Working Paper
Facilitating Carbon Offset
Projects on North Carolina
Swine Farms to Encourage
Greenhouse Gas Emission and
Other Pollution Reductions
An Assessment of Aggregator Options and Offset
Ownership Issues
Authors
William McDow*
Tatjana Vujic**
Brianna Menke^
T.J. Mascia±
Ryke Longest*^
Heather Hosterman^*
* Southeast Regional Director, Center for Conservation Incentives, Environmental Defense Fund
** Director, Duke Carbon Offsets Initiative, Duke University
^ Nicholas School of the Environment MEM, 2009
± Duke School of Law, 2009, Nicholas School of the Environment MEM, 2009
*^ Director and Senior Lecturing Fellow, Environmental Law and Policy Clinic, Duke University
School of Law
^* Policy Associate at the Nicholas Institute for Environmental Policy Solutions and the Duke
Carbon Offsets Initiative
Environmental Defense Fund
Environmental Defense Fund is dedicated to protecting the environmental rights of all people,
including the right to clean air, clean water, healthy food and flourishing ecosystems. Guided by
science, we work to create practical solutions that win lasting political, economic and social support
because they are nonpartisan, cost-effective and fair.
©2009 Environmental Defense Fund
Executive Summary
Interest in projects that result in reduction of
greenhouse gas emissions, otherwise known as
carbon offset projects, has increased rapidly
over the past several years in the United States,
owing in large part to the growing demand from
individuals, companies and governmental
entities that wish to offset their own greenhouse
gas emissions to meet voluntary climate
neutrality goals, to supply emerging voluntary
markets, and to prepare for an anticipated
market for carbon established by a mandatory
cap-and-trade regime. While there is
considerable interest among farmers in North
Carolina to undertake such offset projects
primarily through the capture and destruction
of methane, there nevertheless have been very
few offsets actually generated in the state, and
even fewer have been sold or registered.
Swine farms present a particularly promising
opportunity for offset development in the state
of North Carolina. Because agricultural methane
projects as a category rank high in legislative
proposals for greenhouse gas (GHG) emission
reductions, offsets generated now from swine
manure management are almost certainly to be
recognized under a mandatory federal system
that allows capped sectors to purchase offsets to
meet a portion of their emission reduction
targets. Moreover, with some 2400-plus farms in
the state, methane capture or avoidance from
swine operations could yield as much as 5.59
metric tons of carbon dioxide equivalent
1
(MtCO2e) reductions per year. Finally, because
of state legislation passed in 2007 that requires
North Carolina utilities to generate at least 0.2%
of electricity from swine farms, there is even
greater demand for capturing waste from swine
farms to turn it into energy, which would be
accomplished most conventionally by powering
generators from methane from the waste but
potentially by co-firing or gasifying waste solids.
If done with proper forethought, projects
that reduce greenhouse gas emissions from
swine farms could have a twofold—and even
threefold—benefit by (1) reducing methane, a
powerful greenhouse gas, from swine farms; (2)
effecting dramatic reductions in pollution
associated with traditional lagoon-andsprayfield systems; and (3) by generating
electricity to meet state Renewable Energy and
Energy Efficiency Portfolio Standard (REPS)
requirements. The ultimate carbon offset project
therefore would be one in which innovative
waste management systems could be employed
to generate electricity, drastically reduce
ammonia emissions, odors, pathogens,
phosphorus, and heavy metals on farms (i.e.,
meet state environmental performance
2
standards for new and expanding swine farms),
and generate carbon offsets.
This report outlines how farmers could tap
into emerging carbon offset markets as well as
what is needed to help farmers enter this market
place in a way that yields two and perhaps all
three of the benefits described above.
Specifically, the report investigates and
recommends options for developing a carbon
offsets aggregator in the state, with a focus on
how to encourage projects that employ
technologies that meet environmental
performance standards for new and expanding
swine farms (the status of technology options
are outlined in Table 1 below) Several models
are offered that could enhance financing
opportunities. Finally, the report addresses
contract issues that may arise between farmers
and integrators and make recommendations for
how farmers and developers can protect
i
ownership interests in offsets when developing
projects.
It is important to note that while the
underlying premise of this project was the need
to establish an appropriate aggregating entity to
coordinate and pool offsets generated on North
Carolina swine farms, it has become clear that
the more important issue may lie in the
identification of funding to install innovative
waste management systems that can generate
saleable carbon offsets. Carbon aggregating
entity options therefore have been evaluated
with funding sources in mind.
Finally, in addition to identifying ways to
incorporate pollution control benefits into
carbon offset projects, this report strives to
provide a foundation for developing strategies
for moving carbon offset projects from singular
and discrete bilateral agreements to a broader
aggregation model. This working paper
purposely has been written with an eye toward
encouraging some form of state standards or
guidance to help support sound projects across
the agriculture and forestry sectors generally in
the absence and anticipation of a federal capand-trade regime.
