Are You Ready for eRINs? webinar transcript

EcoEngineers experts dove into opportunities for renewable electricity, electric vehicle and hydrogen fuel cell transportation under the U.S. regulations in our webinar on May 19, 2022. We discussed an update of the highly anticipated eRIN pathways under the USEPA Renewable Fuel Standard, electric vehicle charging and renewable electricity applications under California and Oregon’s low carbon fuel standard programs, and a survey of electric voluntary markets and renewable energy credit (REC) opportunities.

Lyndsey Nielsen (00:00:01):

My name is Lyndsey Nielsen, and I’m the marketing coordinator at EcoEngineers. I want to welcome you to our eRIN webinar that will dive into the hot topic of eRINs and discuss other electric opportunities available for those wanting to enter the decarbonization space.

Narrator (00:00:18):

Carbon is the biggest disruptor of the 21st century, and the world as we know it is changing. EcoEngineers can guide you to make the best decisions as you navigate toward your clean energy goals. Our diverse team of carbon analysts, engineers, scientists, auditors, and regulatory specialists are trusted advisors of the clean energy fuel sectors worldwide. Clean energy regulations are a maze. We simplify them with an unbiased approach and fully manage your compliance. Modeling your carbon reduction is complicated. We quantify your emissions with a rigor based in science. Together, we can create markets that will protect and grow your investment. We create sustainable solutions for a better tomorrow. We are EcoEngineers.

Shashi Menon (00:01:14):

Hi, I’m Shashi Menon, CEO of EcoEngineers. That video you just saw is EcoEngineers in a nutshell. We’re a team of consultants, auditors, and engineers and scientists with deep expertise in low-carbon fuels, emerging technologies and policies that are helping decarbonize the world. We are at the heart of the energy transition. At EcoEngineers, we are laser-focused on aiding, assisting and supporting this transition to a clean energy economy. Through our education programs, our science-based approach to life cycle carbon analysis, through our asset development support, our engagement with policy-makers and through our compliance management and auditing teams, we provide a 360 approach to usher in the clean energy transition. The ultimate success of low-carbon field projects and ultimately the future of our planet depends on the successful execution of net zero goals, and that’s exactly what our team is here to help you do. Thank you.

Daniel Ciarcia (00:02:17):

Hello, and thank you for joining us today as we discuss the state of renewable electricity and hydrogen and the low-carbon US regulatory programs. I’m Dan Ciarcia, the EV services director at EcoEngineers. I will be presenting today on the state of electric vehicles and hydrogen markets on eRINs and the Renewable Fuel Standard, and on EV and hydrogen under the California low-carbon Fuel Standard. After that I will be passing it off to David Lindenmuth, the RNG services director at EcoEngineers, and he will present information on how these various programs will affect project planning and how to capitalize on renewable electricity. Finally, David LaGreca, a senior carbon consultant at EcoEngineers, will present some of the areas where renewable electricity projects can be viable using the voluntary markets and direct programs. So, with that, let’s begin our conversation with the high level view on the state of the markets, since it’s important to understand where these forms of energy are headed over the coming years and what the demand will be.

Daniel Ciarcia (00:03:25):

The 2021 reporting data’s now been released, so we know what’s in the books and can evaluate where things went in the electric vehicle market. Global sales of battery electric vehicles and plug-in hybrid electric vehicles doubled from 2020 to 2021, jumping from 2% of all cars sold to 8.3% of all cars sold having a plug in it. That means that one out of every dozen cars sold last year around the world had a plug for charging, a steep jump, almost a doubling. The breakdown of the EV market has about three quarters represented by battery electric vehicles, which means a fully electric vehicle, and the remaining quarter plug-in hybrid of electric vehicles, which combines a gas engine with an electric motor. This split has been fairly steady over the past few years, but I expect to see the percentage of full battery electric vehicles to increase going forward as the economics make more sense for that. Breaking it down by region, in Europe sales of electric vehicles are leading the rest of the world.

Daniel Ciarcia (00:04:29):

So, they actually jumped from 10% to 17% of all new cars sold in 2021 as being electric or having a plug. China also had a tremendous jump in growth. They moved from five and a half percent in 2020 to over 13% of all new cars sold in 2021 as having a plug. They are the region with the highest absolute number of electric vehicles sold, at 3.4 million. In the US the growth is a little bit lagging behind the rest of Europe and China, but it did double here as well. We’re at about 4.4% of new car sales in 2021. These are all great increases, great growth in the sector. However, it’s important to keep in mind that these sharp increases are not likely to continue going forward at the same rate. Part of the jump was due to the fact that 2019 and 2020 numbers were a little bit lagging due to the pandemic.

Daniel Ciarcia (00:05:24):

You can see in that curve on the graph that 2019 and 2020 were a little bit flatter and then things really started to take off with growth in 2021. New markets are gaining traction, Asia, Oceania, countries such as Korea, Indian, Japan, Australia, all are seeing a lot of market penetration as well. It’s important to note too, that supply chain issues that are affecting so many products do still persist in the electric vehicle market, and that’s creating a little bit of a headwind in terms of the maximum number of cars getting produced, but have fared pretty well in particular compared to regular gasoline engines. Electric vehicles have been able to really work through the supply chain issues a little bit better. I expect that to still be persistent for another year or two before they really solve those issues.

Daniel Ciarcia (00:06:13):

In the US, this table presents the top 10 states with electric vehicle registrations. California, with its aggressive incentives and rapidly growing charging infrastructure, is far and away the leading state in the country, with about 40% of all of the EVs that are in the United States being in California right now. The States is really not far behind Europe when you look at the adoption rate there, over 10% of new cars sold in 2021. Florida and Texas are second and third, and the list goes on from there. It’s interesting to note there are some smaller states, Washington and Arizona, that are in the top 10. So, although no one is really going to overtake California in the short term in terms of the absolute number of electric vehicles, almost every state in the country is seeing that same rapid growth, almost that doubling of growth from 2020 to 2021. So, the growth is continuing and it’s across the country.

