The California Global Warming Solutions Act of 2006 designates the State Air Resources Board as the state agency responsible for monitoring and regulating sources emitting greenhouse gases. The act authorizes the state board to include the use of market-based compliance mechanisms. Existing law requires all moneys, except for fines and penalties, collected by the state board as part of a market-based compliance mechanism to be deposited in the Greenhouse Gas Reduction Fund. Existing law requires the Department of Finance, in consultation with the state board and any other relevant state agency, to develop, as specified, a 3-year investment plan for the moneys deposited in the fund.

This bill would require the 3-year investment plan to additionally identify and analyze conflicts and overlapping policies, where applicable, in current state strategies to meeting the states greenhouse gas emissions reduction goals and targets by sector.

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2023 - 2024 Regular Session

SB 709 (Allen) - Low-Carbon Fuel Standard regulations: biogas derived from livestock manure

Bill Summary:

This bill would make several changes to how Low Carbon Fuel Standard (LCFS)-eligible fuels derived from methane released by dairy manure are treated under the LCFS.

Fiscal Impact:

• The California Air Resources Board (ARB) estimates costs of about $1 million annually (Cost of Implementation Account [COIA]) to revise LCFS regulations as well as evaluate and update pathways, carbon intensity (CI) values, and limits to credit generation, among other things.
• To the extent this bill results in a lower amount of methane reductions under LCFS than otherwise would occur, unknown but potentially significant cost pressures (various funds) in order to achieve methane emission reductions elsewhere.

Background:

The LCFS is performance-based and fuel-neutral, allowing the market to determine how the CI of California’s transportation fuels will be reduced. This works by setting annual CI standards and requiring producers of fuels with CIs above the standard to purchase credits that are generated by producers of fuels with CIs below the standard. This effectively means that producers of fuels with higher CIs are subsidizing the production of lower-carbon fuels.

To be eligible to produce LCFS credits, an alternative fuel provider must have a pathway certified by ARB and independent third-party auditors. The pathway is a life cycle assessment (LCA) that determines the mass of GHG emitted per unit of energy in the fuel. One credit is equal to one ton of CO2-equivalent GHG emission reductions from a low-carbon fuel being delivered.

Notably, ARB oversight of the LCFS does not end when the pathway is approved. Alternative fuel producers must submit annual fuel pathway reports to ARB, which are then verified for accuracy. This process may entail site visits, checking facility records, reassessing the CI associated with the pathway, and adjusting credits if necessary.

Biomethane in LCFS. As of 2021 (the latest year for which data are available), biomethane represents 7% of the volume of fuel in the LCFS and generated 14% of the annual credits. This outsized crediting is a result of negative carbon intensity for many of the approved biomethane pathways. A negative CI score suggests that a fuel pathway is carbon-negative; producing the fuel removes GHGs from the atmosphere on balance. This is accounted for with dairy biomethane because the assumption is that if the methane were not captured, it would all instead be released freely into the atmosphere, where it has a much more severe warming effect than CO2. That is a contentious assumption, but it was largely decided as part of the deliberations around SB 1383 (Lara, 2016).

Methane, a potent short-lived climate pollutant. Short-lived climate pollutants (SLCPs), including methane, are powerful climate forcers that have a relatively short atmospheric lifetime, but a high global warming potential compared to other GHGs such as carbon dioxide. In 2016, the Legislature enacted SB 1383 (Lara), which recognizes the immediate climate benefits of reducing SLCPs.

In the 2017 Scoping Plan Update, the plan for achieving GHG reductions in the state, ARB described that SLCP reductions would account for about one-third of the cumulative GHG emissions reductions the state is relying on to achieve the statewide 2030 GHG emissions target established under SB 32.

The 2022 Scoping Plan Update contained no such analysis of relative contributions to achieving the state’s climate goals, but did state:

“The state is expected to achieve roughly half of the SB 1383 targeted emissions reductions by 2030 through strategies currently in place. As directed by the Legislature under SB 1383, state agencies focused on voluntary, incentive-based mechanisms to reduce SLCP emissions in the early years of implementation to overcome technical and market barriers. Under this “carrot-then-stick” strategy, incentives are replaced with requirements as the solutions become increasingly feasible and cost-effective. To meet legislated targets, more aggressive action is needed.”

SB 1383. In 2016, then-Senator Lara’s SB 1383 established methane emissions targets, including a reduction in statewide methane emissions of 40% below 2013 levels by 2030 and an equivalent methane emissions reduction target for the dairy and livestock sector.

The approach to incentives and regulations taken in SB 1383 deserves particular consideration as context for SB 709. When the bill was passed in 2016, it included a provision that any regulation imposed on methane emissions from livestock and dairy manure could not take effect until 2024. In the seven years between SB 1383 coming into force and that date, ARB was directed to work with stakeholders, evaluate research, and use incentive-based programs to work towards the bill’s methane emission reduction goals. Even after January 1, 2024, any regulations are still explicitly required to consider a number of technological and economic factors, including minimizing leakage.

The term leakage refers to a situation where, rather than face the costs associated with regulation, regulated entities simply leave the state to continue operating in a jurisdiction with fewer pollution controls. Given the narrow profit margins and competitive nature of the dairy industry, it does not take much to make dairies consider leaving for greener pastures.

Emissions from livestock. Dairy and livestock methane emissions originate from two primary sources, manure management, and enteric fermentation. Manure methane emissions can be reduced through two primary methods—installation of an anaerobic digester and alternative manure management practices.

