LCFS Emission Credit Update

Dairies can profit through 2045 and beyond.

The Low Carbon Fuel Standard (LCFS) emission credit is the greatest incentive of several that make dairy biogas digester projects potentially very profitable. The program is complicated and covers many potential fuels, but Aaron Smith of UC Davis calculated a gross income of $1,935 per cow in February 2021 when the credit was $200 per cow. (not including the cost of building and maintaining a biogas system.) That estimate dropped to $1,834 in February 2022 when credit prices dipped slightly, although he estimated $2,827 per cow in total gross income from all sources.

However, credits have dropped to less than $100 due to an explosion of renewable diesel. More than half the diesel sold in California now comes from non-petroleum sources. This has flooded the LCFS credit market, increasing the "bank" of unused credits, and depressing prices.

The California Air Resources Board, CARB, which oversees the LCFS program, is greatly concerned with this state of affairs and has proposed several policies to encourage increased use of dairy biogas digesters, including:

• Putting curbs on plant based fuels

• Limiting dairy biomethane from dairies not connected to pipelines delivering to California. (Yes, dairies as far away as New York have been able to generate LCFS credits in California!)

• Increasing carbon reduction targets to increase credit demand

• Accelerating those targets if banked credits increase beyond a certain level

• Guaranteeing credit generation for 10 years for projects that break ground before the end of 2029

• Increasing alternative uses for dairy biomethane beyond transportation, including the production of hydrogen

• And increasing credit generation to 15 years for dairy biogas used to manufacture hydrogen.

CARB had planned to hold meetings in March and April to finalize these changes but they have opted to postpone while "Staff continues to receive substantial feedback on the proposed regulatory package and is postponing the March hearing to enable additional discussion and re-evaluation of the carbon intensity benchmarks, including the proposed step-down and auto-acceleration mechanism, as well as more consideration of the proposed sustainability guardrails, among other topics."

The desire of CARB to support the LCFS program, including dairy methane, seems clear. The delay appears to be over the proper methods and formulas. All indications are that credit prices will rise and dairies will be able to participate until 2040 and later.

See "Staff Report: Initial Statement of Reasons Date of Release: December 19, 2023 Scheduled for Consideration: March 21, 2024"

"These changes would continue to incentivize the methane reductions needed in the next decade, while aligning with the 2022 Scoping Plan Update to shift biomethane to the production of renewable hydrogen or for use in other sectors by 2045." page 30