The Market Value of Carbon Offsets

On the same day as a historic stock market collapse, we get news of a successful auction of the right to emit carbon dioxide. The Regional Greenhouse Gas Initiative (RGGI, or "Reggie") announced that last week's sealed-bid auction sold all the available CO2 emissions allowances for $3.07 per ton; this was the first chance for power plants in the ten Northeast states that participate in RGGI to buy allowances. RGGI becomes mandatory in 2009, and there will be thirteen more auctions before the first real accounting in early 2012.

This auction is also historic; although Europeans have been trading CO2 in a massive mandatory market for several years, those allowances were initially given away. RGGI only covers power plants and seeks to merely cut emissions 10% below current levels by 2019, but it can now claim the world's first CO2 auction.

Voluntary CO2 markets have existed in the United States for several years. The Chicago Climate Exchange set up a trading mechanism for greenhouse-gas reductions, but it has been buffetted by the inability of the federal government to make any progress on climate change legislation. Instead, regional organizations like RGGI and the California-led Western Climate Initiative have taken the lead, causing uncertainty over standards. Each region plans to regulate different industries and emissions, measure by varying methodogies, and reach independent goals. Meanwhile, some leaders continue to call for a carbon tax instead of a market for emissions.

At Farm Power, we will be reducing methane emissions from manure storage. Methane has at least 21 times the climate-changing power of carbon dioxide, so our reductions will be significant. We spent quite a bit of time last year exploring a sale of our reductions into the RGGI market, which allows power plants to buy a small percentage of offsets from projects like ours rather than buying allowances at auction. However, the RGGI offset system had yet to fully mature; we now expect to sell into the voluntary market for quite a few years until the alternatives become clear.

For today, we congratulate RGGI for pulling off its auction. The price stayed above the minimum, and now speculators have a new currency to trade in--a toast to the free market!

Bainbridge Graduate Institute Sends out Fifth Class, Welcomes Seventh

I received my MBA from Bainbridge Graduate Institute (BGI) in June 2007, when we were already well into the development of Farm Power. I visited regularly during the next year but didn't make it to graduation this June; fortunately, BGI just put out a newsletter with stories about the event which sent the fifth class out into the world.

This month, a seventh cohort of "change agents" is beginning its sustainable business education journey; the orientations have ended and the first round of classes takes place this week. BGI welcomes its largest class ever, and the excitement is contagious--as graduation speaker Van Jones said, the world is waiting for the students and their ideas.

And the media coverage update: the BGI newsletter included an article called "From Poop to Power", but more eyes probably saw an article on our grant in the Capital Press. This is just one more illustration of the different worlds Farm Power lives in; it is difficult to imagine two groups of readers more different than those who get the "The Circle" from BGI and those who read the west's weekly agricultural newspaper, but we love them both!

She's our state senator!

Most farmers in Skagit County call themselves Republicans. A mix of business and social issues make them at home in the GOP, and their fields often host campaign signs for Dino Rossi and other Republican candidates. However, several of these same fields also host large signs for State Senator Mary Margaret Haugen (D-10th), a longtime supporter of agriculture. Skagit County farmers are not stupid; they know that having a powerful friend in the Legislature trumps party ideology.

A conservative political action committee has targeted Mary Margaret with a TV attack ad on the standard script--"Democrats spend lots of money". If these tactics succeed in propelling political newcomer Linda Haddon into the Legislature, the 10th district will suffer a huge loss. Why? I'll let the Haugen campaign explain with its "respected and effective" advertisement, found on YouTube here. In the first seconds, you can see Mary Margaret walking with the farmers who will be hosting our digester.

Our state senator was the primary sponsor of almost one hundred bills during this last legislative session; several of these aided agriculture, while others addressed issues important to a wide range of 10th district voters. As the chair of the Transportation Committee and a senior member of the Democratic party which controls (and will continue to control) the Legislature, Mary Margaret can get things done. People of both parties in Skagit County appreciate her effectiveness.

The best money the federal government spends

Most grants--both private and federal--fund studies, program development, and similar activities. However, the U.S. Department of Agriculture has a Renewable Energy and Energy Efficiency program that awards grants for actually installing green power systems or high-efficiency retrofits. The program originally awarded $23 million in grants annually; more recently, some of the money has been shifted to funding loan guarantees. Midwestern states have aggressively pursued this USDA funding, and it has enabled the construction of dozens of anaerobic digesters.

From the beginning, we planned to make a renewable energy grant a part of our funding package. We applied for the maximum grant--along with two loan guarantees--in June and settled in to wait for the USDA to its work. In most years the results came out in September, but things moved more quickly this year--awards were announced on August 27, and Farm Power received its full $500,000!

We were the only Washington recipient--actually, the first award to the state since 2005--so our Congressional delegation was happy to hear that their letters of support helped; Congressman Larsen's office put out a press release. Now if Congress would just pass an extension to the Renewable Energy Production Tax Credit.... The Skagit Valley Herald ran another little story and various supporters celebrated; we actually got the news during a day-long series of meetings in Whatcom County, so we were too tired to do much! I guess we'll just celebrate in a couple months when we're actually building.

Low-cost producer?