Dairy and livestock are responsible for over half of California’s methane emissions. Improved dairy manure management offers significant, near-term potential to achieve reductions in the state’s methane emissions, and potential dairy and livestock enteric emissions reduction technologies offer longer-term potential for additional GHG emission reductions. 

Alternative Manure Management Program. Flushing manure with water into a lagoon where it is anaerobically digested is not the only fate for manure in the state. The California Department of Food and Agriculture’s Alternative Manure Management Program (AMMP) provides financial assistance for the implementation of non-digester manure management practices in California, which result in reduced GHG emissions.

Alternative manure management practices involve handling and storing manure in ways that do not include the use of an anaerobic digester and support the management of manure in a dry form. Currently, eligible practices for funding through AMMP include: pasture-based management; alternative manure treatment and storage (such as compost bedded pack barns); and solid separation or conversion from flush to scrape in conjunction with some form of drying or composting of collected manure.

AMMP receives funding through Greenhouse Gas Reduction Fund revenues, though the program has been oversubscribed and, by many accounts, underfunded to date. The 114 AMMP incentive projects funded so far are expected to reduce GHG emissions by an estimated 1.1 million metric tons of CO2e over 5 years.

According to a March 2022 analysis by ARB, dairy digester projects are roughly ten times more effective at reducing methane emissions than AMMP projects.

Persistent petitioners. The sponsors of this bill, along with a coalition of environmental justice, animal rights, and community organizations, have been engaged in a years-long discussion with ARB about the legitimacy of dairy (and swine) biogas LCFS crediting.
After years of numerous attempts to effectuate their desired changes through various avenues of direct engagement with ARB, some of the petitioners have sponsored this piece of legislation.

Proposed Law:

This bill would make several changes to how Low Carbon Fuel Standard (LCFS)-eligible fuels derived from methane released by dairy manure are treated under the LCFS. The changes include capping credit generation at the volume at the time of pathway approval, striking a guarantee for 10 years of LCFS crediting for dairy biogas projects, substantial changes to the life cycle assessments of dairy biogas, and requiring all data supporting carbon intensity determinations to be made public.

Specifically, this bill would:

1. Make findings and declarations regarding environmental justice in California, the environmental impacts of concentrated animal feeding operations (CAFOs), and the LCFS.
   
2. Strike the guarantee that any biomethane projects developed before the implementation of any methane regulations under SB 1383 should receive credits for at least 10 years.
   
3. State that ARB shall not guarantee LCFS credits for livestock manure if the gas would not otherwise generate credits under LCFS.
   
4. Direct ARB to, in implementing the LCFS regulations:
   
   1. Include in the carbon intensity (CI) calculation for fuel from livestock manure all GHG emissions generated from the production of the fuel and all emissions of GHGs generated from the production of the feedstock, including but not limited to enteric emissions; emissions from production and storage of feed, transport of feedstock, or fuel; emissions resulting from digestate handling, composting, or treatment; and emissions resulting from land application of manure or digestate;
   2. Update existing pathways to reflect the above change in CI calculation; and
   3. Limit the generation of credits for fuel pathway holders for biogas derived from livestock manure to the volume of feedstock at each associated dairy or livestock operation on January 1, 2017, or on the date, the pathway was certified, whichever is less.
      
5. Compel fuel pathways holders to divulge all information and calculations used to determine carbon intensity, including, but not limited to, herd size, the volume of feedstock produced or used, and the volume of biogas produced, and requires ARB to make this information available online and only accept pathways where the holder provides it.

Related Legislation:

SB 1383 (Lara, Chapter 395, Statutes of 2016) required ARB to approve and implement the comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030 and contained various requirements for emissions reductions from methane from the waste and agricultural sectors.

Staff Comments:

According to ARB, SB 709 may significantly impact the State’s ability to achieve the emissions reduction target for the dairy and livestock sector of 40 percent below 2013 levels by 2030 (2030 target)—or about ~9 million metric tons on a carbon dioxide equivalent basis (MMTCO2e) —that the Legislature established in 2016 (SB 1383 (Lara, Chapter 395, Statutes of 2016)). ARB’s 2022 analysis of progress toward achieving the 2030 target noted that the sector is expected to achieve ~4.6 MMTCO2e through 2030 from a combination of animal population decrease and implementation of manure methane emissions reduction projects (including anaerobic digesters and alternative manure management projects). That analysis also evaluated potential strategies to achieve the remaining 4.4 MMTCO2e necessary to achieve the 2030 target, including additional manure management projects and enteric methane mitigation strategies.

ARB notes that without LCFS revenue to incentivize financing of digester projects, the State may need to fund methane mitigation projects including enteric and additional digester projects to ensure the targets are achieved. ARB estimates the capital expenditures or other up-front costs for these projects could range from $3.2 to $4 billion, not including ongoing operational costs.

-- END --

SENATE COMMITTEE ON ENVIRONMENTAL QUALITY

Senator Allen, Chair

2023 - 2024 Regular

Bill No: SB 709

SUBJECT: Greenhouse Gas Reduction Fund: investment plan

DIGEST: This bill makes several changes to how Low Carbon Fuel Standard (LCFS)-eligible fuels derived from methane released by dairy manure are treated under the LCFS. The changes include capping credit generation at the volume at the time of pathway approval, striking a guarantee for 10 years of LCFS crediting for dairy biogas projects, substantial changes to the life cycle assessments of dairy biogas, and requiring all data supporting carbon intensity determinations to be made public.