TABLE 1
Summary of Innovative Swine Waste Management Technology Options
Outputs
Solid-Liquid
Separation
Solids Treatment
Liquids
Treatment
Liquids
Disposal
Meets
Performance
Standards
Gasifier
offsets energy
Yes
gasification n/a
n/a
Separated Solids +
Composting
offsets
Yes
composting n/a
n/a
approved 2005
Solid Separation w/
Liquid Treatment
offsets
Yes
separation/
vermicompost nitrification/
denitrification
drinking water
and barn flush
approved 2005
Combustion FBR
offsets energy
Yes
combustion n/a
n/a
High Solids Anaerobic
Digester
offsets energy
Yes
anaerobic digestion n/a
n/a
Anaerobic Digester
offsets energy
No
anaerobic digestion nitrification/
denitrification
sprayfield and
barn flush
Separated
Nitrification Process
n/a
Yes
n/a nitrification/
denitrification
sprayfield and
barn flush
ii
approved 2009
CHAPTER 1
A Brief Introduction to Carbon Offsets
Carbon offset credits are created when an entity
not subject to an emissions cap reduces its
atmospheric greenhouse gas emissions either by
reducing emissions or sequestering carbon and
3
other GHGs. Under proposed “Cap and Trade”
programs, large emitters are allotted a certain
number of allowances to emit GHGs, and must
either reduce their emissions to meet their
emission allocation cap, pay another emitter to
use the other emitter’s allowances, or purchase
offset credits. The idea of offsetting emissions
has been part of international mechanisms like
the Kyoto Protocol, the European Union’s capand-trade system and models for controlling
U.S. GHG emissions for some time. Proposed
legislation before Congress will allow for
somewhere in the realm of 15% of emission
reductions to be met with offset credits from
uncapped sectors like agriculture and forestry,
with agricultural methane projects very likely to
4
be recognized as a major source of offsets.
In addition to a likely mandatory market, a
voluntary carbon market has developed in
anticipation of the coming mandatory regime.
Specifically, companies and individuals are
purchasing carbon offsets now to sell into the
market later or stockpile against future emission
5
reduction requirements. In addition, the
voluntary market also supplies carbon offset
credits to those who wish to reduce their own
“carbon footprints” or become carbon neutral,
regardless of whether they will some day be
subject to a mandatory cap. These entities often
wish to achieve carbon neutrality out of a desire
to help mitigate climate change, which
oftentimes translates into good public relations
or as a response to investor concerns. It is this
voluntary market with which this report is most
concerned.
Several different standards exist for offsets,
depending on the exchange or system under
which they are sold or traded, as well as the
preferences of the offset developer and/or
purchaser. Among the various standards, it is
generally accepted that a credible offset is one
that is:
(1) additional, (2) quantifiable, (3) real, and (4)
permanent. “Additional” means that the offset is
generated by an activity that would not have
occurred otherwise. “Quantifiable” simply
means that the carbon reductions can be
measured. “Real” means that the reductions
have been verified or are verifiable. Finally,
“permanent” means that “the emissions
reduced, avoided, or sequestered by a project
will not be released into the atmosphere in the
6
future.” A list of the most prominent voluntary
carbon offset project standards and what they
require is provided in Appendix A.
The diagram above helps to illustrate the
major steps involved in developing successful
carbon offset projects. Each step may be
assigned to a role in delivering credits, some of
which may be combined. These roles include:
• Project Developers, who are responsible
for producing the offset. The project
developer can be either the farmer or an
outside investor interested in the carbon
offset, both of which are driven by
economic considerations like access to
funding and economic and technical
feasibility considerations.
• Aggregation of individual offsets projects
into larger bundles, required to produce
offset credit volumes which can be more
easily traded on open markets. Aggregation
can be accomplished by the project
developer or by an independent aggregator.
• Verifiers, who ensure that the four basic
offset criteria outlined above are met, and
are also responsible for applying the
standards adopted by the project developer
or voluntary market. These will likely be
standards followed by existing mandatory
markets plus may include criteria that
reflect the accomplishment of other
pollution reduction goals. See Appendix B
on verification and validation.
• A Central Registry guarantees that carbon
offset credits are counted only once, and
tracks carbon offset production and
purchases.
1
FIGURE 1
Points of Engagement in the Offsets Value Chain
7
These criteria plus additional checks on the integrity of a carbon offset project are reflected in the common structure of an offset project,
illustrated by the offsets value chain produced by Duke University in contemplating its goal of attaining climate neutrality.
Source: Duke University
• The final and critical step requires a Final
Purchaser to buy the offsets. The purchaser
may seek to buy credits on an exchange
where bundled offsets can be purchased or
may seek to purchase offsets directly. Often
final purchasers will rely on a third party
aggregator or project developer to bundle
or aggregate offsets generated from
individual and discrete projects that might
otherwise not be sold due to high
transaction costs . The final purchaser may
also provide project development capital.
The various individual components described
above can be carried out by one or more
entities. For example a project developer may
serve as the final purchaser, thereby eliminating
the need to place the offsets on an exchange or
with a broker for sale on the open market. In
other cases, the aggregator may serve as the
project developer, supplying funding to develop
projects and then bundling them for sale to
third parties.
In some instances, a carbon offset project
may require additional environmental
performance standards above and beyond the
2
four basic criteria outlined above (additional,
real, quantifiable, and permanent). One major
concern surfacing from the emerging carbon
market is that projects undertaken to reduce
GHGs do not precipitate a negative effect on
other important environmental values.