Daniel Ciarcia (00:07:13):

Switching over to hydrogen here, according to NREL there is expected to be really sharp growth towards the end of this decade in the transportation sector for hydrogen. So, looking at this chart, the maroon in particular represents heavy and medium-duty vehicles. They’re really not present a whole lot right now on this table, but as you move out to the next decade it really starts to take off. And the growth there will, by the middle of 2030s or beginning of 2040s decade, will really be the leading use of hydrogen in the country. You can see all the other uses, many of them not transportation here, some of them also seeing a lot of growth, but clearly the medium and heavy-duty applications are expected to drive the largest demand over the next few decades. It makes a lot of sense, given the ability to develop tractor-trailers and coach buses and other work trucks very long ranges with hydrogen fuel cells onboard.

Daniel Ciarcia (00:08:12):

So, how will the industry be able to create all of this hydrogen? Particularly of interest is how can it be created in a way that has a low-carbon footprint and a low environmental impact? So, carbon is produced in a variety of different ways. I’m going to talk about the three primary methods that are employed today. The first here is grey hydrogen, and that is… Hydrogen, by the way, is typically referred to with a color adjective, which indicates how it’s produced. So, the molecules in the hydrogen are the same, but the color represents how the production of the hydrogen came about. So, in the case of grey hydrogen, it’s typically a natural gas used to heat up a methane or a methane gas. We’ve got a process called Steam Methane Reforming. This has a lot of emissions, but it is the most accessible and most inexpensive way to create hydrogen today. The problem is it does release a lot of greenhouse gases in the process.

Daniel Ciarcia (00:09:09):

Black hydrogen sometimes is referred to for the same process using all or other heavier polluting fuels to heat. So, not a great solution in terms of the environment and greenhouse gases. So, blue hydrogen is becoming more prevalent. And blue hydrogen is really the same process as grey hydrogen, except it is now, instead of releasing the carbon equivalence into the atmosphere, it’s capturing and sequestering those carbon equivalents into the ground in a process called CCS that removes it from the atmosphere so there’s no greenhouse gases being released. The nirvana of hydrogen is really green hydrogen, and this is hydrogen that uses a different process. It’s electrolysis and electricity, and the electricity would come from renewable Zero-CI sources, such as wind or solar or hydroelectric plants. In this case the only thing that’s given off in this process is oxygen molecules, which are not harmful or are not a greenhouse gas, and they then produce the hydrogen in a clean way. So, having no environmental impact. Pink hydrogen is a derivation of this that uses nuclear power.

Daniel Ciarcia (00:10:17):

So, now I want to shift gears for a moment to talk about the Renewable Fuel Standard and eRINs. So, it’s clear that the demand for electric vehicles and hydrogen vehicles is going to be increasing pretty rapidly over the next decade. So, how will that play into this regulation, the Renewable Fuel Standard? The RFS, for those who are unfamiliar with the standard, is a regulation that was created under the Energy Policy Act of 2005, and then revised in 2007. The goal of the program is to replace fossil fuels with bio-based lower-carbon intensive fuels for use in the transportation sector. The portion of biofuels to fossil fuels gets ratcheted up every year. So, it’s encouraging more and more production of low-carbon biofuels.

Daniel Ciarcia (00:11:06):

The program is also structured to incentivize a production of more advanced biofuels, those that have greater greenhouse gas reductions from gasoline or diesel. When these biofuels are blended into the transportation fuels, these virtual tokens are created, which are called RINs or Renewable Identification Numbers. Those RINs are what has value and can be sold to the obligated parties, which are oil importers and blenders. So, biofuel producers create the RINs and then get sold to the importers and blenders. They have to meet those goals under the program, which are called RVOs or Renewable Volume Obligations. We talk about eRINs and what is eRIN? And eRIN is a RIN that is generated for charging an electric vehicle. It’s an unofficial term. So, there are RINs that get generated when electricity is produced from a biogas source or an bioenergy source, and then used to charge an electric vehicle.

Daniel Ciarcia (00:12:12):

The RFS regulation has two existing pathways written into the regulation right now for renewable electricity generated and used to charge an electric vehicle. The T pathway applies when electricity is created from a waste digester, such as a food waste processing plant. When an EV is charged with electricity from this type of production facility, it would generate a D5 RIN. When an EV is charged from electricity from a biogas facility that is generating electricity using cellulosic materials, landfills, wastewater treatment plants, and others, it creates what’s called a D3 RIN. A D3 RIN, because of its more favorable greenhouse gas properties, trade at a higher value to a D5 RIN. The regulation also set into place a conversion rate of 22.6 kilowatt hours being equal to 1 RIN. The EPA set that conversion rate based on the fact that 22.6 kilowatt hours contains the same amount of energy as one gallon of ethanol, which is what a RIN represents.

Daniel Ciarcia (00:13:25):

Unfortunately, this conversion does not take into consideration the higher efficiency of an electric vehicle. So, that would possibly, if that were revisited, could possibly increase the number of RINs generated with electric vehicles. And this all sounds great. It’s a really valuable tool financially developing these projects if we can charge electric vehicles under the regulation. But the problem is, even though this is in the regulation, the EPA has yet to approve an actual electric vehicle pathway. And until they start approving electric vehicle pathways, no one is able to generate the RINs under the program yet. But we believe that’s about to change. Although there has been no official announcement from the EPA on approving those eRIN pathways, many of the industry insiders are anticipating that eRINs will be approved sometime this year, possibly as soon as the June rule-making session, which is right around the corner. They may not go into effect right away.

