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The Path to Net-Zero – Part 2

1.Introduction

This paper is the last part of a series that explores greenhouse gas (GHG) emissions and steps we might take to reduce them. Part 1 of this series is linked below, and it is suggested that part 1 be read before reading this paper.

https://www.energycentral.com/c/cp/path-net-zero-%E2%80%93-part-1

This paper is about reducing methane emissions and financial incentives that will drive down GHG reductions.

2.Reducing Methane Emissions

The yearly U.S. methane emissions 14 million tons or 0.35 Gt of CO2 equivalent (GtCO2eq).[1] Yearly global emissions of methane are estimated at 7.5 GtCO2eq in 2010. [2] Note that reference 2 is used extensively in this section.

These emissions come from the following sources, with each source's contribution to yearly global emissions:

  • Digestive fermentation, mainly by ruminant animals (2.2 GtCO2eq)
  • Agriculture (1.6 GtCO2eq)
  • Oil and gas production and distribution (1.5 GtCO2eq)
  • Landfills (0.8 GtCO2eq)
  • Wastewater (0.7 GtCO2eq)
  • Coal mining (0.5 GtCO2eq)
  • Other sources (0.2  GtCO2eq)

Methane has a global warming potential 104-times greater than CO2 for 20-years after release, but only 28-times for 100-years. As methane degrades it forms CO2.

The following subsections will deal with possible reduction methods for the above named sources.

2.1.Digestive Fermentation

Mitigation of methane from digestive (enteric) fermentation practices identified in IPCC AR4:[3]

  • Improved feeding practices
  • Pasture improvement
  • Supplementation with concentrates
  • Adding oils or oilseeds to the diet
  • Optimizing protein intake to reduce nitogen excretion (impact on N2O emissions)
  • Specific agents and dietary additives
  • The following substances might be administered to reduce methane emissions:
    • Lonophores and antibiotics
    • Halogenated compounds
    •  Condensed tannins
    • Essential oils
    • Probiotics
    • Propionate precursors
    • Vaccines
    • Bovine somatotropin
    • Hormonal growth implants
  • Animal breeding, other changes in structure
  • Lifestyle changes

2.2.Agriculture

The primary method for methane reduction in agriculture is via manure management, and the primary method for doing this is through anaerobic digestion. The text below is from the referenced source.[4]

Anaerobic digestion is used effectively around the world to manage waste streams of all volumes. Small-scale digesters provide fuel and electricity in rural farming communities. Large-scale anaerobic digestion systems are used on industrial farms and by communities to co-digest other sources of organic wastes. Today’s most advanced projects use anaerobic digestion to reduce greenhouse gas (GHG) emissions, supply electricity to the electrical grid, generate renewable natural gas, control water pollution and produce valuable byproducts.

2.3.Oil and Gas Production and Distribution

Leakage of methane is lost revenue for oil and gas producers. The first step in identifying this leakage is to measure it. There are two categories of leakage: (1) fugitive emissions (those that have not yet been measured or identified) and (2) venting, (known release of methane, although not necessarily quantified). Sometime vented methane is flared (burnt), creating CO2.

The first step in reducing GHG emissions is to require all oil and gas transmission, distribution or processing facilities to measure all sources of venting and take reasonable steps to identify and measure fugitive emissions.

2.4.Landfills

The solution for landfills is straightforward, proven and used in many facilities. Extraction using a series of wells and a vacuum system, which directs the collected gas to a point to be combusted for energy production or otherwise utilized for energy. Ideally these methods should (eventually) use CO2 capture and sequestration where practical.

2.5.Wastewater

Methane mitigation for wastewater processing facilities involve installing:

  • Anaerobic sludge digestion (new construction or retrofit of existing aerobic treatment systems).
  • Biogas capture systems at existing open air anaerobic lagoons.
  • New centralized aerobic treatment facilities or covered lagoons.
  • Gas capture and combustion systems to utilize methane (e.g., onsite electricity or other energy uses).

2.6.Coal Mining

Techniques exist to reduce the amount of methane released by coal mining, but coal mining should be reduced and eventually stopped over the next few decades.

3.Financial Incentives

There are basically two methods to incentivize entities that release GHGs to reduce emissions: (1) GHG fees or taxes, and (2) cap and trade programs. Both of these reach the same end-point (a levy on GHG emissions that serves as incentive to reduce those emissions), but each is very different, and each has many variants.

The following two subsections explore the main variant for each of these two methods.

