sum of these emissions exceeds those that we anticipate would be immediately reduced through this outreach program, and thus it was passed over in efforts to produce the greatest immediate impact. The estimated amount of fugitive CH4 emissions in Russia in 2005 was 174.8 TgCO2eq, which is lower than the theoretical potential of the Methane Capture Payments amendment of 264.6 TgCO2eq, as discussed in the previous section (Methane-to-Markets 2008).

A CH4 tax is a potential policy mechanism for limiting methane emissions. This initially attractive option, however, is ultimately unfeasible due to the difficulty of monitoring CH4 emissions. While calculating the amount of energy produced from methane sources, as required by a FiT, is relatively simple, the actual amount of CH4 being emitted from a particular source is substantially more difficult to quantify. This difficulty is particularly egregious in the agricultural sector. Though animals can be isolated and monitored in order to calculate their emissions, there is no existing technology that would feasibly allow for real-time quantification of CH4 emissions from livestock on a large scale. Therefore a policy that consistently taxes all CH4 emissions would be extraordinarily difficult to carry out.

The difficulty of quantifying CH4 emissions also justifies the infeasibility of a required capture policy option. This policy would require that livestock operations, coalmines, and landfills would be monitored for CH4 emissions and mandate the capture of a certain percentage of these emissions. However, as with the CH4 tax option, the lack of mature CH4-monitoring technology is a significant hindrance. Additionally, because of the vast number of sources in the form of thousands of landfills, agricultural operations, and coalmines, administrative costs of regulating this policy would be substantial if not prohibitive for both the required capture and CH4 tax option. In contrast, a FiT requires significantly less direct supervision; technology for the regulation of electricity utilization and production is already in place in the US. Therefore the FiT does not require the investment in the enormous amount of additional infrastructure that would be required by a CH4 tax or a required capture policy.

Another mechanism that has been used to regulate emissions is a cap-and-trade. In this system, emissions are capped at a set level. If a particular business is unable to meet this cap and must go over, it can do so by purchasing either the rights from another business, or offsets from industries producing renewable energy.  However, this system has several flaws, particularly if the desired effect is to minimize CH4 emissions in particular. First of all, a cap-and-trade system that caps CH4 exclusively is infeasible because of the lack of technology for monitoring CH4 emissions. This still leaves the option of using CH4 sources as offsets in a CO2 based cap-and-trade system.  One of the downfalls of a cap-and-trade system is that because of its market-based approach, different renewable energy sources are put into competition against one another for use as credits. This system favors the cheapest renewable energy options; thus, though a cap-and-trade system increases utilization of some energy sources, it does not necessitate that CH4 in particular will be reduced. Furthermore, previous legislators have had difficulty passing cap-and-trade policies that set emission levels low enough to instigate the use of offsets. This has been an issue of concern in regards to the cap-and-trade system recently put into place by the European Union. For example, the US Government Accountability Office noted that in Germany, “electricity companies were supposed to receive 3 percent fewer permits than they needed to cover their total emissions between 2005 and 2007, which would have forced them to cut emissions. Instead, the companies got 3 percent more than needed…a windfall worth about $374 billion at the peak of the market.”(GAO, 2008). In short, possibly in part due to lobbyist pressure, the way that the cap-and-trade systems set emission levels and distributed permits resulted in less actual environmental impact than was originally intended.

Why the Feed-in Tariff for Methane is the Most Effective Policy

To implement our overall goal to mitigate CH4 emissions, we believe that a FiT is the most effective policy solution to increase investment in CH4-capture technologies from a wide array of CH4 emission sources and introduce CH4 into the market as an alternative energy source.

According to some industry experts, a FiT is a market distortion that may stagnate competition to improve energy efficiency, create windfall profits for generators, and increase costs for energy consumers. As will be demonstrated in the following section a FiT in actuality will promote competition and distinguish between different CH4 sources without imposing a significant financial burden on energy consumers.