Daniel Ciarcia (00:14:26):

So, they may release some information about the direction they plan on going with eRINs but have it actually go into effect later. It’s entirely possible they would take that approach because they would have to revise the RVOs, those number of renewable attributes, renewable gallons that need to be produced. They would need to revise that to go along with the program to keep the demand for those eRINs high. One of the things that’s slowed this down is that the EPA has been very concerned about double-counting from multiple sources, multiple organizations that possibly have a valid claim to those RINs. So, one of the things they will have to address in that rulemaking is who gets priority to the claim of the RIN, how that is done. There are many entities who could potentially seek a claim on those RINs. You have the biogas producers, the electric utilities, the charging station owners, the OEMs who build the vehicles and have the data from the vehicles, as well as the vehicle owner.

Daniel Ciarcia (00:15:28):

So, it is going to be important how those rules are laid out by the EPA. The American Biogas Council has estimated, they’ve looked into this potential eRIN market, and estimated that over 500 million eRINs could be generated annually. And depending on the feedstock, whether those are D5 or D3 RINs, that equates to anything between 750 million and 1.6 billion dollars in annual revenue potential for these production facilities. So, there’s a lot at stake with eRINs and eRINs being enabled. So, if you’re a biogas producer right now, an electric generator, you have a fleet or infrastructure, and you are potentially in a position to profit from eRINs becoming a reality, then this chart steps you through what would need to take place to do that. To do that you would need to line up a good third-party engineer to perform the site inspections and process the information.

Daniel Ciarcia (00:16:26):

This is all part of putting together an application for being part of the program. The engineer would verify, through a site visit, type of feedstock, the processing equipment, the interconnection to the grid, that all of that’s in place, and verify that it is all functioning according to the design. The engineer would prepare a report and then an account is created under the CDX system and a registration process is started with the EPA. All the parties would need to then sign off on the engineering report, submit it to the registration, and then it would be in the hands of the EPA to evaluate and approve. There are some possible outcomes. They may approve it. They may reject it. They may do something in between, and expect some back and forth with some additional information. The whole process usually takes around a six to nine months period to get a pathway in place once filed.

Daniel Ciarcia (00:17:19):

And moving over to hydrogen under the Renewable Fuel Standard, there are currently five pathway applications awaiting EPA review for hydrogen. And like eRINs, the hydrogen pathways are also in a holding pattern waiting for the EPA to evaluate and approve or reject those applications. They haven’t approved these or denied them, but the expectation is that once there are enough of these applications pending review and that there’s a commercial case for the EPA to look at these pathways, that at that point they will evaluate and make a decision on these hydrogen pathways. So, let’s move on to the California Low Carbon Fuel Standard. This program is one that is focused on a detailed analysis of the carbon intensity of the energy right from the source all the way through production, transportation to market, dispensment into a vehicle and use in a vehicle. So, the program does a very specific job of awarding projects based on their total carbon intensity of the entire fuel pathway. And I do speak here of the California Low Carbon Fuel Standard, but please note there are also similar programs in Oregon, in British Columbia.

Daniel Ciarcia (00:18:39):

There is soon to be a program in Washington State, and also the country of Canada. So, this is a type of program that is very lucrative and very successful and expect to see it up here in more and more geographic areas going forward. The LCFS regulation, as I mentioned, is based on the total carbon intensity of a fuel, from feedstock acquisition all the way through processing and finally to the use in a vehicle. The lower the carbon intensity score, the greater the revenue potential is for the same quantity of fuel. So, shown here are the approved pathways under the California LCFS, and the arrows here indicate the pathways for hydrogen and for electric vehicles. The hydrogen pathways are in the range of -120 to a +80. Again, the lower the score the better in terms of revenue potential. And the electric pathways are in the -30 to +40 range for those pathways for electric vehicle charging.

Daniel Ciarcia (00:19:45):

These numbers are representative of the grams of CO2 equivalents per megajoule, so they’re standardized across the amount of energy rather than a specific quantity fuel. As you’ll notice, unlike the Renewable Fuel Standard, these pathways are actually approved. So, there are hydrogen and there are electric vehicle pathways under the Low Carbon Fuel Standard in California. Generally the electric and the hydrogen vehicles are using Zero-CI electricity, most often from solar or wind type of production facilities. Let’s take a look at those trends now for credit generation under the Low Carbon Fuel Standard for electric vehicles. This table shows the historical growth of the credits being created in the LCFS. So, we are seeing very consistent and steady growth of credits being generated for electric vehicles. The heavy bar here shows the total number of credits. The medium colored bar shows the light duty credits, and the light bar showing heavy duty credits.

Daniel Ciarcia (00:20:57):

So, the production did experience a little bit of a drop last year due to COVID, but been growing steadily and strong throughout the introduction of these fuel types. The heavy- duty vehicles are remaining strong and will be probably a force with hydrogen vehicles as it moves forward, and we’re expecting to see probably around four million or so credits in 2022 being generated, and continuing to increase going forward. So, electricity is a unique fuel type because of the way it moves from the source to the consumer. It moves over a wire instead of needing to be trucked, for example, or moved through a pipeline. So, having the ability to put electricity into the grid in one place and using that electricity in a different location is pretty unique and an advantage for electricity. So, the Low Carbon Fuel Standard does allow you to, what they call a Book & Claim process, to generate that electricity somewhere, and it could be outside of California, and used within California for electric vehicle charging.

