8 Ways Gas Projects Will grow8 Ways Gas Projects Will grow
March 1, 2000
Shelley Cohen and Brian Guzzone
Section 29 Federal Tax Credits for landfill gas (LFG) projects ended in June 1998. However, LFG's new "green" image and recent industry developments are encouraging new partnerships and opportunities - despite the loss of Section 29.
Today, due in part to utility restructuring, utilities and power providers want to purchase LFG to diversify their renewable power portfolios. Proposed federal legislation and initiatives are piquing interest [see "LFG Tax Credit, Other Waste Issues Included in President Clinton's Budget" on page 24]. New technologies such as microturbines are making project development economically feasible at smaller landfills. And, states are promoting and assisting projects through grant funding and low interest loans. Additionally, as newly minted projects receive favorable press coverage, communities are embracing and promoting the health and safety benefits of using LFG.
All these factors have helped the landfill gas industry gain project development momentum. But what will accelerate future landfill gas-to-energy (LFGTE) project growth in the new millennium?
1. NSPS/EG New Source Performance Standards and Emissions Guidelines (NSPS/EG) regulations require landfills with more than 2.75 million tons of waste that emit more than 55 tons of non-methane organic compounds (NMOCs) to collect and combust their gas either by flaring it or by developing a recovery and use project. To recoup sunk capital costs, many landfill owners and operators are looking to locate potential gas buyers that need a constant, reliable fuel source.
Interestingly, many landfills with more than 2.75 million tons of waste-in-place are "testing out" of their need to comply with the NSPS/EG requirements because their NMOC emissions did not exceed the threshold. Thus, speculations that landfill owners and operators would be less inclined to install a system without a tax credit or requirement have not proved true. There currently are 83 LFG use projects under construction, approximately 40 at non-NSPS landfills. Of the 129 planned projects, more than 60 are at non-NSPS landfills.
2. Greenhouse Gas Reductions Industries and governments in many countries are planning emissions reduction strategies to help lessen global warming. Many U.S. companies are working with the U.S. Environmental Protection Agency (EPA) Landfill Methane Outreach Program (LMOP), Washington, D.C., to reduce greenhouse gas emissions through LFG use.
Greenhouse gas emission reductions obtained after 1994 contribute to the U.S. Climate Change Action Plan (CCAP) goals established under the United Nations Framework Convention on Climate Change. A significant portion of the goal is expected to be reached through required emissions controls at NSPS or EG regulated landfills. The remainder of the goal is expected to be achieved through LFGTE projects at unregulated landfills, with LMOP's assistance.
3. Emissions Trading Credits Once regarded as a project development perk, the environmental benefits from LFG utilization projects now may have monetary value. The Senate is considering bipartisan legislation called the Credit for Voluntary Early Action Act of 1998 (SB2617). This legislation credits organizations with activities that reduce greenhouse gas emissions, and provides incentives for additional reductions before 2008 - the deadline for the Climate Treaty's binding reductions.
While the structure of the actual "credits" is unclear, developers, landfill owners and operators are encouraged to document their emissions reductions with the Department of Energy's 1605b reporting program online at: www. eia.doe.gov/oiaf/1605/frntend.html
4. Greenhouse Gas Emissions Brokers Greenhouse gas emissions "brokerage" firms are emerging to purchase LFG-derived emissions reductions. These firms speculate that there may be greenhouse gas emissions reduction requirements in the future, so they are buying offsets in anticipation that clients may need to purchase credits. Reductions, such as those seen in the LFG industry, are desirable because they are voluntary and verifiable.
5. State Incentives and Innovative Options Recognizing that LFG use projects are relatively easy ways to meet state greenhouse gas emission reduction and clean air goals, states have been offering incentives and assistance to spur project development. They also view LFG projects as a way to promote responsible community planning and economic development.
The LMOP is compiling a listing of state incentives, assistance and grant offerings to complement its federal and foundation grant guide. This guide is available by contacting the LMOP or online at www.epa.gov/lmop
6. Utility Restructuring Many states also are allowing competition in the regional electric utility system, requiring power portfolios to contain a certain percentage of renewable energy.
LFG is a renewable energy source that a power provider can choose to offer. It is appealing because it is a readily available resource that is cost-effective, local, easy to access and marketable. As utilities compete to retain customers and meet their renewable portfolio requirement, the interest in and the need for LFG is predicted to escalate.
7. Green Pricing and Power Marketing LFG energy is a natural choice for a green power program. According to focus group testing conducted by the LMOP, people are interested in renewable power offerings and recognize that LFG could satisfy this need. Existing programs around the country provide further proof that consumers are willing to pay more for energy that comes from a green power source.
