• EPA Cuts to Landfill Methane Emissions Create New Opportunities for Credit Trading and Gas¿to-Energy Projects
  • August 3, 2016 | Authors: Jay Holloway; Susan G. Lafferty; David M. McCullough; Ram C. Sunkara; Liz Williamson
  • Law Firms: Eversheds Sutherland (US) LLP - Washington Office; Eversheds Sutherland (US) LLP - Atlanta Office; Eversheds Sutherland (US) LLP - Washington Office
  • On July 14, the Environmental Protection Agency (EPA) issued its latest set of methane regulations as part of the Obama Administration’s Climate Action Plan: Strategy to Reduce Methane Emissions. The Administration issued two rules that govern municipal solid waste (MSW) landfills—New Source Performance Standards for Municipal Solid Waste Landfills (NSPS), and Emissions Guidelines and Compliance Times for Municipal Solid Waste Landfills (Emissions Guidelines). Both rules dramatically lower the emissions threshold at which a landfill must install controls. But unlike EPA’s May release of standards for new and modified oil and gas sources currently being challenged in the courts, EPA’s latest methane rules have met with little industry opposition. Environmental groups also support the new rules, hailing them as much-needed updates to the 1996 standards. The lowered emissions thresholds create significant opportunities for industry in gas-to-energy projects and in generating credits under federal and state emission trading programs.

    Which Landfills Are Subject to the New Rules?

    Owners of MSW landfills and owners of combustion devices that burn landfill gas (LFG) are potentially subject to the new rules. The EPA defines MSW landfills as those that receive any solid waste derived from households, and that may also receive other types of waste such as construction and demolition debris, small amounts of industrial or commercial wastes, and non-hazardous sludge. LFG results from organic matter from household and other waste streams decomposing in the landfill and is roughly 50% methane, 50% carbon dioxide, and less than 1% non-methane organic compounds (NMOC). NMOC can include volatile organic compounds, methane and hazardous air pollutants. Notably, the EPA is not regulating industrial landfills under the new rules.

    The NSPS apply to MSW landfills constructed, modified or reconstructed after July 17, 2014, and that have a design capacity of at least 2.5 million metric tons and 2.5 million cubic meters of waste. The Emissions Guidelines apply to MSW landfills constructed, modified or reconstructed on or before July 17, 2014, and that have a design capacity of 2.5 million metric tons and 2.5 million cubic meters of waste or more. Both rules cut the prior standard of 50 metric tons per year of NMOC emissions to 34 metric tons per year. Landfills expected to close within 13 months of the publication of the Emissions Guidelines in the Federal Register remain subject to the 50 metric tons per year threshold. States will have nine months in which to develop and submit state plans to implement the guidelines.

    Owners and operators of landfills should be aware of the types of waste received by their landfills as well as construction and modification dates in order to help determine whether they are subject to the new regulations.

    Non-Methane Organic Compound Threshold

    Upon reaching the new NMOC emissions threshold of 34 metric tons per year, an owner of a regulated landfill must install and operate a gas collection system within 30 months to control the LFG until the NMOC emissions are returned to below the threshold. Control options include routing the gas to a non-enclosed flare, an enclosed combustion device or a treatment system that processes the collected gas for subsequent sale or beneficial use. The latter two options offer the greatest opportunities for industry to benefit from existing state and federal programs for biogas.

    Specifically, the sale of electricity from LFG fueled reciprocating engines or turbines to the local power grid, and the sale of LFG to a direct end user in medium BTU applications or processed LFG to pipeline quality specifications, can all generate revenue for landowners because LFG is widely recognized as a renewable energy source. Once routed, the LFG may be used for power production, cogeneration, direct use or alternative fuel.

    In addition to gaining direct revenues from the sale of electricity, landfill owners can sell environmental credits under existing credit trading programs such as the federal Renewable Fuel Standard, the California Low Carbon Fuel Standard, the California Cap and Trade Program, and state renewable portfolio standards. To date, these programs have proved to be valuable sources of revenue, including increasing the value of the gas ten times its nominal value as an energy source. As a result, investors and project developers have rushed into the space in recent years. The new LFG rules will require more landfills to control emissions, thereby adding to the number of landfills that may be able to generate these environmental credits in the future. Certain LFG projects also may qualify for other cap-and-trade programs, such as the nitrogen oxide controls, and landfill projects may find revenue opportunities in any credit trading markets that emerge from the Clean Power Plan if upheld.

    New Opportunities

    The EPA states that it seeks to facilitate landfill gas energy projects and to provide technical resources through its Landfill Methane Outreach Program. Environmental groups and industry have voiced little opposition to the new standard. The Utility Air Regulatory Group has commented that CAA § 111(d) cannot serve to increase the stringency of standards for existing sources, but the inclusion of an “optional method,” whereby landfill owners can use monitoring data instead of modeling emissions, has softened much of any potential industry opposition. Environmental groups welcome the new rules as much-needed updates to the 1996 landfill emissions guidelines.

    Companies involved in emissions credit trading may find new sources for credit generation and greater trading opportunities. The EPA anticipates that the rules will result in a significant increase in methane capture from new and existing landfill operations. This increase can boost opportunities for using LFG as vehicle fuel, treatment for pipeline injection, and use as a raw material in a chemical manufacturing process or as fuel for a stationary combustion device. This includes landfill-gas-to-energy projects, with EPA projecting as much as $39.3 million in revenue from sales by landfills using reciprocating internal combustion engines to convert LFG into electricity. The regulations create new opportunities for landfill owners to play a more productive role in the growing and emerging emissions credit trading schemes throughout the country.