Daniel Ciarcia (00:22:09):

In this type of scenario, you would need to be generating that electricity in the green area shown the map. That’s called the WECC region. That’s the grid that California participates in. And you would need to generate it there and then, through a Book & Claim process, that’s a contractual process, you would use that electricity in an electric vehicle in California. A couple of caveats there. You would not get the credit for RECs that are generated. So, if it’s a solar farm, for example, that would be eligible for solar renewable energy credits, you would not be able to get revenue from that as well as from the LCRS program. So, it would be one or the other. And you wouldn’t get any RIN values for now until the Renewable Fuel Standard at the EPA level approves those. Just like all the other fuels, the lower the CI of that electricity, the more revenue you would generate.

Daniel Ciarcia (00:23:02):

So, there would be a preference for zero or for negative CI electricity under this scenario of Book & Claim into California for EV charging. Another way that renewable electricity can be leveraged under the LCFS program is to generate onsite Zero-CI electricity, such as a solar array at a renewable fuel production facility. This reduces the overall CI of the fuel pathway, and therefore would increase the number of credits generated for that project for the same equivalent amount of fuel. And the example shown in the graphic on the right, an ethanol plant shown here has a carbon intensity developed at various stages of the project. So, each of those bars represents a different stage of the project that contributes to the overall project carbon intensity. If the electricity were replaced with a Zero-CI source, that five to 10 CI points shown there in the orange box would then get reduced to zero.

Daniel Ciarcia (00:24:03):

Reducing that to zero would increase the revenue potential perhaps five to 10 cents per gallon on that ethanol that gets produced. So, it’s important to look at those opportunities for where can the efficiencies be created for replacing grid electricity with renewable electricity. Another question is whether the renewable electricity is a processed fuel used to support production, or whether it’s an actual feedstock fuel used to create the production. So, there’s some subtle differences there, and that would affect how the rules would apply to that electricity. The rules differ a little bit in terms of Book & Claim and how RECs can be used in terms of applying that renewable electricity to the feedstock. In general, if it’s onsite generation you’re good to go and it can be used to offset that electricity being used. Renewable electricity is sometimes confused with Zero-CI electricity as well.

Daniel Ciarcia (00:25:02):

Those are two different terms, even though they’re sometimes used interchangeably. Renewable electricity is a broader term. It may have zero carbon intensity, but it may have a positive or negative carbon intensity as well. It’s produced from renewable resources, such as biogas to electricity, for example. Zero-CI electricity, on the other hand, is a specific type of renewable electricity that has a zero carbon intensity, and it is most often wind or solar or possibly hydroelectric generation that provides Zero-CI electricity. When it comes to biogas, the decision on whether to generate electricity or use the gas for other purposes, such as upgrading to RNG, is dependent on a variety of factors. Project developers and investors should be asking whether it makes the most sense to build an RNG upgrading facility, or maybe it makes more sense to develop a renewable electricity generation plant.

Daniel Ciarcia (00:25:59):

Biogas to electric generation is a simpler design than upgrading equipment to pipeline quality RNG. This means that the electric project decision could be less expensive and it could be quicker to install that equipment due to its simpler design. One would also need to look at the pipeline and what is the proximity of the pipeline to the project site? What is involved in making a connection? Likewise, what is the proximity to a grid connection point and what is involved in making a connection to the grid, if it were an electrical generation? And what vehicles are available to engage in contracts with? Are there CNG vehicles? Are there electric vehicles? Which gives the most advantageous relationship to be engaging with? So, those are all questions that you would want to wrestle with when deciding what to do with the biogas. So, to help answer these questions, let’s welcome Dave Lindenmuth to the conversation. He’s going to shed some light on the project nuance. Dave, with the addition of eRINs, can you provide some insight on what would make a more viable project opportunity and for which types of projects?

Dave Lindenmuth (00:27:09):

Thanks, Dan. As the RNG services director here at EcoEngineers, I’m approached a lot about how biogas projects make the determination to either go to pipeline RNG projects or play in the renewable electricity markets, and so I’ll talk a little bit about that today, and we’ll go through a few case studies about how projects can make those decisions, but also how those projects might be impacted on the EPA releasing an eRIN pathway. So, as we look at how biogas has been traditionally utilized in the renewable space, biogas at landfills was definitely an early development in the renewable space. Many of the landfills that were developed as renewable sources were landfill gas to electricity projects. A lot of that development had stopped or slowed, mostly because the value just wasn’t there on the electricity markets to continue developing new projects. Wind and solar projects definitely flooded the electricity markets and really took advantage of the REC programs that were out there, and the landfill gas projects just were slower to develop and had not developed quite as quick.

Dave Lindenmuth (00:28:14):

But in the recent past, what we’ve seen is that the RFS and LCFS programs have incentivized many of these biogas projects to develop as biogas to renewable natural gas projects, and so even further slowing or delaying any development on the biogas to electricity markets. So, you may think that there’s no place for biogas to electricity markets to develop or projects to develop and think that it’s a very easy decision for developers to say, “Well, we’re going to develop this biogas project always to pipeline quality RNG and not consider electricity development.” And that’s just not true, and changes in the regulations could clearly change that pretty quickly, and we’ll talk about that a little further along in my case studies. So, when thinking about how biogas is going to qualify for electricity generation, there’s a number of considerations that are very similar to developing a biogas RNG project, but you need to think about your feedstock and how that feedstock is going to qualify you for credit generation in any of the available carbon credit markets.

Dave Lindenmuth (00:29:21):

So, obviously feedstock affects whether you create D3, D5 or other classifications of RINs if you’re doing pipeline quality RNG, and it could affect an eRIN program. Depending on what type of feedstock you’re using, that may affect the type of eRIN that may be generated in the future if that pathway becomes available. It obviously can affect how much gas you produce if you mix certain feedstocks that produce more gas. And then location. Location has a lot to do with current pathways and future pathways. Regional incentives can change the structure or make-up of a project or the economics of a project. And specifically in a biogas to electricity project, proximity or connection to the California electric grid can greatly affect the ability or even eliminate the project’s availability to generate electricity and play in the EV LCFS market.