ANALYSIS:

Existing law:

1. Requires, under SB 1383 (Lara, Chapter 395, Statutes of 2016), the California Air Resources Board (CARB) to complete, approve, and implement a comprehensive strategy to reduce emissions of short-lived climate pollutants in the state to achieve, among other things, a reduction in the statewide emissions of methane by 40%. SB 1383 establishes specific procedures to regulate dairy sources of methane. (Health and Safety Code (HSC) §§39730, 39730.5)
   
2. Authorizes, under AB 32 (Nunez, Chapter 488, Statutes of 2006), CARB to among other things, publish a list of discrete early action greenhouse gas (GHG) emission reduction measures that could be implemented before the adoption of the state’s cap-and-trade program. (HSC § 38500 et seq.)

This bill:

1. Makes findings and declarations regarding environmental justice in California, the environmental impacts of concentrated animal feeding operations (CAFOs), and the LCFS.
   
2. Strikes the guarantee that any biomethane projects developed before the implementation of any methane regulations under SB 1383 should receive credits for at least 10 years.
   
3. States that CARB shall not guarantee LCFS credits for livestock manure if the gas would not otherwise generate credits under LCFS.
   
4. Directs CARB to, in implementing the LCFS regulations:
   
   1. Include in the carbon intensity (CI) calculation for fuel from livestock manure all GHG emissions generated from the production of the fuel and all emissions of GHGs generated from the production of the feedstock, including but not limited to enteric emissions; emissions from production and storage of feed, transport of feedstock, or fuel; emissions resulting from digestate handling, composting, or treatment; and emissions resulting from land application of manure or digestate;
   2. Update existing pathways to reflect the above change in CI calculation; and
   3. Limit the generation of credits for fuel pathway holders for biogas derived from livestock manure to the volume of feedstock at each associated dairy or livestock operation on January 1, 2017, or on the date, the pathway was certified, whichever is less.
      
5. Compels fuel pathways holders to divulge all information and calculations used to determine carbon intensity, including, but not limited to, herd size, the volume of feedstock produced or used, and the volume of biogas produced, and requires CARB to make this information available online and only accept pathways where the holder provides it.
   

Background

1. What is the Low Carbon Fuel Standard? The original LCFS set a goal of reducing the CI of fuels in the state to 10% below 2010 levels by 2020. CI is determined by the lifecycle of GHG emissions associated with using gasoline and diesel fuel, as well as their alternatives. Since the original LCFS was adopted, CARB set a new goal to reduce the CI of fuels in the state to 20% below 2010 levels by 2030.
   
   The LCFS is performance-based and fuel-neutral, allowing the market to determine how the CI of California’s transportation fuels will be reduced. This works by setting annual CI standards and requiring producers of fuels with CIs above the standard to purchase credits that are generated by producers of fuels with CIs below the standard. This effectively means that producers of fuels with higher CIs are subsidizing the production of lower-carbon fuels.
   
   To be eligible to produce LCFS credits, an alternative fuel provider must have a pathway certified by CARB and independent third-party auditors. The pathway is a life cycle assessment (LCA) that determines the mass of GHG emitted per unit of energy in the fuel. One credit is equal to one ton of CO2-equivalent GHG emission reductions from a low-carbon fuel being delivered.
   
   Notably, CARB oversight of the LCFS does not end when the pathway is approved. Alternative fuel producers must submit annual fuel pathway reports to CARB, which are then verified for accuracy. This process may entail site visits, checking facility records, reassessing the CI associated with the pathway, and adjusting credits if necessary.
   
2. A brief history of the Low Carbon Fuel Standard. AB 32 (Nunez, 2006) is best known today as the bill that set the state’s 2020 GHG emission reduction goal (i.e. achieving 1990 levels by 2020) and authorized CARB to enact a “market-based compliance mechanism” (i.e. cap-and-trade). Importantly, due to lingering concerns about cap-and-trade being ineffective at rapid, localized emission and pollution reductions, AB 32 also directed CARB to devise so-called “early action GHG emission reduction measures” that could be implemented before the state’s cap-and-trade program was established.
   
   Although AB 32 did not explicitly contemplate a LCFS, the bill represents the only statutory authority or direction that has been provided for the program.
   
   AB 32 was signed by Governor Schwarzenegger on September 27, 2006, and in June of 2007, CARB adopted the first three (of a total of nine) discrete early action measures pursuant to AB 32, including the LCFS. Since its adoption in 2009, the LCFS has been amended (2011), readopted (2015), and amended again (2018), all through actions initiated and taken by CARB.
   
3. Legislating LCFS. As noted above, the “early action measures” called for in AB 32 were the first and last statutory authority or direction provided by the Legislature regarding the LCFS. Between 2007 and 2022, 77 bills have referenced the “Low Carbon Fuel Standard,” and 22 of those have been signed into law. Of those 22 chaptered bills, none makes any substantial change or—as SB 709 does—provide explicit direction to CARB to change the LCFS regulations. SB 1383 (Lara, 2016) did, however, direct CARB to ensure that dairy/swine manure and landfill biomethane receive credit (either for LCFS and/or cap-and-trade) for at least 10 years.
   
