TCI Regional Policy Design Stakeholder Submissions

The world is facing a climate emergency. TCI has the potential to have a very large and beneficial impact in reducing GHG emissions from a highly populated region of the US. The Cap and Invest model is a proven and effective model to achieve these reductions but only if it’s done right. The cap must be set at a level that creates financial incentives to reduce emissions. In simple terms it means the price of carbon should be high. This will translate to higher fuel costs and incentivize use of lower carbon fuels. If the cost of carbon is high TCI will generate substantial funds to invest in GHG reductions. That basic framework is well thought out and sound.

However, TCI is based on the model of RGGI. A historical look at RGGI shows that it has not been nearly ambitious enough. RGGI has accomplished a lot but could have accomplished much more. The targets of TCI should be ambitious. The cap should be set aggressively low. As the US is pulling out of the Paris climate accord it is up to subnational jurisdictions like the TCI states to create policies that will lead to the emissions reductions we need to avoid the worst impacts of climate change. California has been aggressive about this for more than 10 years. New York recently passed S.6599 which has aggressive climate targets. Other TCI states should follow suit to be at least as aggressive.

My firm helps dairy farms with methane digesters generate revenue by selling environmental commodities like carbon offsets, RINs and LCFS credits. Over the past several years the price of carbon in California’s Low Carbon Fuel Standard (LCFS) has been ~$190/mtCO2e. Dairy digester projects that are connected to common carrier pipelines around the US can sell renewable natural gas into California’s LCFS market. This market provides substantial incentives to digester projects and many are being built to access this market. These projects provide a very low carbon fuel. By avoiding methane emissions that would otherwise be released to the atmosphere and turning that methane into RNG the projects create substantial climate benefits and can have co-benefits that help dairy farms improve water quality and nutrient utilization. In addition, RNG can be used in heavy duty vehicle fleets (trucks, buses, etc) for which electrification is not as viable as it is for passenger cars. TCI should provide incentives for methane digesters to produce renewable low carbon fuels in the TCI states.

At a recent TCI workshop state staff leading the TCI process said that they were considering biofuels but that they have limited resources, and developing TCI at all is “a very heavy lift”. TCI states should commit more employees to development of TCI. This is a prudent investment in the long term health and viability of the people and ecosystems of TCI states. State staff should not be stretched so thin that they cannot devote the time required to thoroughly develop such a necessary program. Of course the vast majority of TCI auction revenues should go to investments in the states, but states will also need staff to manage and implement the program. Speaking from 10+ years in carbon markets we encourage TCI states to make sure that their programs are well staffed with enough highly trained people. This is crucial to having the markets function well to achieve their goals.

Biomethane (aka RNG produced from methane digesters) is a unique form of biofuel. Unlike most ethanol and some forms of biodiesel it is produced from a waste and it’s production does not lead to land use change or impacts to the food supply. Biomethane is produced by dairy, swine and poultry farms of which there are many in TCI states. These segments of the livestock agriculture industry have a major impact on the rural communities (human and environmental) in TCI states. TCI’s model rule should provide specific incentives for production of biomethane from livestock manure. This would help achieve the necessary GHG reductions while supporting a growing industry in TCI states that provides economic benefits to the people and ecosystem service benefits to the environment in the TCI region.

NY S.6599 is an ambitious cap and trade program that will exclude “biofuels” but include livestock anaerobic digestion projects. Since TCI states are home to many dairy and other types of livestock farms they can support their communities and achieve GHG reductions by providing specific incentives for production of biomethane.

TCI can draw on the model of the US EPA Renewable Fuel Standard (RFS) or the California Low Carbon Fuel Standard to develop mechanisms to incentivize production of biomethane from livestock manure digesters. EPA and the California Air Resources Board (CARB) have worked through many of the complications of providing incentives for low carbon fuels including the life cycle accounting that is the global standard for GHG accounting of fuels. TCI doesn’t need to reinvent the wheel on these subjects. In addition, using “standard EPA emissions factors” to assess the impact of different fuels doesn’t sounds like it would allow individual producers to benefit from innovations in reducing emissions. The RFS has multiple “buckets” of RIN credits which allow the producers of the lowest carbon fuels to benefit in the market. CARB’s LCFS has simplified Tier 1 fuel pathways for efficiency, but also allows producers to apply for a Tier 2 pathway when they think their production process provides additional GHG benefits. Both models could be adopted by TCI.