3.1.Cap and Trade

"Cap and Trade" should probably be called "Cap, Indulgence and Trade." For readers that have not studied religious history, "The Catechism of the Catholic Church describes an indulgence as 'a remission before God of the temporal punishment due to sins whose guilt has already been forgiven, which the faithful Christian who is duly disposed gains under certain prescribed conditions through the action of the Church which, as the minister of redemption, dispenses and applies with authority the treasury of the satisfactions of Christ and the saints.' … By the late middle ages, the abuse of indulgences, mainly through commercialization, had become a serious problem which the Church recognized but was unable to restrain effectively."[5]

In other words, an indulgence had become a "sin-tax". A slight reinterpretation into the modern GHG problem/opportunity would change this to a "GHG-tax". However the "trade" aspect of this allows trading of GHG emission allowances (indulgences), and thus should allow those that can reduce GHG emissions at the lowest cost to do so. Entities where GHG reduction is more expensive will purchase allowances.

The other major factor of a cap and trade program is that the GHG "cap" decreases over time. The cap is the regulation that defines the maximum amount of GHGs that each emitting entity can emit in a given year. As the cap is reduced, the price of allowances should increase, increasing the incentive to reduce them.

3.1.1.States Using Cap and Trade

The Regional Greenhouse Gas Initiative (RGGI) is a mandatory market-based program to reduce greenhouse gas emissions. RGGI is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector.[6]

California’s Global Warming Solutions Act, also known as AB 32, was signed into law in 2006. This bill allowed the state to adopt a market-based regulation to cut greenhouse gas (GHG) emissions. Between 2006 and 2013, when the California Cap-and-Trade Program went into effect, there were extensive consultations with all stake-holders and participants in other (international) cap and trade programs. California is the fifth-largest economy in the world and was the first state in the nation with an economy-wide cap-and-trade program.[7]

California’s cap-and-trade system has weathered legal challenges and demonstrated a successful launch and viability since its launch. As I frequently do, I will use my home state's (California) Cap-and-Trade Program to describe details about how these work.

3.1.2.California Cap-and-Trade Program

California's California Cap-and-Trade Program is extremely comprehensive. It covers all significant greenhouse gases, including carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride (SF6), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), nitrogen trifluoride (NF3), and other fluorinated greenhouse gases.

Covered entities include:[8]

  • Operators of Facilities within California that has one or more of the following processes or operations:
    • Cement production;
    • Cogeneration;
    • Glass production;
    • Hydrogen production;
    • Iron and steel production;
    • Lead Production;
    • Lime manufacturing;
    • Nitric acid production;
    • Petroleum and natural gas systems, as specified in section 95852(h)8;
    • Petroleum refining;
    • Pulp and paper manufacturing;
    • Self-generation of electricity;
    • Stationary combustion.
  • First Deliverers of Electricity:
    • Electricity generating facilities: the operator of an electricity generating facility located in California; or
    • Electricity importers.
  • Suppliers of Natural Gas that distributes or uses natural gas in California as described below:
    • A public utility gas corporation operating in California;
    • A publicly owned natural gas utility operating in California, or
    • The operator of an intrastate pipeline that distributes natural gas directly to end users.
  • An entity that imports one or more of the following fuels into California outside the bulk transfer/terminal system:
    • Reformulated Gasoline Blend-stock for Oxygenate Blending (RBOB);
    • Distillate Fuel Oil No. 1;
    • Distillate Fuel Oil No. 2.
  • Suppliers of Liquefied Petroleum Gas, including:
    • The operator of a refinery that produces liquefied petroleum gas in California;
    • The operator of a facility that fractionates natural gas liquids to produce liquefied petroleum gas, or
    • An importer of liquefied petroleum gas into California as specified.
  • Suppliers of blended fuels that contain the fuels listed above.
  • Suppliers of Liquefied Natural Gas and Compressed Natural Gas.
  • Carbon dioxide suppliers.

There is a threshold of GHG quantity per year for each specific entity of the above types for a that entity to have a reporting and compliance obligation. See the referenced document for these.8

There are two types of instruments that are used for compliance: allowances and offset credits. Allowances are created by the California Air Resources Board (ARB), or partner governments (see below). Each allowance is a limited tradable authorization to emit up to one metric ton of carbon dioxide equivalent. For 2019, 2020 and 2021, the allowances released (allowance budgets) are, respectively, 358.3 million, 346.3 million and 334.2 million allowances. The table below provides the budgets for 2021 through 2031.

An offset credit must represent a GHG emission reduction or GHG removal enhancement project that is real, additional, quantifiable, permanent, verifiable, and enforceable. The credits are assigned on a project basis. GHG removal (from the atmosphere or emission source) might use forestation or sequestration. An offset credit is a tradable compliance instrument issued by ARB that represents a GHG reduction or GHG removal enhancement of one metric ton of CO2e (CO2 equivalent).