Conversely, just as a carbon credit is a form of
marketable commodity that can be bundled
with other credits to make a more valuable
package based on quantity, a bundle of
ecological services including carbon as well as
protection of water quality and air quality is a
more valuable commodity and should yield a
higher financial return. For purposes of this
report, such bundles of environmental and
ecological benefits will be referred to as “high
integrity projects.” By way of example, carbon
offset projects that simply cover lagoons to
capture methane without further treating the
waste may be exacerbating nitrogen
concentrations in lagoon waters, thereby
oversaturating sprayfields with high-nitrogen
content liquids that will be flushed into surface
or groundwaters. On the other hand, projects
that employ innovative systems—and can
guarantee other environmental benefits—
should present a more attractive investment and
hence fetch a higher price.
It is expected that high integrity projects will
garner a higher price in the marketplace
because of the added features alluded to above,
such as providing other environmental or
societal benefits not necessarily related to
carbon reductions. In this report, while the
focus is generally on proposals to stimulate a
market for reduction of GHG emissions on
swine farms by developing an appropriate
aggregation model (with special attention to
financing options), this report is particularly
focused on stimulating development of high
integrity carbon offset projects that address the
other inherent pollution problems associated
with large animal feeding operations in North
Carolina. Specifically for swine farms, high
integrity projects would not only reduce
methane emissions but also would employ
waste management systems that meet state
environmental performance standards for
control of ammonia emissions, pathogens,
odor, metals and zero discharge of water
pollutants.
CHAPTER 2
The Role of the Aggregator
As mentioned above, North Carolina lacks a
regional aggregating body that can take offsets
generated on individual farms and through
individual projects and bundle them for sale to a
final purchaser or delivery to an exchange or
market. Aggregators play an extremely
important role in emerging carbon markets,
especially when small-scale carbon offset
projects are involved. Aggregators act as
collecting agents, amassing carbon offsets from
numerous smaller sources into a large bundle of
carbon credits that can then proceed to the
market. Profits then accrue to the smaller
producers who likely would not otherwise have
been able to break into the market to sell their
offsets.
In the case of North Carolina’s swine
industry—the second largest in the nation—
aggregators would function as an intermediary
between swine farmers and the larger carbon
offset market (or purchaser); accumulating both
methane-capture-only and high integrity offsets
from farmers’ methane capture and greenhouse
gas emission reductions and marketing them to
interested parties. At the national level, this
market is gaining considerable momentum,
boasting an increase in the supply of carbon
offsets from 6.2 million tons in 2004 to 10.2
million tons in 2007 and involving over 600
organizations in the process of development,
marketing, and sale of offsets in the United
8
States. The rapid expansion of this market in
conjunction with the potential to generate some
5.59 MtCO2e per year of carbon offsets in North
Carolina from swine farms creates the
possibility of substantial economic returns to
9
swine producers.
Ideally, initial aggregators for North
Carolina’s swine industry will serve not only the
aggregator role, but also function as a project
developer. In order for these projects to begin to
get underway, an aggregator capable of carrying
out project development functions will be
necessary to supply the capital needed to
initiate projects. Moreover, a dual aggregator/
project developer is better suited for overseeing
the entire process of carbon offset production
and marketing. Specifically, an aggregator/
project developer could work first to provide
educational opportunities to potential offset
sources, such as farmers, in order to generate
interest in offset projects. An aggregator/project
developer also would be responsible for
generating capital to fund projects and would
potentially directly aid swine producers in the
installation of the technologies necessary for
greenhouse gas emission reductions.
In addition, the aggregator/project developer
would identify the standards for the projects,
options for verifying any offsets produced, and
ensure the proper registration of the verified
offsets. Finally, the aggregator/project developer
3
could manage an offsets credit database to
facilitate the trading process and effectively
monitor and record all transactions while also
ensuring that payments are received by the
original offset-purchasing entity.
There are several models for aggregating
entities that could be applied to the swine
industry in North Carolina. These options take
the form of aggregation programs already in
existence as well as programs that, if properly
developed and implemented, could be effective
aggregators for an emerging high integrity offset
market.
The identified aggregation options can be
categorized into the following models:
(1) Non-profit organizations and
cooperative associations;
(2) LLCs and other for-profit business
entities;
(3) State-sponsored organizations; and
(4) Hybrids of the aforementioned options.
As discussed below, while existing aggregators
may have the potential to service the North
Carolina swine industry, research completed for
this report indicates that existing entities are not
currently suitable for the aggregator role.
Development of new programs, on the other
hand, could foster a more robust market for
high integrity offsets in the state of North
Carolina.
CHAPTER 3
Review of Existing Aggregator Models and
their Suitability for North Carolina
This section provides a review of four
organizational models employed by existing
aggregators: (A) not-for-profit organizations; (B)
LLCs and other for-profit business entitites; (C)
state government or regionally managed
aggregators; and (D) hybrid solutons. These
aggregator types are each addressed
independently in the subsections below.
A. NOT-FOR-PROFIT
ORGANIZATIONS
1. Farmer-Managed Organizations
A few farmer-managed aggregators have played
a leading role in bringing emission reduction
credits from the nation’s farms to the voluntary
carbon marketplace. Recognizing a significant
financial opportunity for their members, the
Iowa Farm Bureau Federation (IFBF) and the
National Farmers Union (NFU) became two of
the first movers in the agricultural credit
aggregation arena. Over the past half decade,
these organizations have successfully developed
and expanded their aggregation programs,
4
establishing themselves as top suppliers of
aggregation services to offset-producing
farmers.
