Web Articles

Exploring the Opportunities and Challenges Waste Managers Face in the Emerging Carbon Market Arena

Over the past 30 years, the United States has moved towards integrated municipal solid waste management strategies involving recycling, composting, waste-to-energy combustion, and landfills with gas collection and energy recovery (among others) that have been championed for reducing greenhouse gas (GHG) emissions. However, budgetary constraints often delay or prevent progressive waste management strategies like those mentioned above from being implemented and because most communities operate within set budgets and often do not have funds for new programs, waste management strategies like these, with the exception of perhaps recycling, are not considered an economically feasible option. As one potential solution to budgetary constraints, carbon offsets associated with waste diversion and other municipal solid waste management strategies can be sold in emerging carbon markets to help finance solid waste diversion programs that were previously not feasible for communities to implement. These carbon-offset markets offer waste managers a potential funding stream that can be realized now—well ahead of any mandatory federal GHG regulations.

In this emerging marketplace, waste managers face several key considerations when deciding whether or not to move forward with a GHG reduction project. For example, each project must be viewed on its own merits and a determination must be made as to what protocol or regime it may qualify under. As will be discussed later in this article, municipal solid waste managers need to understand that not all projects will meet the requirements of existing regimes or protocols. Additionally, an analysis of each project’s potential, including financial benefits, needs to be identified. Waste managers should make sure they understand all options and consider the price, timing, and resource availability before making a commitment.  

Some areas of the market are more defined and developed, while others are not yet at a point where credits can be claimed. However, even in cases where the market or protocols are not yet fully developed, there can be benefits to waste managers who show leadership and help develop standards in these emerging markets. This article explores the opportunities and challenges waste managers face, particularly with regards to landfill methane and waste-to-energy projects, in the emerging carbon market arena.

Offsets and the Carbon Market
Carbon offsets are generally defined as financial instruments resulting from an activity that reduces, sequesters, or avoids 1 metric ton of CO₂-equivalent (CO₂-e) GHG emissions. Offsets provide a means for private or public entities to reduce their carbon emissions indirectly.

Currently, only a voluntary carbon offset market exists in the US, although it is anticipated that there will be mandatory caps on emission sources in the future (most likely within three to five years). President Obama, in his State of the Union address on February 24, challenged Congress to send him a bill to implement new regulation.  

Until such time, there is a burgeoning and fast-growing voluntary market. At the broadest level, the voluntary carbon offset market can be divided into two main segments: the Chicago Climate Exchange (CCX)—a voluntary, but legally binding, cap-and-trade system—and the broader, nonbinding, over-the-counter (OTC) offset market. OTC transactions may occur through a brokered deal or through direct purchases, otherwise known as bilateral transactions, in which the end buyer contracts directly with the project proponent.  

Landfill Methane Projects
Methane, which has a global warming potential 21 times that of carbon, results from a number of anthropogenic activities (e.g., fossil fuel production and waste management) as well as natural sources (e.g., wetlands) and can, through a variety of processes, be avoided, captured, and/or utilized. Landfills account for approximately 23% of all methane emissions in the United States (http://www.epa.gov/methane/sources.html).

As such, methane emissions from landfills represent an opportunity not only to capture and use a significant energy resource but also to generate carbon credits or offsets. As discussed above, these offsets can potentially be sold in emerging carbon markets to help finance landfill methane capture projects that were previously not feasible for municipalities to implement. There are two types of landfill methane projects. The first type involves capturing and flaring landfill gas (LFG). The second type involves capturing LFG and either using it to produce electricity or another form of energy, or sending the LFG to the natural-gas grid.

While many of the project types transacted in the carbon market are viewed as “charismatic,” such as renewable energy, energy efficiency, and forestry projects, other projects types like landfill methane capture projects have gained a strong foothold in the voluntary market, accounting for approximately 10% of offset volumes transacted in the US in 2007 (Hamilton, K., Sjardin, M., Marcello, T., & Xu, G. 2008. State of the Voluntary Carbon Markets 2008: Forging a Frontier. EcoSystem Marketplace and New Carbon Finance.).