Dave Lindenmuth (00:30:13):

So, as a project were to develop, some primary and important considerations there is really thinking about the capital cost of upgrade. Biogas to RNG projects generally have more capital requirements than biogas to electricity project does. Time to market is a current consideration, as biogas to RNG upgrading equipment has significantly longer lead times today than possibly a biogas to electric project might have. What type of proximity to infrastructure. Permitting and getting long pipelines built, developed, and connected to a biogas project, put it into a pipeline quality RNG project, can sometimes be very significant and may be the limiting factor to why an RNG project hasn’t yet developed.

Dave Lindenmuth (00:30:57):

And then also the developer or the investor’s view on these carbon market prices and where they’re going and how they see they’re going to monetize the value of their asset in the future, whether they think that will best fit into the current RNG market, or if future electric markets or incentives on the electric markets might be the thing that pushes their project forward in the future. So, we’re going to take a look at some different case studies of how biogas projects would maybe walk through this decision process, and some of the considerations they would look at when they’re developing their project and identifying the benefits and risks of each of these. So, for example, we looked at a simple case study of a dairy in California. A small dairy, maybe they have a very small number of cows on site. They have some regional food waste that they also are able to take in and co-digest and essentially create enough biogas that makes a digester project makes sense. But really, where does it fit in the biogas to RNG or biogas to electricity model?

Dave Lindenmuth (00:32:00):

And so if you look at that from an RNG perspective, if they’re commingling in manure waste with food waste, they’re going to generate D5 RINs, which are of a somewhat lower value than the classic D3 RIN that you would get from a pure manure or a pure landfill project. They would, from an LCFS perspective, may say they’re going to be at -125 carbon intensity score. Maybe they have the majority of their gas is produced from manure. So, they’re getting some carbon offset there and have a low CI. But as you bring in some food waste that doesn’t have necessarily that methane avoidance credit, it raises their score to maybe be a little less negative than other projects. And when you look at what other incentives or other programs out there and they stack on top of those two programs, we really don’t see any others. Where if they compare it to an electricity project, one of the big differences between a renewable electricity and biogas to RNG project is really that electricity, once put into the grid, is not going to qualify today for a RIN.

Dave Lindenmuth (00:33:01):

So, you’re forgoing that RFS revenue, and you can’t generate a RIN with an electricity project. Your CI score within the LCFS program would actually be much more negative if you are generating in an electricity project because of the way the scoring works. But at the end of the day, dispensing this electricity through the grid losses and the other transportation losses in the electric market essentially gets you the same number of LCFS credits that you would get within LCFS program if you were dispensing it as RNG. One other incentive that could be in this program would be if there’s still an investment tax credit available. That is actually available on the electricity side, but may not be available on the renewable natural gas side. So, these are some of the things that you would think about as you develop this project. If we take a similar example and move that same dairy, and really think about moving it to the Midwest, maybe a little bit larger farm, and they’re going to use pure dairy manure as their feedstock.

Dave Lindenmuth (00:33:59):

And this is what we see a lot in the EcoEngineers’ daily work, is working with dairies exactly like this who are developing projects specifically designed to go to California in the RNG LCFS market. They’re using pure dairy manure. It’s puts them solely in the D3 classification for RINs. They have a classic -200, maybe -250 carbon intensity score for the LCFS program. And there’s not really other incentives. But those two, the RINs and the LCFS programs, are really driving a lot of these areas to develop into an RNG project. And you can see this one is, say, three miles to a natural gas infrastructure, maybe a reasonable build, low or medium pressures. And so it makes a lot of sense for this project to be slated to an RNG project. If they were to evaluate an electricity project in this area, they would be, in the case of biogas electricity, it does not qualify for RINs today.

Dave Lindenmuth (00:34:56):

Electricity, because it’s not interconnected into the California grid, would not be able to match to EV charging and generate an LCFS credit. And so that would not be available to them. And so really they’d be looking at, is there some form of investment tax credit or other tax program, if they were going to do biogas to electricity, or really looking for a regional program to monetize the electricity. Another example is, moving on to another type of dairy back to California, but looking at this same dairy if the eRIN pathway was released by the EPA. This is where a project could have a really very interesting decision to make if they were using pure dairy manure and deciding between a classic RNG pipeline injection project or an electricity project.

Dave Lindenmuth (00:35:43):

You can see that in the case of it being located in California, being able to connect to the grid and having that same revenue in the RFS RIN program, but doing it through an eRIN and connecting to electric vehicle charging, you can see where this project will probably have to be making a really tough decision and probably evaluating those other incentives like ITC and other things to make their decision. And maybe speed to market in this case is a lot better for this type of dairy, where if they can quickly use a published pathway or can get an LCFS pathway on the electric side done a little bit quicker and they don’t have to physically store gas or things like that, this project may be one, with the advent of the eRINs, would make a lot more sense as an electricity project versus an RNG project.

Dave Lindenmuth (00:36:30):

And so we’ll take one last example from, say, a landfill gas source. And so we have a landfill that’s located in the Midwest 10 miles from gas infrastructure. So, maybe a significant 15, 20, 25 million dollar build to get their landfill gas to an RNG-ready project. There’s a significant capital cost in doing so. Say they’re trying to evaluate a project like that and the eRIN pathway comes along. Again, this project probably has tougher and a much deeper dive into their economics to figure out what type of project makes sense for them. And there’s more capital with that RNG project. The long distance to the pipeline is obviously something that may have kept this project from being developed over the past three to five years. Projects and project developers are probably looking at this project saying, “I could receive LCFS credits if I developed it into an RNG project, but at a carbon intensity score of 45, how long will I really be able to place that in the California market?”