To reduce global reliance on fossil fuels and mitigate global climate change, the two most popular policy solutions to encourage renewable energy development have been a FiT and a Renewable Portfolio Standard. (Lipp 2007). As explained in the previous sections, a FiT offers a fixed price for electricity generated from captured CH4. In other words, the governing body determines price, while the market dictates quantity of generation and consumption. Comparatively, in the RPS scheme, the quantity is set while the price fluctuates with the market. According to the proponents of RPS over FiT, “Renewable Energy technologies producing power at the lowest cost are purchased to meet the obligation, and least cost is typically achieved by large developers using well-established technologies” (Lipp 2007). Therefore, an RPS, in theory, promotes competition to drive the use of the cheapest and most efficient technologies to generate clean energy. However, this model does not take into account CH4’s high GWP and short atmospheric lifetime and these implications on global climate change.  An RPS scheme forces competition between all renewable energy sources: wind, solar, and biogas, while a FiT distinguishes between these technologies by accounting for the technological costs associated to each industry. Reiterating the data from Section 3, an anaerobic digester, for example, can cost anywhere from $69,000 to $603,000. Given the comparative cost to start these projects, CH4 capture will most likely be ignored, despite its environmental benefits. Economists may cringe at the idea of fixed prices (Connaughton, De la Chesnaye), but competition and innovation still exist within a FiT. However, the fixed price in a FiT targets CH4 capture by guaranteeing a reasonable rate of return on investments. Therefore, a FiT takes into account the urgency of CH4 emissions and the need for capture.

Secondly, the FiT still allows for competition to drive innovation and production of more efficient CH4 capture technologies. In the case of windpower under the FiT in Denmark, lower prices of wind turbines decreased windpower prices from 14 €-cents/kWh in 1985 to 4 €- cents/kWh in 2004 (Hvelplund 2005). Rather than pitting all renewable energy sources to compete against each other, the competition shifts to the technologies within each renewable energy source. Because the FiT price is set depending on the CH4 emission source and respective capturing technology, it accounts for all renewable energy sources to be utilized, including CH4. In addition, the price degression outlined within our Methane Capture Payments amendment accounts for improved efficiency and implementation of these CH4 capture technologies to prevent windfall profits for generators.

Finally, the fixed price and long term contract of at least 20 years encourages local CH4 capture projects. Under a RPS, the small local generators face competition from larger projects. Fixed prices under a FiT, however, “create a market certainty needed to attract investment and grow the industry” (Lipp 2007). Given that most CH4 emissions come from a range of local and industrial sources, this inclusion of both small and large projects maximizes CH4 capture. Under the FiT in Germany, one-third of the wind turbines are local landowners and residents. Similarly in Denmark, residential families own 80% of the country’s wind turbines.

Another argument against a FiT lies in its cost. A RPS in theory is thought to be the most cost effective, as competition creates a downward pressure on renewable energy prices. However, recent assessments have shown that a FiT is the more cost-effective compared to quota and trading systems. In fact, the European Commission has concluded, “well-adapted feed in tariff regimes are generally the most efficient and effective support schemes for promoting renewable electricity.”  Because a RPS entrusts a small number of utility companies to determine the price of electricity from captured CH4, price competition is still hindered. For example in the United Kingdom, there are only five or six, multi-nationally based electricity suppliers (Toke 2006).  Within this oligopoly, the few electrical suppliers force generators into “long term, relatively (or actually) fixed price contracts” (Toke 2006), without the benefits of a FiT for local and industrial CH4 capture projects. 