The success of the IFBF and NFU
aggregation programs highlights the advantages
of farmer-managed aggregation. As
organizations specifically designed to serve
farmer members, farmer-managed entities are
inherently well-poised to transition into
aggregators. With an existing network of farmer
members, farmer-managed aggregators start
out with a ready customer base of offset
providers. This saves these organizations from
the ordinary delay and costs associated with
identifying and building relationships with
offset providers. In addition, farmer-managed
aggregators have an established framework for
accessing their supply base. Moreover, farmers
generally trust these organizations, a critical
element in the launch of any new program or
product.
One of the few but major disadvantages of
the farmer-managed aggregator model is
resource availability. These organizations
typically operate as non-profit organizations
and are thus largely dependent on members for
financial support. As such it can be difficult for
farmer-managed organizations to develop
sufficient capital to fund the up-front costs to
develop aggregation programs as well as the
cost of hiring or gaining the expertise needed to
oversee the day-to-day administration of an
aggregating body. Further, because these
organizations are so member-dependent,
internal politics can be a significant practical
barrier to operating an entity that can require a
highly technical skill set.
In analyzing famer managed options for
North Carolina, it is helpful to look at specific
examples.
For example, one option could be for
North Carolina’s Farm Bureau to provide some
type of aggregation services, similar to other
state farm bureaus that currently provide
aggregation services on behalf of their
members, either by directly aggregating
member-generated offsets (see Iowa Farm
Bureau example in sidebar) or by linking
10
members with an existing aggregator. The
other organization that might serve in some
capacity as an aggregator within the swine
industry is the group Frontline Farmers, a
loosely formed organization of self-described
progressive contract swine growers. The
organization’s willingness to embrace
innovative swine waste treatment technologies
would make them specially suited as an
aggregator of high integrity projects. However,
the group lacks the access to capital needed to
develop large-scale carbon offset projects, nor
does it have the organizational capacity or
expertise required to administer such an entity
at this time.
A final option would be for state farm
organizations such as the North Carolina Farm
Bureau or Frontline Farmers to partner or
contract with an existing farmer- managed
aggregator. Two examples of this arrangement
are found in the Midwest. First, a number of
state farm bureaus have partnered with an
existing aggregator, specifically IFBF’s AgraGate
Corporation, agreeing to serve as contract
11
facilitators. Similarly, the North Dakota
Farmers Union (NDFU) has created the Carbon
12
Credit Program. The NDFU acts as the
13
program’s administrator and aggregator. The
other state participants essentially act on behalf
Iowa Farm Bureau: Case Study
of an Early and Successful
Aggregator
The Iowa Farm Bureau Federation (IFBF)
began its carbon credit aggregation
program in 2003 to assist Iowa farmers and
landowners in planning GHG offsetting
activities and marketing the resulting
1
credits. IFBF became one of the first
registered aggregators on the Chicago
Climate Exchange (“CCX”), a credit trading
1
platform which also opened in 2003. IFBF’s
aggregator status enabled it to serve as the
link between individual agricultural offset
providers (farmers) and offset purchasers
on CCX.
In its first few years, IFBF’s carbon credit
program proved very successful, perhaps
even exceeding its own expectations. By
2007, IFBF had enrolled more than
1,000,000 acres from agricultural and
1
forestry projects in 16 different states. In
response to this growing demand, IFBF
sought to expand its program by launching
the AgraGate Climate Change Corporation,
a wholly owned subsidiary of IFBF
specifically designed to administer broad
aggregation services and other enhanced
1
program features. Today IFBF, through its
subsidiary AgraGate Corp., claims to be the
largest supplier of aggregation services to
1
the agricultural sector in the nation. In the
case of the IFBF and AgraGate, the projects
primarily involve crop or planting
modifications with some manure digesters,
which are less complicated—and less
expensive—than the waste systems
currently under development in North
Carolina.
of their respective members as contract
14
facilitators for the NDFU. Profits made from
aggregation fees are split between the NDFU
and participating state Farmers Union
15
organizations.
As contract facilitators, farmer-managed
organizations provide a link between their
farmer members and an aggregator. In this
5
capacity, state farm bureaus and farm unions do
not engage in direct contracting with individual
16
offset providers. Instead, they do the on-theground work for the aggregator; working with
farmers to develop projects, identifying and
enrolling qualifying projects, and verifying that
offset projects are meeting the terms of their
17
aggregation contracts.
In North Carolina, because offset projects
involving swine operations are generally
resource intensive, and particularly because
raising substantial capital up front for projects is
a necessity, the farmer-managed aggregator
model will not likely be the best to apply – at
least at the outset when it is unclear to farmers
what their financial return or benefits will be for
installing innovative waste management
systems.
2. Farmer Cooperatives
Cooperatives are a distinct form of business
organization owned and democratically
18
controlled by an equal membership. Although
organized as a corporation, cooperatives differ
from typical, profit-maximizing investor-owned
firms in that they seek to maximize the benefit
19
they generate for their members. As such,
cooperatives generally operate at little or no
20
profit.