Dave Lindenmuth (00:37:28):

And so they may look at an eRIN pathway and say, “Yes, I’m going to develop this and put in a landfill gas to electricity project, cash in on my eRIN, forgo the California LCFS, and see if I can find a couple other incentives like tax credits or other to really make the project work.” In summary, after looking at those different case studies, what does the eRIN pathway really mean for biogas? I think what it does is it adds additional biogas development opportunities. It really does not take opportunities off the table. It may take a few projects and make them make tough decisions between biogas to RNG to electricity. But really, I don’t think it’s going to take projects off the table. I think it’s going to bring more projects that were challenged to be developed to the table. And it’s going to drive investment in those projects where they were landfills were significant distances from pipeline and were maybe a smaller size and couldn’t be developed or it just wasn’t feasible to develop them.

Dave Lindenmuth (00:38:27):

With electricity pathway, they may be feasible. I do also think that it could drive investment in some of these smaller dairies where, again, that gas upgrading for the pipeline infrastructure was just not there and it was tougher to develop them. It could drive investment to newer technologies, biogas to fuel cell projects to generate electricity, and not necessarily use the internal combustion engine concept, and maybe even have a lower carbon intensity pathway than, say, a combustion engine. Some of the challenges are that the slow transition to these projects and the slow development of EV, you still, at the end of the day, need dispensing into an electric vehicle. And air permitting challenges. So, like I said, some of these projects would be biogas directly consumed into an internal combustion engine, and you would need to have site permitting and Title V permitting for that engine that’s on site at, say, the dairy or the landfill, and so those permitting challenges might slow some of this development as well. At this point, I’d like to turn it over to David LaGreca to talk about how voluntary markets play a role in this world.

David LaGreca (00:39:31):

Thanks for that, Dave. I appreciate it. So, for the renewable energy credit market and the broader market in general, solar and wind are the fastest growing categories while hydro and liquid biofuels are remaining much more consistent. Utility scale battery capacity is expected to grow by 84% in 2022. So, that’s going to provide a significant level of certainty to utilities for incorporating these kind of known intermittent energy sources into their mix. So, the Energy Information Administration estimates that electricity generation from renewable sources is going to increase a full percentage point each year from 2020 through 2023. But at this point, that’s up in the air because the recent tariff battles over solar continue to cause many cancellations of projects. So, in general, there are two main renewable energy, renewable electricity markets in the United States. One is in the renewable energy credit market known as RECs and the other is regulated RECs in the form of solar RECs and the RPS, Renewable Portfolio Standards compliance.

David LaGreca (00:40:43):

So, a Renewable Energy Credit, or a REC, is a market-based instrument that represents the property rights to environmental, social, and other non-power attributes of renewable electricity generation. The demand for these come from voluntary commitments of corporations to, for instance, 100% renewable consumption for Scope 2 emissions for electricity purchases as indicated by the Greenhouse Gas Protocol and most corporate inventory strategies. Under that category, solar RECs, or sRECs, are created for each megawatt hour of electricity generated from a solar energy system. And in these schemes, the ultimate owner of the sRECs own the solarness of the power, so just the attribute of the power. And these are going to be instruments used to meet the portfolio standards in particular state situations. In the voluntary space for renewable energy credits, the most prevalent in the United States is the Green-e certification system, where a Renewable Energy Certificate is similarly one megawatt hour of renewable electricity.

David LaGreca (00:41:52):

And this market is growing pretty dramatically. Although the costs are relatively low for purchase for corporate buyers, the costs are relatively low. There were, in 2021, 1.4 million retail purchasers, which is lower than the historic trend because of the pandemic. But the retail sales reached 90 million megawatt hours in 2020, which is a really high quantity, indicating the intent to offset the purchases of electricity from the traditional grid sources, which are made up of dirty or fuel mixes from natural gas or coal or other sources. But it’s an increasing instrument being used by organizations and corporations to lower their perceived market-based greenhouse gas emission in their inventories. There are, however, questions surrounding the environmental integrity of the voluntary RECs, to the extent that these renewable energy credit purchases are not necessarily encouraging or enhancing the demand for renewable energy, because it is such a lucrative and cost-effective means of generating electricity right now.

David LaGreca (00:43:04):

And on that note, the major carbon registries such as Verra and Gold Standard no longer allow credit generation for renewable projects in developed countries. So, that does bring into question some of the concerns about how much good you’re actually doing by purchasing renewable energy credits, although it is still a very popular and arguably beneficial way of pursuing lowering your emissions. And the I-RECs market is an international standard that is very prevalent internationally. As we’ll see in the next slide, it’s a very common scheme for lowering emission reductions or for lowering perceived scope to emissions of corporations and certain cities and small nation-states. They’re cheaper to use than carbon credits for lowering the same amount of carbon dioxide equivalent. Low upfront investment as far as starting up an I-REC project. There’s a higher integrity standard compared to the Green-e program that’s more prevalent in the United States, with a higher standard for entry and much higher traceability of electricity production with the production of these projects compared to Green-e standard.

David LaGreca (00:44:14):

And it’s on the I-RECs Standards marketplace as used most prominently internationally. In the regulated markets, there are solar Renewable Energy Credits. Each megawatt represents a megawatt hour of electricity generated from solar energy. And there are nine states with these types of programs right now, from Delaware, Maryland, Connecticut, Massachusetts, and some others. They incentivize homeowners as well as industrial players to reduce the cost of electricity by selling the credit portion of the electricity generated. So, it’s not the electricity electron itself. It is the attribute that is attached to it that is being peeled off and sold, much like a RIN or an LCFS credit or a carbon credit or something like that. And they’re all being used towards the same end goal of reducing a state’s overall burden of fossil fuel inclusion in their energy mix.