4. Biomethane in LCFS. As of 2021 (the latest year for which data are available), biomethane represents 7% of the volume of fuel in the LCFS and generated 14% of the annual credits. This outsized crediting is a result of negative carbon intensity for many of the approved biomethane pathways. A negative CI score suggests that a fuel pathway is carbon-negative; producing the fuel removes GHGs from the atmosphere on balance. This is accounted for with dairy biomethane because the assumption is that if the methane were not captured, it would all instead be released freely into the atmosphere, where it has a much more severe warming effect than CO2. That is a contentious assumption, but it was largely decided as part of the deliberations around SB 1383 (Lara, 2016).
   
5. Methane, a potent short-lived climate pollutant. Short-lived climate pollutants (SLCPs), including methane, are powerful climate forcers that have a relatively short atmospheric lifetime, but a high global warming potential compared to other GHGs such as carbon dioxide. In 2016, the Legislature enacted SB 1383 (Lara), which recognizes the immediate climate benefits of reducing SLCPs.
   
   In the 2017 Scoping Plan Update, the plan for achieving GHG reductions in the state, CARB described that SLCP reductions would account for about one-third of the cumulative GHG emissions reductions the state is relying on to achieve the statewide 2030 GHG emissions target established under SB 32.
   
   The 2022 Scoping Plan Update contained no such analysis of relative contributions to achieving the state’s climate goals, but did state:
   

“The state is expected to achieve roughly half of the SB 1383 targeted emissions reductions by 2030 through strategies currently in place. As directed by the Legislature under SB 1383, state agencies focused on voluntary, incentive-based mechanisms to reduce SLCP emissions in the early years of implementation to overcome technical and market barriers. Under this “carrot-then-stick” strategy, incentives are replaced with requirements as the solutions become increasingly feasible and cost-effective. To meet legislated targets, more aggressive action is needed.”

1. SB 1383. In 2016, then-Senator Lara’s SB 1383 established methane emissions targets, including a reduction in statewide methane emissions of 40% below 2013 levels by 2030 and an equivalent methane emissions reduction target for the dairy and livestock sector.
   
   The approach to incentives and regulations taken in SB 1383 deserves particular consideration as context for SB 709. When the bill was passed in 2016, it included a provision that any regulation imposed on methane emissions from livestock and dairy manure could not take effect until 2024. In the seven years between SB 1383 coming into force and that date, CARB was directed to work with stakeholders, evaluate research, and use incentive-based programs to work towards the bill’s methane emission reduction goals. Even after January 1, 2024, any regulations are still explicitly required to consider a number of technological and economic factors, including minimizing leakage.
   
   The term leakage refers to a situation where, rather than face the costs associated with regulation, regulated entities simply leave the state to continue operating in a jurisdiction with fewer pollution controls. Given the narrow profit margins and competitive nature of the dairy industry, it does not take much to make dairies consider leaving for greener pastures.
   
2. Emissions from livestock. Dairy and livestock methane emissions originate from two primary sources, manure management, and enteric fermentation. Manure methane emissions can be reduced through two primary methods—installation of an anaerobic digester and alternative manure management practices.
   
   Dairy and livestock are responsible for over half of California’s methane emissions. Improved dairy manure management offers significant, near-term potential to achieve reductions in the state’s methane emissions, and potential dairy and livestock enteric emissions reduction technologies offer longer-term potential for additional GHG emission reductions. 
   
3. Alternative Manure Management Program. Flushing manure with water into a lagoon where it is anaerobically digested is not the only fate for manure in the state. The California Department of Food and Agriculture’s Alternative Manure Management Program (AMMP) provides financial assistance for the implementation of non-digester manure management practices in California, which result in reduced GHG emissions.
   
   Alternative manure management practices involve handling and storing manure in ways that do not include the use of an anaerobic digester and support the management of manure in a dry form. Currently, eligible practices for funding through AMMP include: pasture-based management; alternative manure treatment and storage (such as compost bedded pack barns); and solid separation or conversion from flush to scrape in conjunction with some form of drying or composting of collected manure.
   
   AMMP receives funding through Greenhouse Gas Reduction Fund revenues, though the program has been oversubscribed and, by many accounts, underfunded to date. The 114 AMMP incentive projects funded so far are expected to reduce GHG emissions by an estimated 1.1 million metric tons of CO2e over 5 years.
   
   According to a March 2022 analysis by CARB, dairy digester projects are roughly ten times more effective at reducing methane emissions than AMMP projects.
   
4. Persistent petitioners. The sponsors of this bill, along with a coalition of environmental justice, animal rights, and community organizations, have been engaged in a years-long discussion with CARB about the legitimacy of dairy (and swine) biogas LCFS crediting. SB 709 is the first instance of that debate substantially being brought before this committee through legislation. To provide some brief, highly-abridged context, the following timeline is intended to capture some of the notable events from this ongoing discussion and series of petitions submitted to CARB.
   
   1. October 2021: The petitioners called on CARB to exclude polluting factory farm-derived methane from the LCFS or amend the credit system to better account for the actual climate impact of using factory farm-generated methane as a transportation fuel.
      
   2. January 26, 2022: CARB rejected amending the LCFS regulations pursuant to the petition and rejected providing interim relief by pausing credit generation at dairies, but it committed to continuing to engage on specific concerns the petitioners raised through the Scoping Plan Update process.
      
   3. January 27, 2022: At a Board hearing, Chair Randolph directed the Executive Officer to set a public workshop specifically on the issues raised in the petition to bring findings from that workshop back to the Board. That full-day workshop was held on March 29^th, 2022.
      
   4. March 2022: The petitioners challenged CARB’s rejection with another petition. This second petition claimed that CARB neither disputed nor responded to a number of the petitioners’ specific claims regarding dairy biomethane under the LCFS and asked for reconsideration.
      