In North Carolina, a farmer-cooperative
could potentially provide a vehicle for including
organized, farmer-controlled participation in
the overall process of promoting and marketing
swine farming offsets. The absence of any sort of
farmer-cooperative aggregation in other states
however is perhaps a signal that this type of
entity is not well-suited for such a purpose.
Nevertheless, given the current lack of proven
alternatives, this novel approach to farmer-run
aggregation is at least worthy of consideration.
Agricultural cooperatives, commonly
referred to as farmer’s co-ops, occur in two
primary forms: supply cooperatives and
marketing cooperatives. Agricultural supply
cooperatives are typically formed to supply their
members with inputs of production (e.g., seeds
or farming equipment). Agricultural marketing
cooperatives, by contrast, are usually formed by
farmers to provide for the distribution and
marketing of farm products. Swine offsets more
6
closely resemble a farm product than a
production input, thus a farmers’ co-op created
for the purpose of promoting offset trade would
necessarily take the form of a marketing
cooperative.
Before whether a farmer cooperative would
be an appropriate aggregating model can be
evaluated, it must first be determined if the legal
authority exists for such an entity. In North
Carolina, the state’s Cooperative Marketing Act
specifically authorizes the formation of
21
agricultural marketing co-ops. The Act
provides that a cooperative association “may be
organized to engage in any activity in
connection with the producing, marketing or
selling of the agricultural products of its
members and other farmers … or the
manufacturing or marketing of the by-products
22
thereof.”
A critical initial question therefore is whether
swine waste-derived carbon offsets would fall
within the scope of the Act as either “agricultural
products” or “the by-products thereof.” An
evaluation of the statutory language makes it
likely that swine waste-derived carbon offsets
would not qualify as an agricultural product but
would qualify as a by-product of agricultural
23
products.
Assuming then that the legal authority exists
for the creation of a farmer cooperative, there
remains a question as to what extent the
marketing farmer co-op form might be
inherently limited thereby making the project
impractical. The first such potential limitation
with a North Carolina-based farmer co-op is the
general restriction on co-op membership.
Under North Carolina law, a farmers’ marketing
co-op may only admit as members “persons
engaged in the production of agricultural
24
products” or byproducts. This restriction
would effectively limit the co-op’s membership
to farmers actively engaged in offset
production. Given that offsets trade is still in its
infancy in North Carolina, it may be a long time
before there are enough offset producers to
provide for a critical mass of eligible co-op
members. With such constraints in place, an
offset marketing co-op would not be able to
enjoy member benefits on a scale comparable
to that of the existing farmer-managed
aggregators explored above.
A second limitation inherent in the farmer
co-op form is the relative inability to generate
capital. For one, associations formed under
North Carolina’s Cooperative Marketing Act are
“deemed nonprofit, inasmuch as they are not
organized to make profits for themselves, as
such, or for their members, as such, but only for
25
their members as producers.” On the one
hand, this would ensure that the farmer co-op
maintains a primary focus on deriving benefits
for its offset producing members. On the other
hand, it would also severely deter outside
investment. With a focus solely on member
profits mandated by law, such a co-op would be
hard pressed to attract outside investors who, by
legal definition, could not be considered
members. Further financial constraints are
imposed under North Carolina statute, which
prohibits any marketing co-op from “…
perform[ing] services for and on behalf of
nonmembers to an amount greater in value
than … performed by it for and on behalf of
26
members.”
Given these limitations, a farmers’ co-op in
North Carolina would seemingly be forced to
derive all or most of its capital from its
members. This is especially limiting given the
constraints the law places on cooperative
membership and the capital costs expected in
connection with installing innovative waste
management systems and the administrative
costs associated with aggregation. It therefore
appears highly unlikely that an offset marketing
farmer co-op in North Carolina would be able to
develop the financial capacity to establish and
sustain itself as an aggregation service provider.
It is worth noting that even if a farmers’
co-op does not have great potential to serve as
an actual aggregator, such an association may
nevertheless be worthwhile to establish in North
Carolina’s case. The co-op envisioned here could
still play a significant role in the development of
the state’s swine offset framework. For one, a
cooperative of this sort would help to ensure
that North Carolina’s swine farmers have a
collective voice in the planning and
implementation of a statewide swine offsets
program. As eluded to in section VI infra, it is
possible that swine integrators in the state could
attempt to impose additional contractual
provisions on growers in order to exert control
over swine offset credits. A cooperative
association would greatly enhance the
bargaining power of swine farmers, enabling
them to better resist this potential threat to their
common offset credit rights.
Moreover, beyond providing a supporting
structure for advancing the basic interests of
swine producers, a farmer-cooperative could be
formed to help to promote swine offset projects
and bring the resulting credits to the
marketplace. Like the farmer-managed
organizations discussed above, the farmercooperative proposed here presents an ideal
framework for facilitating aggregation. Such an
association would have a built-in network for
supplying information to potential offset
producers, which would be its individual farmer
members. This farmer-cooperative would be
able to readily identify qualifying projects, and
thus offers a logical mechanism for enrolling
member credits with aggregators or direct
purchasers.