I wrote in an earlier post about the rising cost of coal; that market seems to have cooled off a bit in recent weeks, but then I saw an article from the Northwest Energy Coalition on the total cost of generating electricity from coal. Rapidly-rising prices for boilers, turbines, and other industrial equipment has driven up the fixed cost of large generating plants (those typically burning coal or uranium), as seen in the above chart drawn from the article. In comparison, the increase in wind turbine prices we've seen over the past several years hasn't had nearly as large of an impact on the cost of generating electricity from wind, since fixed maintenance costs haven't risen--and variable fuel costs are nonexistent.

All of these calculations ignore the potential cost of carbon regulations. A $20-per-tonne-CO2 price would add another penny to the cost of a coal kWh; the impact on natural gas generation would only be a third of a cent, while wind and nuclear would look even more attractive. Check out this brilliant spoof advertisement on the joys of coal; ironically, coal may not even be the lowest-cost option anymore!

"Methane Power Team Cautious on PUD"--Skagit Valley Herald

The Skagit Valley Herald ran a front-page story on Sunday that finally linked our project with another issue--proposed public (PUD) ownership of the county's electrical system; the first few paragraphs of overview are available online (with the more in-depth section unfortunately limited to subscribers only).

Our local public utility district has pitched its bid to take over the electrical system as a win-win initiative that will cut power bills while also defying Puget Sound Energy's plan to sell itself to Australian investors. Almost as an afterthought, PUD leaders also claimed on several occasions that they would be better supporters of green power as well.

I detailed our doubts on PUD support for green power in a March posting; more recently, we have been attending public forums where we have continued to contrast Puget Sound Energy's proven record on renewable energy with the less-enthusiastic support from government-run utilities, most notably Snohomish County PUD. Almost everyone likes the idea of local renewable energy, but we still don't seem to have convinced the pro-PUD side to grapple with the green power reality--it's not free, and developers don't start projects just based on nice words.

Local renewable energy simply does not happen without active, tangible, and bankable utility support. We have been working closely with Puget Sound Energy's green power team for almost a year and a half; they offer a regulator-approved contract that will pay about eight cents for every kilowatt-hour we will produce between now and 2018. This is the sort of support that convinced Shorebank Pacific to make a large loan commitment for our project; only at this level of support can anyone justify investing millions of dollars in a manure digester. For the sake of energy consumers, farmers, and local economies, we hope the Northwest's utilities will all follow PSE's lead and take clear action in support of green power.

Different cows, different impact

I noticed an article in E--The Environmental Magazine last month called "Meat of the Matter", focusing on the global-warming impacts of the livestock industry. Oddly, while the article brought out a lot of numbers it did not include a single photograph of any disturbing meat-animal production facilities (like the feedlot above). Rather, "E" chose to include several pictures of cute Holstein dairy calves. The magazine may be trying to keep the visual material light, or it might be kicking off a broad campaign against all farmers with cattle, or perhaps obtaining stock photos was easiest for Holsteins. Whatever the reason, I need to respond to the implication that dairy cows (and their care) are no different than the beef cow industry.

It is a fact that Americans eat vast quantities of meat, and this leads to the butchering of about 30-35 million cows a year; more red meat slaughter data than you'll ever need is found here. About three-quarters of these cows were raised for the sole purpose of becoming meat, and those in the beef business use breeds like Herefords, Angus, or Limousin. Beef cattle often spend the first part of their lives on grass, but almost all of them stand in feedlots for their final few months. Feedlots push grain through their cattle and move them on to the slaughterhouse when they are 15-20 months old. Once again, about 75% of our beef comes from cows raised with the specific goal of turning them into steaks.

Dairy cows, in contrast, make up a tiny fraction of our hamburger supply--about seven percent. Holsteins are raised with the goal of producing milk for many years; some of them don't produce very effectively and are eventually sold for meat, but every dairy cow at least gets a chance to have a calf and live to a minimum age of three. The average Holstein lives about five years, and they do so far more naturally than beef cows.

One of the accusations leveled at the livestock industry is that it feeds vast quantities of grain that could be better used to feed people. While this may be justified for beef producers, dairy cows eat diets consisting mostly of forage--various grasses, chopped green corn, and hay. This diet matches up much better with their digestive systems than grain, and forages also require much less work to grow. Since dairy cows need to chew their cud in order to convert all that forage into energy, farmers make sure that they are comfortable enough to spend at least a third of their time lying down and "ruminating". Beef cattle that eat mostly grain don't chew much cud, and thus their comfort becomes much less of a bottom-line issue for the meat industry--witness the feedlots of the southern plains.

One final question: if we admit that some animal protein belongs in our diets, is dairy any more efficient at supplying it than beef? To start, meat averages about one-quarter protein by weight, while milk is a bit more than 3%. Slaughtering a beef cow yields about 800 pounds of meat, while milking a dairy cow for three years produces at least 60,000 pounds of milk. So dedicated beef production results in 200 pounds of protein per animal, while dairy production results in almost ten times as much.

So, don't blame the iconic black-and-white dairy breed for the hundred million other cows that exist solely to feed America's hunger for beef. Don't blame dairy farmers for the inefficient use of grain to get beef cows to slaughter weight quickly. And finally, don't blame dairy farms for methane emissions from manure--they have been leading the way in adopting anaerobic manure digesters, and the farms of Skagit County will soon be among them!