Covered entities can use offsets to cover up to 8% of their compliance obligations. The provision of credible offsets provides an important cost containment mechanism by increasing the supply of low-price compliance options. Offsets also encourage and provide economic value for emissions reductions in sectors not covered by the cap. Offset credits can only be quantified using CARB-approved compliance offset protocols. CARB has adopted five compliance offset protocols to date:

  • U.S. Forest Projects Compliance Offset Protocol
  • Urban Forest Projects Compliance Offset Protocol
  • Livestock Projects Compliance Offset Protocol
  • Ozone Depleting Substance Compliance Offset Protocol
  • Mine Methane Capture Projects Compliance Offset Protocol

The offset credits can be from projects in any state (or linked Canadian Province, see below), but each project must go through an extensive "offset verification" process via an independent offset-verification team from an ARB-accredited and audited offset-verification body.8

Compliance Instrument Tracking System Service (CITSS) Linkage: The California Cap-and-Trade Program, Québec Cap-and-Trade System, and Ontario Cap-and-Trade Program were linked in January 2018, allowing mutual acceptance of compliance instruments issued by each jurisdiction and joint auction of GHG allowances. Linking allows trading of instruments among these jurisdictions, beginning in January 2018.[9]

In reading through all of the allocation of allowances to the different sectors, in the early years of the program (up until 2020) there is very little pain for most entities other than the mandatory reporting requirements. Thereafter the number of allowances allocated slowly begins to shrink, and the cost of allocations are assumed to increase. The reason for this slow escalation is to avoid any shocks to the California economy. As of this writing the price of GHG allowances bottomed out in 2014, and has been slowly increasing ever since. Today it's a bit above $15 per allowance.[10]

Auctions: There are two auctions of allowances in each quarter. The "current auction" sells allowances from the current quarter and past quarters/years (unsold from previous auctions or consigned by covered entities). The "advance auction" sells allowances from future years. One quarter of future allowances from a quarter three years from the current quarter is consigned to each advance auction. Also, unsold allowances from future years will be offered at each advance auction.

Auctions include sales of linked jurisdictions' instruments. Auctions use sealed bids and these must bid an amount above an auction reserve price for multiples of 1,000 California GHG allowances. The reserve price is announced in advance on a yearly basis and will increase 5% per year, plus inflation per the Consumer Price Index. The reserve price plus the current Canadian/U.S. dollar exchange rate is announced before each auction.

Over the counter sales of compliance instruments are also authorized, although these must use the California Air Resources Board as an intermediary, and follow certain rules.8

3.2.GHG Taxes

First of all, there are many variants of greenhouse gas taxes, so we will just look at the variant that is currently gaining the most traction: the fossil fuel fee and dividend. A primary proponent of this method is Dr. James Hansen. He has written on it extensively, including the text referenced at the end of this sentence.[11] This text used extensively in the description below. If a reader would like to explore this incentive system or the reasons why it is required (climate change), I would recommend reading Dr, Hansen's book: Storms of My Grandchildren. I have read this, and it is one of the three books I keep on my desk.

In concept, a fee and dividend system is many orders of magnitude less complex than any cap and trade program. Furthermore, in spite of the title of this subparagraph, it is not a tax, since it is revenue-neutral. There are basically two elements:

Carbon Fee: "…a fee is collected at the mine or port of entry for each fossil fuel (coal, oil, and gas), i.e., at its first sale in the country. The fee is uniform, a single number, in dollars per ton of carbon dioxide in the fuel. The public does not directly pay any fee or tax, but the price of the goods they buy increases in proportion to how much fossil fuel is used in their production. … The carbon fee will rise gradually so that the public will have time to adjust their lifestyle, choice of vehicle, home insulation, etc., so as to minimize their carbon footprint. "11

Dividend: "…100 percent of the money collected from the fossil fuel companies at the mine or well is distributed uniformly to the public. Thus those who do better than average in reducing their carbon footprint will receive more in the dividend than they will pay in the added costs of the products they buy.

"…The fee-and-dividend approach is straightforward. It does not require a large bureaucracy. The total amount collected each month is divided equally among all legal adult residents of the country, with half shares for children, up to two children per family. This dividend is sent electronically to bank accounts, or for people without a bank account, to their debit card."11

3.3.Conclusions on Incentives

I have the greatest respect for Dr. Hansen, and were this 20 years ago, I would be a strong advocate for a fee and dividend program, passed as a U.S. constitutional amendment, and administered by the IRS. I also feel that the fee and dividend has many positives over cap and trade systems, including:

  • Much lower administrative expenses
  • Fewer opportunities to cheat
  • Much lower compliance overhead for most businesses

Much more efficient for our societyI believe that the fee and dividend should be a strongly-desired end-point for regulating GHG.