Regardless of its eventual role, the key factor
in gauging the potential of the farmer
cooperative model in North Carolina is the level
of interest among farmers in forming and
administering such an entity. It may be
worthwhile to approach farmers with such a
proposal to gauge actual interest and
commitment before seriously pursuing a
cooperative model.
3. Non-Profit / NGO Aggregation
A number of nongovernmental organizations
(NGO) and non-profits have emerged onto the
aggregation stage in recent years. A few of these
organizations are themselves registered with the
Chicago Climate Exchange (CCX), a private
carbon offset registry. The more common NGO/
non-profit approach to aggregation, however,
appears to occur via larger partnerships with
various other private and public entities. (See
section 4 on Hybrid Approaches for examples.)
An example of a more common non-profit/
NGO aggregation model is Montana’s National
27
Carbon Offsets Coalition (NCOC). The NCOC
was created several years ago through a
partnership among several Montana non-profits
with interests ranging from conservation to
28
economic development. These distinct partner
7
interests were integrated into the NCOC’s
design, yielding a uniquely comprehensive
aggregating entity. In addition to providing
direct assistance with project planning and
documentation, services not offered by typical
aggregators, the NCOC is dedicated to beyondmarket goals such as educating offset producers
and improving the underlying science and
policy of offsets.
NGOs and nonprofits enter the business of
aggregation with many of the same built-in
advantages as farmer-managed organizations.
One important additional advantage, however,
is that NGOs and non-profits have established
frameworks for accessing funding sources, and
are thus relatively efficient in securing financial
contributions for offset projects. Another
significant advantage is the ability of NGOs and
nonprofits to effectively coordinate
partnerships. These organizations typically have
access to a broad network of other similarly
motivated entities in the private and public
sectors in which they can readily find potential
partners. Finally, because non-profits and NGOs
are not motivated primarily by profit, they tend
to have a more dedicated focus on offsets
standards and normally pursue aggregation as
part of broader conservation efforts rather than
as a discrete business venture. In this way, these
organizations arguably achieve a broader
positive environmental and social impact than
most profit-driven aggregators.
One potentially negative feature of nonprofits worthy of consideration is their taxexempt status. While generally considered an
advantage, in the aggregation context, nonprofit
status can actually be a significant limitation. To
be recognized as exempt under the Internal
Revenue Code, an organization must be
operated exclusively for one of the exempt
29
purposes specified in section 501(c)(3). Section
501(c)(3) limits purposes largely to religious,
30
charitable, educational, and scientific. While
aggregation of carbon offsets arguably qualifies
as a ‘scientific’ purpose, it is possible that such a
construction could be vulnerable under the tax
code. Thus, a non-profit may not be able to
actually operate as an aggregator without
threatening its tax-exempt status. This may
explain why the role of non-profits in
aggregation is generally only complementary.
8
However, the story of the Delta Institute,
discussed below in Section 4, provides one
example of how a non-profit could effectively
work around this limitation by channeling
aggregation and trade activities through a non31
tax exempt subsidiary such as an LLC.
In the nonprofit arena, North Carolina faces
the same dilemma identified in the context of
farmer-managed aggregation in that there are
few existing options. One potential option in the
non-profit carbon aggregator realm, however, is
a non-profit affiliated with an academic
institution or institutions to channel or pool
investments from a consortium of academic
institutions that have committed to becoming
carbon neutral and wish to achieve their carbon
neutrality goals in part through offsets. Under
this scenario, it is likely that academic
institutions would be interested in purchasing
or developing only those offsets produced in
highly environmentally and socially beneficial
ways, such as those previously identified as high
integrity offsets. It appears that if academic
institutions in the state were interested in
pooling resources to support the development
and aggregation of high integrity carbon offsets,
they could become an honest broker with ample
expertise for farmers and purchasers of carbon
offsets alike for whom to turn and would avoid
running afoul of non-profit requirements.
Duke University is one such academic
institution that has committed to developing
and facilitating the development of highintegrity local (i.e., North Carolina and
Southeastern-based) carbon offsets. Duke
University is a member of the American College
and University Presidents’ Climate Commitment
(ACUPCC), a national consortium of 650-plus
college and university presidents who have
committed to greenhouse gas emission
32
neutrality and sustainability. As part of the
university’s pledge to work toward climate
neutrality, the University has developed a
strategy for meeting emission reduction goals
and developed the Duke Carbon Offsets
Initiative to investigate the use of locallyproduced offsets to meet its goals. Through the
Initiative, Duke University has begun to scope
how to build a program for generating at least
enough carbon offsets to meet its internal
demand and is contemplating how to help other
academic and nonprofit institutions meet their
goals.
For institutions that have joined the
ACUPCC, it is essential that their projects meet a
high level of environmental performance, which
in the case of offsets from swine waste projects
would include achievement of the performance
standards adopted for new and expanded
33
farms. That high standard in turn likely will
yield a higher price per offset, exampled by the
range of costs per offset that Duke University is
34
contemplating. Duke University would
therefore be one such institution that could
serve in an aggregating role for the state. With
special expertise in climate change and marketbased systems, it could work with other North
Carolina academic institutions to pool resources
for the development of offset projects, hence
serving as a catalyst and facilitator for offset
projects. The university also could potentially fill
an aggregating/project development function
through an LLC arm, as described below.