The rise in the number of methane reduction projects like landfill projects in the marketplace can be attributed to the fact that these projects tend to be relatively simple from a GHG accounting perspective. In fact, methane reduction projects like landfills are often referred to as the “low hanging fruit” in voluntary markets because they are financially attractive and relatively easy to develop. These projects are easy to measure and verify, and in many cases would not have occurred if not for the offset market.   

As such, methane reduction projects have a reputation of producing high-quality offsets. Price ranges of credits generated by different project types compared with landfill methane projects are shown in Figure 1. In 2007, the price of landfill methane offsets averaged $5.90 per metric ton of CO₂-e.

With respect to future GHG regulatory compliance schemes, recent reports have speculated that the US Environmental Protection Agency is expected to act for the first time to regulate carbon dioxide and other greenhouse gases (http://www.nytimes.com/2009/02/19/science/earth/19epa.html?_r=2&hp). This could further drive market enthusiasm for methane reduction projects. Further, landfill methane projects are already recognized in the northeast by the Regional Greenhouse Gas Initiative (RGGI), the first mandatory, market-based CO₂ emissions reduction program in the United States, and the California Climate Action Registry (CCAR), whose protocols are likely to be eligible under any future cap-and-trade program in California.

Waste-to-Energy Projects
Many in the industry view waste-to-energy as a tremendous opportunity from a GHG offset standpoint, but limitations to its viability as an offset project type do exist. Energy-from-waste (EFW) or waste-to-energy (WTE) facilities avoid methane emissions by diverting organic waste from disposal at a landfill and by displacing electricity/thermal energy through the utilization of biogas, syngas captured, RDF/stabilized biomass produced from the waste, and combustion heat generated in the incineration process. The prospect for offset credits for EFW projects is driven by location. Internationally, the newly revised and approved Clean Development Mechanism (CDM) methodology AM0025, Avoided Emissions From Organic Waste Through Alternative Waste Treatment Processes, provides offset opportunities in developing countries whereby credits are generated through the avoidance of landfill methane emissions through diversion to an energy-generation facility. An EFW project in India, for example, has already been registered and accepted by the CDM executive board and several more are currently in the planning stages.

A potential option for EFW projects in North America is the Voluntary Carbon Standard (VCS). A relatively new standard, the VCS has already garnered significant attention. The VCS allows projects to generate offsets according to both CDM and CCAR methodologies/protocols. Providing that EFW offset projects can demonstrate that the offsets generated are additional and meet certain eligibility requirements, the VCS may be a path to EFW carbon offsets. In the US, there are 87 modern EFW facilities located in 25 states (http://www.wte.org). However, most of these facilities were implemented well before the VCS eligible project start date of January 1, 2002, thus presenting a roadblock to VCS acceptance, although it should be noted that some facilities have undergone capital expansion with new units after the January 1, 2002 VCS deadline thereby making these expansions potentially eligible to earn credits under the VCS.  

No EFW offset project has qualified or appeared in the North American markets, although recent developments show some signs of life for these and other waste management strategies. CCAR, for example, has kicked off the development of a new Co-Digestion Project Protocol, which is expected to quantify carbon offsets from methane avoided through diversion of organic wastes from landfills. Alberta Environment has taken a similar step by drafting a protocol for non-incineration thermal waste management. Both protocols signal an acceptance of avoided landfill methane emissions as a viable carbon offsetting mechanism and could help pave the way for EfW carbon offset projects in North America.

Key Considerations for Municipal Solid Waste Managers
To be marketable, a landfill methane project, EFW project, or any GHG-offset project for that matter, must meet the requirements of a recognized standard or protocol. Standards and protocols establish the details and specific project requirements for GHG credit generation within the chosen market and generally provide guidance used in the verification process for the GHG offset project. Some of the more commonly used GHG offset standards/protocols include the previously mentioned CCX, VCS, CCAR, RGGI, and CDM (European Markets/Kyoto Protocols), as well as the Gold Standard, ISO 14064-2, and GE/AES Greenhouse Gas Services standard, among others.