In July 1999, the EPA became the first federal facility to use green power, which is provided by the Sacramento [Calif.] Municipal Utility District (SMUD). Currently, 40 percent of the greenpower is LFG. Eventually SMUD expects 100 percent will be LFG.
8. Continued LFG Marketing While greenhouse gas emissions reductions may seem like an abstract, intangible activity, converting LFG to energy can be a tangible way for communities to reduce greenhouse gas emissions. The LMOP works to inform communities and landfill owners and operators about the benefits and opportunities for using LFG.
The EPA's LMOP was launched in 1994 as part of the CCAP to fulfill voluntary greenhouse gas reduction commitments made under the 1992 United Nations' Framework Convention on Climate Change. LMOP is a voluntary program that works with industry, states, communities, landfill owners and operators, utilities and power marketers to promote environmentally and economically beneficial LFG utilization projects in U.S. communities. WA
LFG recovery and use first started in California in the 1970s. The oil embargo, which at the time was disabling much of the country, sent a message that alternative energy options were needed to help circumvent similar events. Congress encouraged alternative resource development by establishing a tax credit under Section 29 of the Internal Revenue Service code, with an approximate value of $0.01 per kilowatt hour (kWh) of electricity.
This tax credit boosted LFG development for the next 20 years, especially as technology became more cost effective and reliable. The credits also allowed developers more creativity with different technologies. This resulted in innovations such as fuel cells, greenhouse applications, vehicle fuel, pipeline upgrades and using LFG in leachate treatment.
Interest level rose further when LFG was recognized as an energy source that could be sold for a profit. Developers and landfill owners even could finance more than one project at a landfill site to utilize all their LFG - difficult without the credit because of high initial capital costs.
The Public Utilities Regulatory Policies Act (PURPA) of 1978 requiring utilities to purchase power from qualifying facilities at the avoided cost also positively affected the LFG industry's development. When energy prices are high, this can be profitable for many developers and landfill owners. Approximately 180 of the 295 operating LFG projects - more than two-thirds - are electricity generation projects.
Unfortunately, the tax tide turned. The credit expired in 1998, and avoided energy costs in some states are lower than average, thus reducing the likelihood of projects involving utilities.
Furthermore, federal regulations were enacted in the 1990s to control the emissions of non-methane organic compounds (NMOCs) from municipal solid waste landfills.
The next major event occurred when the New Source Performance Standards and Emission Guidelines (NSPS/EG), amended the Clean Air Act (CAA) in early 1996. The NSPS/EG requires landfill owners and operators to collect and combust their gas if they have design capacities of more 2.75 million tons of waste, and emit more than 55 tons NMOCs.
Turning greenhouse gas emission reduction credits into revenue is the hot, new topic in the landfill gas industry. Before economic benefits can be realized, however, you first must determine whether you have greenhouse gas emission reductions, how to report them and how to receive credit for voluntary reporting.
Using the energy from landfill gas lessens the effects of local and global air pollution and minimizes the need to use more polluting energy forms. To encourage the use of alternative energy, the House (H.R. 2520) and the Senate (S.547) introduced the Credit for Voluntary Reductions Act to provide credit for early action to reduce greenhouse gas emissions. This legislation, if enacted, would provide future credits to organizations that have taken voluntary actions, such as using flares and energy recovery systems, to reduce greenhouse gas emissions.
Reductions, however, may have value now. While early credit legislation has not been adopted, some investors anticipate a credit trading system developing - and they are buying greenhouse gas reductions now for possible future use.
Desirable reductions are: voluntary (not required by federal or state regulation or local law); verifiable and low-cost.
To become involved in the emerging credit trading system (if you have a flare or energy recovery project):
1) Calculate your emissions reductions (i.e. the amount of methane collected and combusted by your project).
2) Record all emissions reductions from all landfill projects. In the end, a better paper trail means more verifiable reductions. In fact, early credit legislation has emphasized the need to "report" reductions.
Consequently, you may provide project information to the U.S. Environmental Protection Agency's Landfill Methane Outreach Program (LMOP) or to the U.S. Department of Energy's (DOE) 1605(b) program. Forms for the 1605(b) program are available at the DOE's website: www.eia.doe.gov/oiaf/ 1605/frntvrgg.html
3) Find an emissions reductions buyer. Consultants and brokers find opportunities for trading emissions reductions, and can help conduct an inventory to report and verify your emissions reductions. They can also help evaluate existing contracts to determine ownership rights and specify the wording in future contracts to ensure who has clear title to the emissions reductions.
Consultants and brokers also can help find a buyer and then negotiate the trade terms. For more information visit the LMOP website: www. epa.gov/lmop or call toll-free (888) STAR-YES.