Generally speaking, the nonprofit model may
be well-suited for North Carolina because the
existence of other motives besides profitmaking would allow for the adoption and
application of higher standards that account for
other environmental and societal benefits.
Along those lines, the nonprofit also could
cultivate purchasers who would be willing to
pay a higher premium for projects that address
more than just greenhouse gas emission
reductions. And in North Carolina, because of
the interest in renewable energy production, it
could be possible for the nonprofit to find
creative ways to establish other income streams
that would pay for other environmental assets
produced by innovative systems, such as
renewable energy or ecosystem services, to
finance offset projects, which could also be the
case for an LLC, as described below.
B. LIMITED LIABILITY
COMPANIES AS
AGGREGATORS
While no specific business type dominates in
the aggregation world, the LLC is clearly a
favorite. Of the one hundred or so aggregators
currently registered with CCX, nearly one-third
35
are limited liability companies (LLCs). This
same trend toward the LLC is echoed across
nearly all business sectors in the United States.
The LLC brings together some of the most
favorable aspects of more traditional business
forms: combining the tax advantages and
management flexibility of partnerships with the
36
liability protections of corporations. Like
partnerships, LLCs enjoy the financial
37
advantage of pass-through taxation. In other
words, LLCs themselves are not taxed at the
company level. Rather, taxes on profits and
deductions for losses are assessed at the
individual level of each LLC member, or owner.
Thus, LLCs and their member-owners avoid the
“double taxation” normally associated with the
corporate form. In addition to tax advantages,
the LLC form allows for considerable flexibility
in shaping management. LLCs can be managermanaged or member-managed, and may have
an unlimited number of members with
38
ownership interests. LLC laws generally require
only that such management decisions be
formalized in an operating agreement. As such,
the LLC provides a much more flexible
framework than that of corporations or even
39
partnerships.
Another key advantage of LLCs is liability
protection. As with the shareholders of a
corporation, the personal assets of LLC
members are substantially shielded from
40
business debts. When a lawsuit or judgment
against a properly structured and managed LLC
arises, each member’s liability will be limited to
41
the amount it has invested in the company.
Such limited liability protection is generally not
available to individual members in partnerships
and various other non-corporate entities.
A final notable advantage of LLCs is the
relative ease of establishment and
42
recordkeeping. In nearly all states LLC
formation is a relatively inexpensive process
that simply requires creating and filing an
operating agreement with the secretary of
43
state. In addition, unlike corporations, LLCs
are not required to hold annual meetings or
44
keep records of meeting minutes.
As noted above, the LLC appears to be a
relatively popular business form among existing
aggregators. This trend does not necessarily
confirm that the LLC is the superior aggregator
business model, however. Here, as in nearly all
9
modern business contexts, the recurrence of
LLCs is likely largely a product of investor
preference and familiarity. The LLC has become
the most familiar and favored form among the
45
vast majority of private investors. Facing high
financial demands at start-up, most emerging
aggregation companies will have to rely heavily
on capital contributions from outside investors.
In North Carolina, because high financial
investment is imperative to project
implementation, an LLC that can raise capital
from private investors and provide investors
with confidence may make the LLC one of the
most attractive aggregating options. The key for
the LLC model would be to ensure that the
standards adopted would reflect the high
integrity attributes important for addressing the
specific issues associated with swine farms.
Adequately facilitating capital for project
construction and marketing swine offsets
produced in the state will require a businessminded, private sector approach to aggregation.
In the ideal case in North Carolina, the state, key
stakeholder groups, and outside investors would
all assist in the design, creation, and
management of a private aggregator. While this
private aggregator could conceivably operate
under a number of different business models,
the LLC appears to be the most practical choice.
Section VI.A. below specifically addresses this
preferred approach to effecting private
aggregation in North Carolina.
C. STATE-SPONSORED
AGGREGATION
There are several examples of existing Statesponsored aggregation options. In North
Carolina, while the state does not have a per se
aggregating entity, it has shown some interest in
addressing climate change in general through
the Global Warming Commission, a study group
on climate change convened by the legislature,
and could extend aggregation services through
programs already in place as described below.
State interest may grow as federal stimulus
package monies tied to energy efficiency and
green economy goals make their way into the
state.
In the Midwest, the Illinois Climate Change
46
Initiative (ICCI) and the Michigan Climate
10
47
Change Initiative (MCCI) represent examples
of state-sponsored carbon trading programs
that have partnered with an outside group to
effectuate the sale of offsets to an exchange.
State agencies under these programs essentially
act as contract facilitators for a single
aggregator, the non-profit Delta Institute, which
will be described in more detail below in the
section on hybrid systems. In addition, state
agencies serve as project verifiers in exchange
for compensation. These projects allow farmers
in both states to generate and market
greenhouse gas emission offset credits when
they employ conservation tillage, plant grasses
or trees, or capture methane with manure
48
digesters.
In the Southeast, other states have taken a
less direct approach to promoting offset trading
by establishing carbon offset credit registries.
Georgia’s Carbon Sequestration Registry is one
such example. The Georgia state assembly
enacted legislation in 2004 to establish a nonprofit registry that would provide an official
mechanism for the development,
documentation, and reporting of carbon
49
sequestration projects undertaken in Georgia.