   5. April 2022: CARB rejected the petition for reconsideration, stating in part that the “…petitioners have not presented information that changes the response as reflected in our January 26, 2022 letter to the petitioners and that would warrant shortcutting the public process for the Scoping Plan and any subsequent LCFS rulemaking. All of the reasons for the initial denial of the petition for rulemaking still apply.”
      

After years of numerous attempts to effectuate their desired changes through various avenues of direct engagement with CARB, some of the petitioners have sponsored this piece of legislation.

Comments

1. Purpose of Bill. According to the author, “According to the recent Scoping Plan issued by the Air Resources Board, in order for California to meet its climate targets, the dairy and livestock sector, which is responsible for more than half of the state’s methane emissions, must achieve reductions of approximately 4.4 MMTCO2e by 2030. While there are several strategies that could be employed to reduce emissions, to date, the dairy industry has relied heavily on state subsidies to capture a portion of the methane pollution from these facilities and sell the gas for lucrative carbon credits under the state’s Low Carbon Fuels Standard (LCFS) program. This program has come under increased scrutiny as local communities in the San Joaquin Valley experience a massive consolidation of factory farms as dairies strive to take advantage of this program. To ensure we are meeting our climate goals and avoid exacerbating inequities resulting from the commensurate water and air pollution associated with mega-dairies, it is time we take a careful look at the program to ensure we are not perversely encouraging the production of greater amounts of pollution for financial gain and that we are not unwittingly disincentivizing better, cleaner alternatives. According to the Air Resources Board, “Despite the considerable methane emissions mitigation potential of enteric strategies like feed additives, little progress has been made, as few products with proven mitigation potential have become commercially available, and unlike manure management strategies [including LCFS credits], there is a lack of financial incentives for their adoption.”
   
   “SB 709 takes a three-tiered approach to ensure this program is meeting its intended goals. First, the bill removes the incentive for dairy operators to expand their facilities, creating more air, water, and methane pollution, simply to take advantage of the LCFS credits. Second, the bill asks the Air Resources Board to conduct a more comprehensive analysis of the full emissions associated with these operations to ensure reductions credited to the program are real. Finally, the bill removes a statutory guarantee that allows dairy facilities participating in the program to receive LCFS credits for ten years regardless of whether or not it is in the state’s best interested and truly reduces pollution. Considering the outsized greenhouse gas pollution generated by the dairy and livestock sector, California’s climate goals may slip out of reach if reductions credited to these facilities are not real and scientifically sound.”
   
2. Sacrifice zones and environmental justice. Dairy farms make bad neighbors. According to an article published in April 2021 in Discover Magazine:
   

“On days when the air pollution is especially bad, a mother in Tulare County, California – where cows outnumber people two to one – forbids her children from going outside. The woman, who declined to be named for fear of reprisal from her neighbors in the dairy industry, said that nearly everyone in her family, including herself, suffers from a combination of severe allergies and asthma, overlapping illnesses that cause sleepless nights, sick days and weekly doctor’s appointments.

“She runs an air filtration system in their home to protect her children from the toxic fumes wafting off freeways, oil wells, and cow feedlots… Worried about water contamination as well, she also drives 20 miles to buy four gallons of clean water each week… she doesn’t use it for cooking and would never allow anyone in her family to drink it. Dealing with pollution is a daily struggle.”

Regardless of the validity of the GHG accounting surrounding dairy biogas, it should be remembered that methane and milk are not the only things leaving dairy farms, and the admittedly abstract notion of “greater global atmospheric warming,” is not the only victim.

1. Follow the money. The issues raised in this bill are a major point of ongoing contention between environmental justice groups and those representing the dairy and renewable natural gas (RNG) industries. The proponents of this bill contend that the LCFS incentives for dairy-derived biogas are so generous that dairy farms are encouraged to expand and/or produce more manure to generate more LCFS credits. The opponents of this bill counter that LCFS credits are not incentivizing expanded manure production, but rather helping subsidize the cost of complying with SB 1383. How do the costs and incentives stack up?
   
   According to UC Davis Professor of Agricultural Economics Aaron Smith in a February 2021 blog post, the annualized cost to a farm of installing and operating a dairy digester is much more than the value of the biomethane produced but still less than the value of the LCFS credits generated by it. In other words, producing biomethane is only profitable because of LCFS credits, but the value of doing so greatly exceeds the costs associated with capturing the methane. Ultimately, milk is still the primary driver of dairy profits.
   
   Specifically, by Dr. Smith’s calculations for a 2,000-cattle dairy farm in February of 2021, per cow:
   1. It would cost a farm $294 to run and maintain a digester;
   2. The value of the biomethane itself would be $68;
   3. The value of the LCFS credits generated would be $1,935; and
   4. The value of the milk produced by the cow would be $3,800.
      

It should be noted that at the time of the blog post (February of 2021), LCFS credits have plunged in value from $200 per credit to roughly $70. Although CARB is currently in pre-regulatory discussions about changes to LCFS that would be expected to increase credit prices once more, the economics are currently less favorable for dairy biomethane production.

Dr. Smith of UC Davis published a recent follow-up post to his previous work in this space, writing on April 7^th,

“In colonial India, the British government wanted to reduce the number of cobras in Delhi, so it offered a bounty for dead cobras. Profit-seeking locals responded by breeding cobras to receive the bounty. This phenomenon is known as the “cobra effect”.