Some of these programs, such as the CCX and GE-AES, use their own protocols, whereas other programs adopt or allow one or more established GHG protocols. Selection of a standard/protocol is dependent upon specific project eligibility and market preference. The standard/protocol used to quantify and verify the project may greatly affect underlying credit value.

Price ranges of credits verified to the various standards sold on the OTC market in 2007 are presented in Figure 2.

In determining whether offsets associated with waste diversion and other MSW management strategies can be sold in emerging carbon markets, waste managers should evaluate which market and protocol best fit the project and determine if the potential project is eligible against that protocol/standard.

Some of the key criteria that all project developers must consider when selecting a standard or protocol include:

Project start date: Project start date refers to the date on which GHG emission reductions or avoided GHG emissions began as a result of the project. With regards to landfill methane projects, for example, project start date refers to the date methane collection and destruction began. A project’s start date is important because depending on when the project began, it may or may not qualify or be eligible under a specific protocol or standard.

Credit start date: Credit start date refers to the date that a project can start earning GHG credits. Projects implemented under the VCS, for example, could earn GHG credits beginning on March 28, 2006, whereas projects implemented under the CCX could earn GHG credits starting from January 1, 2003.

Protocol-specific eligibility requirements: All protocols have eligibility requirements that determine whether a project will be considered eligible or deemed ineligible. For instance, some protocols explicitly prohibit landfills that have waste management systems that are defined as bioreactors. Other examples include situations where a municipality has expanded its LFG collection and combustion system after the protocol’s defined start date (when the gas collection and control system, prior to landfill expansion, was in place before the protocol’s defined start date) or where a municipality has expanded the processing capacity of its WTE facility after the protocol’s defined start date (when, similar to the landfill example, the entire WTE facility was operational before the protocol’s defined start date). Certain protocols may allow these expansions and additions to earn carbon credits (assuming appropriate metering and monitoring) while other protocols may not.  

Additionality: Generally considered to be the most significant factor that determines the integrity of the carbon offset, additionality refers to whether the offset project would have gone forward on its own merits without the support of the offset market. Establishing why a project was implemented is difficult; thus, practitioners and regulators generally rely on a series of tests to determine if a project is additional or not. These tests can assess the regulatory, financial, technical, institutional, and/or other barriers a project or project type faces to its implementation.

Regardless of the standard/protocol selected, all standards/protocols require that the waste management strategy in question be voluntary (i.e., it is not required by NSPS/EG/NESHAP, state or local law, consent order, or facility air and/or solid waste permit).

Destruction efficiencies of methane combustion equipment: In the case of a methane capture/destruction project, for example, prescribed destruction efficiencies for certain types of methane combustion equipment may affect the number of credits generated under a specific protocol.

Instrumentation, monitoring, and data record-keeping requirements: Offsets generated under certain standards or protocols may require more expensive equipment and more rigorous monitoring and data record-keeping than others.

Third-party validation/verification: Some standards and protocols require third-party validation, which typically involves an assessment of whether or not a project qualifies against or complies with a chosen offset standard’s rules and regulations. Verification is a risk-based independent assessment of a GHG reduction project, typically performed by a third-party auditor, to ensure the integrity of the data and information collected. Project developers registering their carbon credits with the CCAR or VCS or considering trading on the CCX must use an American National Standards Institute (ANSI) qualified third-party verifier.

Credit Ownership: Regardless of the standard/protocol selected, all standards/protocols require clear evidence supporting ownership of the offsets being claimed. In the case of a methane capture/destruction project, a landfill owner may install and own the gas collection and control system, but the gas might be sent offsite to be used by another entity. In this case, credit ownership may become blurred and it is thus important that credit ownership be clearly defined.

Conclusions
While opportunities exist to generate offsets associated with certain waste management strategies, MSW managers must understand the market options available to them and limitations associated with certain project types. Even in market areas not yet fully developed, waste managers may position their organizations ahead of the curve and realize the value of carbon by taking initial steps to develop potential GHG offset projects. The marketplace and US federal regulation is clearly headed to a more carbon constrained world and the more that waste managers understand the potential offset revenue opportunities available to them, the better position they will be in to take advantage of the still evolving carbon marketplace.