Greenhouse Gas Regulation Impacts

Ethanol producers will be among the list of regulated emitters if a proposed mandatory greenhouse gas emissions reduction program becomes law, making it vital for producers to know their options for reducing or selling carbon dioxide.
By Sam A. Rushing | August 10, 2009
Whether ethanol prices are high or low, there are benefits to be had for producers willing to expand their sale of byproduct. Carbon dioxide (CO2) sales can represent millions of dollars of revenue for a commercial-scale plant selling its raw gas. If the CO2 is liquefied and refined the product can represent significantly more value.

Companies that use CO2 in industry are wide in scope. Approximately 70 percent of the developed world market for CO2 is dedicated to the food and beverage-grade markets and up to 50 percent of the total CO2 merchant product used in food processing can offer unique opportunities for the ethanol industry.

Ethanol producers should understand the full market composition and potential for CO2 in order to determine if a direct-to-market scheme can be profitable or if seeking vendors is the way to go. Understanding the markets before choosing a gas refiner is essential to yield the best results for the ethanol producer. Also, defining current and new markets for CO2 will be useful in the event that greenhouse gas (GHG) reduction legislation efforts become law.

Legislation Impacts
The U.S. EPA published a finding earlier this year that stated CO2 is a hazardous GHG and a threat to public health. The finding was a precursor to the American Clean Energy and Security Act of 2009, otherwise known as the climate change bill, which includes language that would regulate CO2 emissions.

One possibility for regulating GHGs is the implementation of a cap-and-trade program. In this program, a cap would be established concerning a quantity of CO2 allowed to be emitted into the atmosphere. Companies would be allowed to trade carbon credits and, theoretically, the market would reward those who find ways to produce less CO2. Should there be an excess of credits, the company could sell these credits to other companies.

It is well known that the lion's share of CO2 emissions is derived from coal-fueled electric power plants. However, the EPA's recent proposed mandatory GHG reporting rule includes any large emitter of GHGs on its list of proposed entities that would be required to report emissions. This would include many ethanol production facilities. Therefore, producers should prepare to become a regulated emitter of GHGs.

It is initially understood that a threshold of 25,000 metric tons per year of GHGs will determine what facilities are required to report GHG emissions. A cap-and-trade system is intended to reduce industry GHG emissions. Once a cap on emissions is established, the ethanol producer would be required to find ways to reduce emissions and be rewarded via credits when less CO2 is produced. Each year, only a certain number of permits or allowances would be provided to emitters. These permits would act as currency and would allow a defined level of emissions established at the inception point of cap-and-trade. At the end of the year, if the emissions recorded are less than the start of the year, there would be a tradable or currency-like value established on a per ton basis - thus an economic reward. If the level of emissions is greater than the beginning of at the year, the result would be a charge against this currency-like system. If an emitter were to purchase CO2, the goal would be to evaluate the net emissions of CO2 not released back into the atmosphere--whetherIf an emitter were to purchase CO2, the goal would be to evaluate the net emissions of CO2 not released back into the atmosphere—whether in a primary manner (exhaust from the fermentation plant) to a secondary or tertiary application in industry (such as certain food and beverage applications)—to determine profit from or cost of the credits.

As to reducing the emissions to the atmosphere, an "over-the-fence," captive, or niche market which is consuming CO2 in the process versus simply displacing the product is a net reduction. The net reduction or consumption of CO2 could be via select applications in industry which combine a chemical process or perhaps a biological process with the carbon dioxide - thus not returning it to the atmosphere. Markets such as methanol, urea, and sodium bicarbonate could fit such definitions. Using the product in a wide variety of specific applications in industry could represent this reduction in emissions.

In the end, knowledge is essential on a plant-by-plant basis for the existing, potential and emerging CO2 markets; particularly seeking possible niche levels where CO2 is actually contained, combined, or consumed; thus representing a net reduction in annual output from an emissions perspective.. The goal is profits and protection on the part of the ethanol producer. The so-called currency in the form of CO2 allowances defined at the beginning and end of each year will represent monetary value when all is said and done. Be certain that markets are well known for CO2, and do not blindly accept the opinion of the gas suppliers, but rather independently investigate the markets, exceptions and advantages before negotiating with a gas company.

Sam A. Rushing is president of Advanced Cryogenics, Ltd, a carbon dioxide consulting firm based in Tavernier, Fla. Reach him at rushing@terranova.net or (305) 852-2597.