A comparison of United Kingdom’s Renewable Obligation system (RO), Germany’s Renewable Energy Feed-in Tariff (REFIT), and Denmark’s shift from a FiT to a RPS system establishes that a FiT is more effective than market-based systems. In the British RO, the quota for electricity generated from renewable energy sources was set to increase steadily from 10.4% by 2010 and 15% by 2015 (Toke 2006). Energy suppliers purchase Renewable Obligation Certificates (ROCs) from eligible energy generators, who receive ROCs for every kWh of renewable electricity they produce. Ideally, the competition created through this scheme will drive prices down, but it involves the price of certificates instead of electricity prices (Toke 2006).  Though the FiT is thought to be an expensive mechanism, analyses from the European Commission determined that the RO in UK and other quota systems produce electricity at a higher cost than FiT (EC 2005). Without any specifications as to what kind of renewable energy or the length of the contracts, the RO increased risk and investment uncertainty for renewable energy generators. With short-term contracts, these generators could not determine the volume or price of the energy they provided (Lipp 2007). As seen in Figure 8 below, the effectiveness indicator in 2005 for the UK quota system is significantly less than the countries that employed a feed-in tariff. In addition to its costs, renewable energy accounts for 3.9% of total energy in 2005 with the UK RO, falling short of its goal of 10.4% by 2010 (DTI 2006).

methane_figure_8

Despite the theoretical advantages of competition in a market-based system, the RO in the UK clearly demonstrated that in practice, quota systems like RPS result in higher costs, lower generation, and fail to achieve lower emissions.

Denmark’s shift from a successful FiT to a more market-based system caused significant declines after 1999 in electricity generated from wind power. Since the global oil crisis in 1973, Denmark immediately mobilized to establish renewable energy projects. To quote Hvelplund, “systematic public interference in the monopoly market broke its barrier to entry and opened the door for wind power technology.”  In 1993, Denmark’s FiT mandated utilities to purchase wind power electricity to be fixed at a rate of 85% of the consumer price for electricity (Hvelplund). As seen in Figure 3 below, ­from 1993, windpower grew from 500 MW to 3,000 MW, but has leveled off in 2004 when a new government shifted to a renewable portfolio standard. Therefore, Denmark’s FiT jumpstarted a widespread adaption of wind-power generation, but recently stagnated with its switch to a market-based system.

methane_figure_3

(Source: John Farrell, April 2009)

The most successful policy model for stimulating renewable energy generation has been the feed-in tariff in Germany. The FiT bill of 1990 required access to the grid and a fixed price for electricity from renewable energy sources of 65 to 90% of the consumer price (Lauber, Mez). The benefits were especially significant for stimulating adaptation of windpower technology, as summarized in Figure 4 below. In 2000, the German FiT was revised to include a long-term contract for 20 years, different prices between different renewable sources, and annual degression rates to account for improving technologies (Farrell).

methane_figure_4

(Source: John Farrell, April 2009)

Table 3 below summarizes the effectiveness of a FiT (Lipp 2007). As of 2006, Germany, through its FiT, has managed to most effectively reduce CO2 emissions by 215 TgCO2, of which renewable energy accounted for 58 TgCO2.  Though the United Kingdom has reduced CO2 emissions more than Denmark with 108.2 TgCO2 compared to 1.2 TgCO2, most of the reductions resulted from a switch from coal-fired to gas-fired electricity in the 1990’s (Lipp 2007).

methane_table_3

Conclusion

Global climate change poses a challenge to the global community and demands immediate action.  As a solution to mitigate climate change in the short term, we propose the Methane Capture Jobs and Security Act, an amendment to the Clean Energy Jobs and American Power Act.  Under this Act, fixed rates for methane captured from specified sources will revolutionize the methane capture to energy industry.  The Methane Capture Payments will incentivize and send the necessary market signals for livestock corporations, coalmines, and landfills to invest in the technology to capture methane and generate electricity.  The Methane Capture Payments is the best option in mitigating methane emissions specifically because of methane’s ability to generate electricity, and because regulating methane emissions is technologically difficult.  The feed-in tariff mandated in this Act requires annual reports, which will quantify the amount of electricity produced per kWh from methane, allowing us to measure how much methane has been captured.  Feed-in tariff models in Europe have proven that the policy is very successful in revolutionizing the renewable energy industries, especially on the small and local level.  This Act will effectively reduce CH4 emissions in the US by between 10.3 and 62.1 TgCO2eq per year by twenty years after its enactment. While not the ultimate solution, this Act creates a wedge, buying time for the global community to develop an all-encompassing solution to climate change.

Environment, Environment Projects


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