David LaGreca (00:45:09):

The Renewable Portfolio Standard is driving the adoption of renewable energies in many other markets, including 49 different programs across US cities, states and territories. These are a very big assortment of classes or flavors of renewable energy credits that have all kinds of definitions and quotas of what’s required. And they’re all go off of different prices, state by state, location by location. For instance, Colorado has a renewable portfolio goal of 100% renewable energy by 2040. And the state-run, well, the state utility of Xcel Energy is pushing for that through subsidies and through purchases and acquisitions and development of renewable energy projects, such as solar and large scale wind. There’s different requirements for monitoring of these projects, depending on what state you’re in and what kind of credit you’re trying to arrive at through these processes. And then there’s also diversity of requirements for installation, location and scale.

David LaGreca (00:46:12):

So, certain states you’re not allowed to build these solar farms over a certain capacity. Certain states don’t give you credit for residential installations. And there’s size requirements. Internationally, like in Mexico, there’s a size requirement you can’t go over, I believe it’s 500 kilowatt hours, in the single installation without running into issues with the state energy agency. So, in the United States it’s a little more simple, but it’s highly fragmented based on the location. Here’s a map that shows just the states with the most prominent RPS solar requirements. So, there’s an actual specific carve out for solar capacity. The prices are always different than on a day-to-day and year-to-year basis. But in general, these are the states that have the solar carve out within their state laws or within their direct provisions for renewable energy.

David LaGreca (00:47:02):

State updates. Delaware increased their targets. Oregon is increasing their targets for clean fuel. Most of the states are ramping up the requirement for clean fuels in their state portfolio. And that’s the general trend across the country. Is everybody’s diving in. Even historically reluctant states like Nebraska are pushing for renewable energy because of the wide-scale adoption of wind energy in particular in that state, and solar abundance across the country. So, it’s depending on which resources are most available what the state adopts as their main ambition and intent.

Lyndsey Nielsen (00:47:39):

At this point I want to invite Dan Ciarcia back up, and he’s going to have a couple more words and then we’ll get our Q&A session started. Go ahead, Dan.

Daniel Ciarcia (00:47:48):

Thanks, Lindsey. Thank you all for joining us today for this webinar. We really appreciate you taking that time out of your day. We know it’s valuable. We want you to feel comfortable to please reach out to us if you need any assistance. You can reply to the post-webinar survey that you receive and check the Contact Us box or email us, the email addresses are shown on your screen right now, or use the contact form on our website. I’d love to hear from you if we haven’t before.

Daniel Ciarcia (00:48:22):

When you decide if you want to file for an eRIN pathway, or if you need assistance navigating the complex world of all of these different funding opportunities that we really gave you a high level view of, we can also assess pro formas, project proposals, or if you need to put together a plan to decarbonize your fleet and convert your fleet to lower carbon fuels, then please reach out to us. Happy to help, happy to point you in the right direction or provide these services to you. And with that, I’d like to open it up for general questions. So, I noticed there was a bunch coming in on the chat. Please keep them coming and we’ll answer as many as we can in the next 10 minutes.

Lyndsey Nielsen (00:49:06):

Yeah. I think the most pertinent question I can pull out from this list now is, why do we believe that eRINs will finally be approved? What makes us think that the EPA is going to do it now?

Daniel Ciarcia (00:49:22):

Yeah. That’s a great question. So, the EPA has not released any formal statement about eRINs, but folks who have been attending EPA meetings have been circulating within the inner circles. There seems to be a general agreement that the EPA is going to be announcing something on eRINs with no specific timeframe, but the feeling is that it could happen as early as June. There is a rule-making session. There could be some sort of announcement in June. It could be in the more traditional calendar of the November announcements that they typically make. And that doesn’t mean that they would instantly be rolling in eRINs. The announcement could be that they aren’t available until 2023 or even later. But we hope and anticipate that we’ll hear some direction in this year, possibly as early as June.

Lyndsey Nielsen (00:50:25):

So, along those lines, do you think the EPA will have a separate allocation or RVO for eRINs, or will it be included in the current annual RVO? People asking about flooding the market with RINs. Let me see here. They won’t be double-counting with RECs, they assume.

Daniel Ciarcia (00:50:44):

Yeah. We would anticipate that because the price of the RIN is related to the balance of supply and demand that the EPA would need to address the general volume obligation as well, the RVO numbers. So, we would anticipate that they would, at the same time as making the announcement on eRINs, give some direction in terms of where the RVOs would go. Because the questioner is right, that if there were suddenly a flood of a whole bunch of new RINs on the market, that would affect the RIN price. And that is not in the best interest of the program to flood the market like that.

Lyndsey Nielsen (00:51:27):

Thanks, Dan. Going back a little bit to the biogas section here. It says, “How does a CI score of wastewater biogas compare to dairy or landfill, and which eRIN would it be if it were wastewater?”

Dave Lindenmuth (00:51:41):

So, I can probably jump in and tackle that one. If you’re using the California LCFS program as your guideline for CI score, dairy and swine clearly have the lowest highly negative CI score because of their methane avoidance credits that you get from the baseline that CARB has set. Wastewater treatment plants generally are still a positive CI score, but usually lower than, possibly, landfills. But they’re definitely in the positive CI score range. This is one of those challenges on the wastewater treatment. If it’s 100% wastewater, municipal wastewater, they would qualify for a D-3 RIN. But we’ve seen, as wastewater treatment plants bring in food waste or high strength waste, maybe from nearby industrial processing, that that would then start to disqualify those D-3 RINs. And you have a code digestion of two different feedstocks, and you’d most likely only be able to generate D-5 RINs. So, you really have to take a detailed look at the feedstock and the treatment plant and what is coming into the treatment plant to make that final determination.

