There was a slightly wide-eyed story in The New York Times last week about a new venture to sell gas from landfills directly to the retail market for fueling natural gas vehicles. No doubt, the project by T. Boone Pickens-backed Clean Energy Fuels is unique, because the fuel is being given a brand name — Redeem — its ties to landfills are being openly touted, and now it has the publicity coup of a story in the country’s most respected newspaper.
But the story only briefly touched on what is clearly the primary reason for this venture: the California Low Carbon Fuel Standard, and the larger national Renewable Fuel Standard.
First of all, it’s important to note that landfill gas has been extracted from garbage dumps for years. If that didn’t occur, the nice shiny new park built on the reclaimed land could very well be hit with a few underground explosions, right in the middle of the company picnic.
The gas is extracted from the landfill, it’s sold into the local grid, and it can then be used for generating electricity, heating homes… or fueling the tiny portion of vehicles that are powered by natural gas. So filling an NGV with gas from a landfill is hardly new; it is just one of the many final destinations for gas taken from the nation’s garbage dumps.
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And as Harrison Clay, president of Clean Energy Renewable Fuels said in a telephone interview, the natural gas molecules processed by the company’s plants in Michigan and Texas will be injected into the larger national grid for credits, and then Clean Energy will take gas molecules off the gas grid in California, where the venture’s first sales of Redeem will take place. So if you’re tooling around in a fleet car powered by natural gas, you can’t know for sure that landfill gas is in your tank, but you can know that somewhere in the country, a portion of natural gas demand is being met because you bought Redeem.
So why bother? Why not just have the landfill gas that Clean Energy is buying for its two non-California processing plants (landfill gas needs some work before it can be sold) be sold directly to the local utility? And that’s where the LCFS comes in.
Every type of fuel that could be used as a transportation fuel in California has been given a carbon intensity rating with a great deal of specificity. For example, there isn’t just a rating for ethanol. There’s ratings for all sorts of different ways in which ethanol is produced. For example, there’s one for “Midwest; Wet Mill, 60% NG, 40% coal.”
There’s also one for landfill gas, “cleaned up to pipeline quality NG” and compressed in California. Its carbon intensity, which you can find here, is the lowest of every fuel listed.
So what that means is that Clean Energy, by controlling the entire process –the acquisition of natural gas from landfills (which needs to be proven for the LCFS), its processing and injection into the grid far from California and taking out a commensurate amount in the Golden State, and then retailing it through its own network — also gets 100% of generated California LCFS credits. And whatever that number of credits, it will, by definition, be higher than every other fuel on the market, because it has the lowest carbon intensity ranking of all.
But that’s not the only benefit: it also is considered a renewable fuel, so it generates a Renewable Identification Number under the Renewable Fuel Standard.
According to the latest LCFS quarterly update, LCFS credits were trading at a little less than $30/mt at the end of 2012. In its most recent estimate of prices in July, CARB said the price had risen to a little less than $60. So while the moves were not as dramatic as those for the price of RINs, which went from pennies per ethanol 2013 RIN at the start of the year to trade well above $1 per RIN before falling back to trade last week near 40 cts, the market has started to reward those entities that have LCFS and RINs for sale. Clearly, that’s where Clean Energy wants to be, and Clay conceded the economics of LCFS are a key factor in the retail project.
Daniel Sperling is a professor at UC-Davis, a member of the California Air Resources Board and the intellectual driving force behind the LCFS. He has often pushed the idea that the LCFS mandate, combined with LCFS credit prices that would send a signal about the economic benefits of exceeding the standard, would spur innovation. He told a Washington press conference last year that it would be “arrogant” to think otherwise.
Clean Energy’s plans clearly lend support to his arguments.
(I was interviewed about the project on Money with Melissa Francis on Fox Business. You can see the interview here.)
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