However, it's not 20 years ago, and many cap and trade systems are already in place. Having sat in on many meetings between businesses and regulators, I know that businesses prefer consistency more than anything else. Since businesses in states with cap and trade systems are already complying with those programs, they do NOT want to change to another system.

Also, cap and trade (as implemented in California) does also have some strong points:

  • Cap and trade works. Although California is well ahead of our GHG reduction goals, our cap and trade program has little to do with this, since its reductions have not begun to really kick in yet. Rather these are due to substantial reductions in the power sector, which is administered by the Public Utility Commission (PUC). The PUC policies favor renewables, storage, conservation and efficiency above fossil fueled plants, and have for many years. Cap and trade will work because our state government works, and adjustments will be made to fix any problems.
  • The California Air Resource Board must administer all harmful emissions, whether from geological source or otherwise. Thus our cap and trade system is really just an extension of an existing air-quality monitoring system.

Advocates of a fee and dividend system are hopeful that Washington State's Initiative Measure No. 1631, "Protect Washington Act" will be the first fee and dividend system passed by a state government. Except it's not a fee and dividend system as described above.[12]

Having grown up in Texas, I'm fond of earthy analogies, like: "Politicians look at a new source of revenue like a dog looks at a fire-hydrant – they can't resist making it their own." The "pollution fee" in Measure 1631 is pretty close to the above described fee and dividend's (see Section 8 in the above referenced text). However, the "dividend", not so much. See sections 3 through 7. Most expect Measure 1631 to be on the November, 2018 Ballot.

One of the great things about the U.S. federal system of government is: the states serve as laboratories for programs that might be used in the country as a whole. Another great thing is that each state is allowed to conform (to the extent allowed by the Constitution) to the wishes of its citizens.

At some point, Washington State and/or other states will pass something other than a cap and trade. A future U.S. administration will also pass something that forces states to put restrictions on GHG, but allows states to each follow their own methods for doing this  (like the last administration's Clean Power Plan). At that point, we will see which system works best.

In the meantime, I favor any plan that reduces GHG emissions. After all: A journey of a thousand miles begins with a single step.[13]

 

[1] Environmental Defense Fund, "Major studies reveal 60 percent more methane emissions", https://www.edf.org/climate/methane-studies . I also found a detailed paper in July 13, 2018 issue of Science on the project referenced in this article. Unfortunately this paper is not available to the general public.

[2] Global Methane Initiative, "Global Methane Emissions and Mitigation Opportunities, https://www.globalmethane.org/documents/analysis_fs_en.pdf

[3] Reference from Daniel L. Martino, "Overview of Enteric Fermentation Methane Emissions and Options for Mitigation", 4 March 2010, https://www.globalmethane.org/expo-docs/india10/postexpo/ag_martino.pdf . The Forth Assessment Report (AR4) can be found at the following linked Intergovernmental Panel on Climate Change (IPCC) page, http://ipcc.ch/report/ar4/

[4] A Global Perspective of Anaerobic Digestion, Policies and Incentives, November 2014, https://www.globalmethane.org/documents/tools/A-Global-Perspective-of-AD-Policies-Incentives.pdf

[5] Wikipedia article on "Indulgence", https://en.wikipedia.org/wiki/Indulgence

[6] The Regional Greenhouse Gas Initiative, https://www.rggi.org/

[7] Katherine Hsia-Kiung, Emily Reyna, Timothy O’Connor, Environmental Defense Fund, "Carbon Market California", 2013, http://www.edf.org/sites/default/files/content/ca-cap-and-trade_1yr_22_web.pdf

[8] Regulation for the California Cap on Greenhouse Gas Emissions and Market-Based Compliance Mechanisms, https://www.arb.ca.gov/cc/capandtrade/capandtrade/unofficial_ct_100217.pdf

[9] California Air Resources Board, Compliance Instrument Tracking System Service, https://www.arb.ca.gov/cc/capandtrade/markettrackingsystem/markettrackingsystem.htm#linkage

[10] California Carbon Dashboard, http://calcarbondash.org/

[11] Dr. James Hansen, "James Hansen on Cap & Trade vs Fee & Dividend", Paragraphs are from his book, "Storms of My Grandchildren." Headings added by Clive Elsworth, 11 July 2014, freely distributable, by kind permission of Dr. Hansen, 16 July 2014. http://www.gci.org.uk/Documents/FeeAndDividend.CliveEllsworth.July2014.pdf

[12] Initiative Measure No. 1631, filed March 13, 2018, https://www.sos.wa.gov/_assets/elections/initiatives/finaltext_1482.pdf

[13] Lao-tzu, The Way of Lao-tzu, Chinese philosopher (604 BC - 531 BC). Note that there are many variants of this from other cultures (even Texas).

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