There is a risk of the same thing happening when we pay people to capture methane from dairy cow manure. So far, I see no evidence of the cobra effect on California dairy farms, but data from the 2022 agricultural census will shed more light when it is released next year.” [emphasis added]

1. Big dairies, big LCFS credit revenues. A more robust analysis was commissioned by the Union of Concerned Scientists and carried out by researchers at Cal Poly Humboldt. This report, in part, considered the profitability of LCFS credits versus milk for a range of dairy sizes. Though the two reports differ in their modeling assumptions, the profitability numbers were roughly similar for a 2,000-cow dairy to those determined above. Notably, the profitability of LCFS credit generation correlated strongly with farm size. By their assessment, dairies with below 150 cattle and average CI pathways were unlikely to be able to turn any profit at all on a digester by selling LCFS credits. At the other end of the spectrum, economies of scale lead to large—10,000-plus cattle—dairies making the most profit from LCFS credits, though still not more than they earn from milk sales.
   
   The consolidation of the state’s dairy herds into fewer, larger operations is a well-documented phenomenon. Does LCFS credit production play a role in causing this trend? Or is the profitability of LCFS credits for large dairies just another unintended consequence of profit-driven dairy consolidation in a competitive commodity market?
   
2. Dairy biomethane: perverse incentive or super pollutant solution? A perverse incentive is defined as an incentive that has an unintended and undesirable result that is contrary to the intentions of its designers. One pertinent example is the credits generated by the destruction of the refrigerant HFC-23 in the European Union’s Emission Trading System. Briefly, because of the immense global warming potential of HFC-23, a large number of credits could be generated by destroying it. So much so, that several facilities began intentionally producing more HFC-23 just to destroy it and earn revenue off the credits. Ultimately, the EU banned HFC-23 from producing credits to address this issue.
   
   The supporters of SB 709 claim that dairy biomethane under the LCFS is another example of a perverse incentive, and that dairies have a substantial economic incentive to maximize manure production to earn more from LCFS credits.
   
   On the other hand, the groups opposed to this bill deny that LCFS credits have served as a perverse incentive, and rather that they enable dairies to economically dispatch of highly-warming super pollutant that would otherwise be uncontrollably released. California is the top dairy-producing state, and in the service of producing that dairy a substantial volume of manure is produced, with or without LCFS credit eligibility.
   
3. What’s the counterfactual? Ultimately, these arguments all hinge on assumptions about the counterfactual; what would happen if this program were not in place?
   
   The presence of huge lagoons full of manure anaerobically degrading to produce methane is not an incontrovertible necessity. Rather, that was a decision made to maximize profits and the usefulness of post-digestion materials as compared to less-methane-producing alternative manure management practices. Providing profit incentives to entrench that status quo is not necessarily the most desirable policy decision. Even merely burning the methane at the farm (to produce CO2 through combustion) would reduce the GHG impacts of the waste, albeit with an increase in locally harmful air pollutants.
   
   However, those practices have already been decided for the state’s thousand-odd dairies, and the committee must contemplate what would happen if the changes in SB 709 were made in our present reality. Would dairies simply stop capturing the methane from their manure lagoons and exacerbate GHG emissions? Is providing a profit incentive that has, at times, been more than six-fold greater than the costs of operation the only way to keep dairies doing the right thing with their manure lagoons? Indeed, is it even the desire of the state to prioritize manure lagoons, given the lower methane emissions (albeit lower efficiency) of alternative strategies? There are no objectively correct answers to these questions, which is part of why this bill is only one piece of a years-long discussion and debate between stakeholders.
   
4. Putting it all together: the three pieces. According to the author, SB 709 takes a three-tiered approach to ensure the LCFS dairy biomethane program is meeting its intended goals. Taking those one at a time, it may be helpful to the committee to further discuss the legislative intent, statutory effects, and opposition concerns about each one.
   
   1. Removing the incentive for dairy operators to expand their facilities and create more pollution simply to take advantage of LCFS credits.
      
      1. Author’s intent: Claims have been made that the revenues from selling LCFS credits are so lucrative that they may entice dairies to pollute more, maximizing their methane emissions and thus LCFS credit generation potential. The sponsors have provided evidence of dairy expansions happening concurrently with pursuing LCFS crediting, but unsurprisingly there is no “smoking gun” evidence of direct causation. Regardless, LCFS should not provide a perverse incentive for dairies to expand their operations.
         
      2. Statutory effects: Sec. 3, (a)(3) requires CARB to, in implementing the LCFS regulations, limit the generation of credits for fuel pathway holders for biogas derived from livestock manure to the volume of feedstock at the site as of January 1, 2017, or whenever their LCFS pathway was certified.
         
         It seems sensible that the total number of credits generated by a facility in a year could be capped through CARB’s implementing regulations. Hypothetically, if a dairy had a pathway approved that let them generate 1,000 credits per year, this provision would prevent them from generating more than 1,000 credits per year, even if they increased the number of cattle or volume of manure.
         
      3. Opposition concerns: This is unnecessary. There has been no evidence provided of a dairy actually expanding operations or maximizing pollution to gain more LCFS credits. Moreover, LCFS credit profits are typically collected primarily by the owner/operator of the methane capture equipment, not the farmer themselves. This means adding cattle would assuredly increase farmers’ operating costs without an assured increase in their revenue.
         