Lyndsey Nielsen (00:53:02):

I have so many questions to filter through here and they keep coming in. You see any in particular, Dan or Dave, that you want to answer?

Daniel Ciarcia (00:53:13):

Yeah. There was one question on the conversion factor on the eRIN kilowatts, 22 kilowatts to a RIN. And the EPA has not shown any interest in really reevaluating that number to date. That doesn’t mean they can’t evaluate that at a later point in time. But so far they have used that number as a basis of the amount of energy that’s in a gallon of ethanol and converted that to electricity. So, that’s where that number was derived from and it seems to be where they are right now in terms of position.

Lyndsey Nielsen (00:53:57):

I like this question, though. “Any thoughts who gets to generate the eRIN? Is it the producer or the charging station or the OEM?”

Dave Lindenmuth (00:54:06):

Yeah.

Lyndsey Nielsen (00:54:06):

Everybody. Nobody.

Daniel Ciarcia (00:54:07):

That’s a good-

Dave Lindenmuth (00:54:08):

Yes. The answer is yes.

Daniel Ciarcia (00:54:11):

There are a lot of people who could have a claim to those environmental attributes and it’s really, the EPA could specify a priority or they could leave it up to the market to determine. We have no information in terms of which way that will probably go. So, right now it’s a little unclear. And that definitely would need to be sorted out before this could really become a live thing that people could claim. There seemed to be a lot of questions as well on D3 versus D-5 RINs. Dave, do you want to address that in a general way?

Dave Lindenmuth (00:54:56):

Yeah, I think in a general way we would anticipate that the feedstock rules most likely, unless they were going to change the feedstock in D3 and D-5 RIN classifications for everything, the eRIN would look exactly like the feedstock classifications and generation process as it does for RNG. So, whether your feedstock is being processed into an RNG product or to electricity, your feedstock classification would tell you what type of eRIN, D3 or D5, would be generated. So, we don’t think that there’d be any changes there. A landfill gas plant would essentially generate a D3 eRIN. And then I did see one or two questions about the interconnection and why CARB allows pipeline transportation of the molecule of RNG to be essentially Book & Claimed anywhere in the United States and doesn’t necessarily do that for an electricity project. And really, it’s a rule. It’s not necessarily something that theoretically is any different, but really it’s about being interconnected to that California grid, where the gas network really is interconnected throughout the United States. I think you could have a similar argument on the electricity side, but that’s just not how the rules have played out.

Daniel Ciarcia (00:56:28):

I like this question here. “What can a market participant do to encourage or accelerate eRIN rule-making?” That’s a great question. What can we do? So, there are a lot of political drivers behind any regulation. So, working with your representatives certainly would have an impact. And there is also, I would say, being active in the communities and in the different associations because they are involved politically. But also there’s some notion that the EPA will look at things when there’s enough critical interest in it, and that would be in the form of pathway applications. So, that kind of activity also stimulates it. I think there’re at a point now where they know there’s a demand for eRINs, and it’s just a matter of them working out the rules or making a decision on which way to go. But it will not hurt to work any sort of political or internal pressures like that.

Lyndsey Nielsen (00:57:34):

We’re coming up against the hour.

Daniel Ciarcia (00:57:36):

You could-

Lyndsey Nielsen (00:57:36):

I was wondering if you guys wanted to give your final two cents on the topic and we can round it out. We can start with David. You haven’t had too many questions come at you today. What are your thoughts moving forward and how could RECs and everything be available to everyone?

David LaGreca (00:57:54):

Yeah. It’s a great question. So, renewable energy credits are a topic that is a little bit less discussed in the fuel space. However, there are carbon pathways, whether or not it’s a specific renewable energy credit or a carbon offset credit, from a lot of these programs that are fairly underutilized at this point. So, I would say that, in addition to pursuing the frequently lucrative and commonly followed pathways of LCFS and RINs, that these other pathways should start being explored more. And I’m seeing more and more action in that in the emails that I get in my inbox every day. So, I’d say that, and that the renewable energy credit market is expanding rapidly internationally. And the US is kind of behind in adopting that as a way to limit everybody’s scope to emissions exposure.

Lyndsey Nielsen (00:58:54):

Dave, Dan, any final words?

Dave Lindenmuth (00:58:58):

No. I would just say that one of the lessons here that I see is that projects are very unique, and evaluating each project on its own merits and what incentives are out there and what carbon markets you’re connecting to is something that we can obviously help with. But also to consider, I mean, there’s lots of successful projects out there, but they’re all ultimately completed in a different way, and balancing your risk/reward and what market you want to be in is something that, you put those three pieces together, you can absolutely have a successful project.

Daniel Ciarcia (00:59:40):

Great. Just thanks again everyone for participating. My excitement is really seeing how much an interest and how much activity is around electric vehicles, renewable energy and the hydrogen space. Everything’s really emerging very quickly and all of these fuels and feedstocks are interconnected. So, it’s an exciting time, an exciting place to be. I know if you’re joining this webinar that you’re involved in a piece of this, and I’m sure feeling it as well. So, thank you again for joining. We appreciate it.

Lyndsey Nielsen (01:00:17):

Yeah. Thanks, everybody. And just to reiterate, everybody will be getting a recording of this presentation. And fill out the survey. We want to know what you think. Thank you. Have a good day.

Dave Lindenmuth (01:00:27):

Thanks, everyone.

Daniel Ciarcia (01:00:28):

Thank you all.