   2. Directing CARB to conduct a more comprehensive analysis of the full emissions associated with these operations.
      
      1. Author’s intent: Producing manure just to capture the methane to earn LCFS credits could provide a perverse incentive, leading dairies to pollute more to earn more. A fuel pathway that is so inextricably linked to significant air and water pollution should not appear on paper to be the most carbon-negative fuel available in the state.
         
      2. Statutory effects: The direction provided in Sec. 3 (a)(1) means CARB would need to significantly alter the life cycle assessments (LCAs) that underpin CI calculations for dairy biomethane pathways under the LCFS. Specifically, the fuel derived from manure would be “responsible” so to speak for the GHGs associated with the animals’ enteric emissions, the storage and production of feed, the transport of manure and fuel, and the post-digestion handling of manure. Taken together, these would substantially increase the calculated CI of dairy biomethane pathways.
         
      3. Opposition concerns: Even absent LCFS eligibility, the opposition contends that the same volume of manure and other emissions would remain. The listed GHG sources are more appropriately attributed to milk production, and shifting the accounting of their emissions to manure could falsely suggest milk is a near-zero-associated emission product. As a point of comparison, landfill biogas and alternative fuels derived from used cooking oil are not required to account for the provenance of their waste steam feedstocks in their LCAs.
         
   3. Removing the statutory guarantee for dairy facilities in LCFS to receive credits for ten years.
      
      1. Author’s intent: Consistent with SB 1383, any dairy or livestock biogas (or landfill gas) projects that have submitted an LCFS fuel pathway application before any new methane requirements take effect would still be able to generate credits using the original baseline conditions for the remainder of each project’s 10-year crediting period.
         
         It is not clear at this time how this guarantee interacts with the annual review process, but the bill’s supporters contend that these facilities would continue to generate their generous level of LCFS credits, even if the regulatory situation surrounding methane regulation in the state changes.
         
      2. Statutory effects: Under section 95488.9(f) of the LCFS regulations and as required by SB 1383, for pathways that avoid methane emissions (either from dairy and swine manure or landfills), the projects’ GHG reductions will continue to be quantified throughout a 10-year crediting period against the regulatory conditions that existed at the time of project listing, even if any law, regulation, or legally binding mandate requiring such methane emission reductions comes into effect.
         
         SB 709 strikes that direction created by SB 1383, and it would thus allow (but not require) credits to be denied within 10 years of certification if the law (or regulation) changed the baseline for comparison accordingly. This ends the special treatment guaranteed by SB 1383 and is in line with how other pathways (besides landfill biogas) are calculated if their regulatory circumstances change.
         
      3. Opposition concerns: The 10-year credit guarantee is essential to attracting investment in the technology. Absent that guarantee, they contend, investors would instead choose less-risky investments, manure methane capture technology would languish, the dairy industry would be unable to cost-effectively comply with the SB 1383 methane emission reduction targets, and much of the industry would simply vacate the state.
         
5. Committee suggestions. This is a highly complex, politically fraught issue. In the interest of protecting some of the state’s most marginalized and pollution-burdened communities, SB 709 proposes major changes to an extremely technical program that directly impacts one of the state’s most established industries.
   
   And again, many of the questions raised by the stakeholders and in this analysis do not have objectively true, black-or-white answers, and they deserve careful deliberation. Given the totality of evidence available to the committee, the author may wish to consider the following amendments and suggestions for future direction:
   
   1. Scale back LCA changes. Conducting a life cycle assessment is an extremely technical exercise and one that relies on a number of assumptions. In approving dairy biomethane pathways to date, CARB has made the assumption that a dairy’s emissions are entirely the result of their chief product: milk. As written, SB 709 directs CARB to instead make the assumption that a dairy’s emissions are entirely the result of manure. It is the opinion of committee staff that both of these extremes may be imperfect in different, undesirable ways.
      
      The author may wish to consider directing CARB to determine a different baseline to compare dairy emissions against for dairy biomethane pathways. This alternate baseline could be based on the emissions associated with alternative manure management best practices, historical dairy emissions from before pursuing an LCFS pathway, or other such metrics.
      
   2. Leave 10-year guarantee alone, for now. Striking the 10-year guarantee language now may be putting the cart before the horse. Under the constraints set by SB 1383, CARB will be able to adopt regulations reducing methane emissions from manure management operations no sooner than January 1, 2024. If they do, then the 10-year credit guarantee provision becomes extremely relevant.
      
      Imagine a scenario where CARB has adopted a manure methane regulation, and two identical dairy operations have identical LCFS pathways, but one had its pathway approved before the regulation and the other one after. By virtue of the 10-year guarantee provision, the former would be grandfathered into producing ample credits for ten more years, while the latter (with its pathway approved in full consideration of the best understanding of the current scientific and regulatory environment) would produce fewer (if any) credits. Does the need for investor certainty outweigh the obvious incongruence of a dairy generating credits it would no longer qualify for under its present reality?
      
      That being said, this all presupposes a future methane regulation. Until such time as that regulation is adopted, doing away with the 10-year credit guarantee may have a chilling effect on investment without making a real change to how credits are generated.
      
      The author may wish to consider, rather than removing the 10-year guarantee now, directing CARB to remove the guarantee (or phase it out at an accelerated rate) only upon adopting a dairy and livestock manure methane regulation.
      
      

Related/Prior Legislation

SB 1383 (Lara, Chapter 395, Statutes of 2016) required CARB to approve and implement the comprehensive short-lived climate pollutant strategy to achieve, from 2013 levels, a 40% reduction in methane, a 40% reduction in hydrofluorocarbon gases, and a 50% reduction in anthropogenic black carbon, by 2030 and contained various requirements for emissions reductions from methane from the waste and agricultural sectors.

SOURCE:

Leadership Counsel for Justice and Accountability

SUPPORT:

350 Bay Area Action

350 Humboldt

350 Sacramento

350 Ventura County Climate Hub

Animal Legal Defense Fund

Arkansas Ozarks Waterkeeper

Asian Pacific Environmental Network (APEN)

Association of Irritated Residents

Buffalo River Watershed Alliance

California Coastkeeper Alliance

California Environmental Justice Alliance

California Environmental Voters

California Environmental Voters (formerly Clcv)

Ceja Action

Center for Biological Diversity

Center for Food Safety; the

Center on Race, Poverty & the Environment

Central California Asthma Collaborative

Central California Environmental Justice Network

Central Coast Alliance United for A Sustainable Economy

Central Valley Air Quality Coalition (CVAQ)

Clean Earth 4 Kids

Clean Water Action

Climate 911

Climate Action California

Coalition for Clean Air

Communities for A Better Environment

Community Water Center

Defensores Del Valle Central Para El Agua Y Aire Limpio

Dolores Huerta Foundation

Earthjustice

Elders Climate Action, Norcal and Socal Chapters

Fierce Courage Consulting

Food & Water Watch

Fresno Building Healthy Communities

Friends Committee on Legislation of California

Friends of The Earth

Glendale Environmental Coalition

Greenlatinos

Iranian American Democrats of California

Leadership Counsel for Justice and Accountability

Pacoima Beautiful

People's Collective for Environmental Justice

Physicians for Social Responsibility - Los Angeles

Physicians for Social Responsibility - San Francisco Bay Area Chapter

Pink Panthers

Public Justice Food Project

Puente Latino Association

San Francisco Bay Area Physicians for Social Responsibility

Santa Cruz Climate Action Network

Sierra Club California

Socially Responsible Agriculture Project

The Climate Center

Transformation Wealth Management

Valley Improvement Projects (VIP)

Western Center on Law & Poverty

OPPOSITION:

4cg Construction, INC

4creeks, INC.

5energies Resources, LLC

Ag Methane Advisors

Agilitech Group

Agri-waste Technology, INC.

Agricultural Council of California

Agricultural Energy Consumers Association

American Biogas Council

Amp Americas

Anacapa Engineering and Design, INC.

Anew Climate LLC

Arbor

Bioenergy Association of California

Bion Environmental Technologies, INC.

Calgren Renewable Fuels, LLC

California Bioenergy LLC

California Cotton Ginners & Growers Association

California Dairies, INC.

California Dairy Campaign

California Farm Bureau Federation

California Renewable Transportation Alliance (formerly CA Natural Gas Vehicle Coalition)

Clean Energy

Cng Direct LLC

Coalition for Renewable Natural Gas

Dairy Farmers of America

Dairy Institute of California

Dvo, INC.

Efiusa, LLC

Electrochaea Corporation

Figueroa Concrete Partners

Ghi Energy, LLC

Hansen Industries INC

Jr Dairy

Land O'lakes, INC.

Maas Energy Works

Milk Producers Council

Newtrient LLC

Nlc Energy

Northeast-western Energy Systems

Northern Biogas, LLC

Oberon Fuels

Raven SR

San Joaquin Renewables, LLC

Stellar J

Still Waters Ranch

Streamline Irrigation, INC.

Tss Consultants

U.s. Venture, INC.

USA Water and Power

Western Agricultural Processors Association

Approximately 500 Individuals

ARGUMENTS IN SUPPORT:

According to a large coalition of environmental and environmental justice groups in support, “The undersigned organizations believe that to achieve its ambitious and necessary climate and environmental justice goals, California must operate with transparency, consider all emissions and emissions reductions associated with its climate change strategies, address and prevent disproportionate pollution burdens associated with those strategies, and ensure that climate programs do not exacerbate or perpetuate existing environmental harms. Unfortunately, the state’s Low Carbon Fuel Standard (LCFS) falls short in all of these areas.

“The California Air Resources Board (CARB) operates the LCFS, one of California’s flagship climate programs. The purpose of this program is to reduce the carbon intensity (greenhouse gas emissions associated with the production and use) of California’s transportation fuels. Achieving this goal, however, requires a complete and accurate analysis of lifecycle greenhouse gas emissions from the production of those fuels. … Ensuring that all greenhouse gas emissions are included in the carbon intensity of fuels and ensuring that only allowing fuels that are low or zero carbon to generated credits is critical to the integrity and success of the program.”

ARGUMENTS IN OPPOSITION:

According to a large coalition of agricultural and bioenergy organizations in opposition: “This measure will eliminate the dairy sector’s ability to continue reducing methane emissions as well as undermine the state’s short-lived climate pollutant reduction strategy.

“SB 709 would now undermine the entire SB 1383 strategy to achieve the desired reductions. SB 709 will dramatically reduce important low-carbon fuel standard (LCFS) incentives that enable methane capture and beneficial use projects. Projects such as dairy digesters will not be able to be financed and implemented under SB 709. The development of dairy digesters is widely recognized by the California Air Resources Board and the Legislative Analyst Office as the most productive and cost-effective climate investment currently being implemented. Without these critical incentives, new projects will not be developed, and existing projects will not remain economical and will cease operating. As a result, not only will additional progress be hindered, but more than 2.2 million tons of GHG (methane) will be added to the atmosphere each year.”

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