The Registry is administered by the Georgia
Forestry Commission (GFC) and the Georgia
Superior Clerks Cooperative Authority
(GSCCCA). Participation in the Registry is
completely voluntary.
Georgia’s Registry differs from the ICCI and
MCCI models in that it does not provide a
framework for the actual marketing of credits.
Rather, the Registry is designed simply to allow
for the reporting of offsetting activities. It does
not aggregate credits for sale or broker financial
transactions and does not assign a dollar value
to reported credits. This Registry works for
facilitating future trade. The lesson for North
Carolina is that such registries could be used to
set standards for high-quality or high-integrity
offsets or at least track such attributes. Further,
because they are backed by state governments,
these registries are viewed as highly accountable
in the marketplace. Thus, registry participants
will generally be able to readily move their
recorded credits from a state-sponsored registry
to the marketplace.
The Texas Forest Service also has initiated a
carbon credit program that allows landowners
to register their land as a viable carbon
sequestration site under three possible
methods:
(1) afforestation; (2) managed forests; and (3)
long-lived wood products. The Texas Forest
Service is certified as an authorized verifier of
these offsets, which are aggregated by one of the
available entities, most commonly the Delta
Institute, Agragate, and F & W Forestry Services.
The verified offsets are then sold as credits on
50
the CCX.
In terms of an existing North Carolina
governmental structure that could take on the
responsibility of creating and managing at least
a registry, the North Carolina Division of Soil
and Water Conservation ranks as a leading
candidate. The Division recently launched the
Methane Capture Pilot Program, which aims to
encourage the production of electricity from
swine waste. This program is managed jointly by
the Department of Environment and Natural
Resources (through the Division of Soil and
Water Conservation) and the N.C. Utilities
Commission, and can allow for the participation
of up to fifty swine farms. Pursuant to the 2007
Swine Waste Environmental Performance
Standards Act, the power supplier for each farm
may purchase the electricity that is generated
51
from the captured methane. Although the
current format of this program is not specifically
targeted at generating carbon offsets, it could be
a conduit for aggregating methane reductions
for North Carolina swine producers.
D. HYBRID SYSTEMS AS
AGGREGATORS
In reviewing the various options for aggregation,
it is clear that there is no limit to the ways that
the attributes of each could be combined—or
coupled with another entity—to create a hybrid
system capable of developing, facilitating,
bundling—and even verifying—offsets for sale.
A notable example of a “hybrid” aggregating
system is the Delta Institute’s collaboration with
the states of Michigan and Illinois, mentioned
briefly above.
The Delta Institute is an ”independent”
501(c)(3) NGO/non-profit organization founded
in 1998 to undertake environmental quality and
economic development projects in Illinois and
52
the Great Lakes region. The Institute, through
its limited liability corporation called the
Pollution Prevention and Energy Efficiency
Center, LLC, is now a registered CCX aggregator
capable of serving offset producers across the
country. While the Delta Institute is itself an
aggregator, most of its aggregation work is
conducted in connection with strategic
partnerships that the Institute formed with the
states of Illinois and Michigan. As part of these
partnerships, the Delta Institute specifically
manages aggregation of all credits flowing out of
the state-sponsored carbon sequestration
programs in Illinois and Michigan—commonly
referred to as the Illinois Climate Change
53
Initiative (ICCI) and the Michigan Climate
54
Change Initiative (MCCI). Under both the ICCI
and MCCI, state agencies in charge of soil and
water conservation serve as contract facilitators
55
for the Delta Institute. These state agencies
may also act as project verifiers, a service for
which the Delta Institute provides
56
compensation.
Without a group already self-identified, it is
difficult at this time to assume that aggregation
in North Carolina would resemble that of Illinois
or Michigan, with a large non-profit directly
supplying aggregation services. Nevertheless,
there remains a real potential for smaller nonprofits to play complementary roles on both the
public and private sides of North Carolina’s
swine offsets framework. For instance,
conservation-minded non-profits could partner
with similarly focused state agencies, such as
Soil and Water Conservation Districts, in
developing high quality offset standards (i.e.,
contemplating additional conservation
measures) and verifying that individual projects
meet those standards. At the same time, nonprofits representing economic development
interests could partner with state agencies and
private aggregators and assist in project
identification, development, and enrollment,
perhaps as part of the emerging green economy.
One limited carbon offset aggregation option
currently available in North Carolina is the NC
GreenPower program. NC GreenPower is a
hybrid entity, pairing the North Carolina
Utilities Commission with the non-profit
corporation, Advanced Energy. NC GreenPower
is designed to purchase carbon offsets from
11
numerous sources—including methane gas
captured from landfills—through a request for
proposals, and markets them to the utilities
commission. The utilities commission in turn
provides these credits for purchase to utility
customers through the NC GreenPower
57
website.
Currently, NC GreenPower does not have
sufficient capital to sustain broad project
implementation based on its current model.
This is due largely to the fact that NC
GreenPower and its projects are almost solely
dependent on consumer-driven donations
which, as evidenced by the current economic
crisis, are subject to sudden and extreme
fluctuations. Moreover, there is not a clearly
stated intention for the retirement of purchased
credits, thereby giving rise to uncertainty as to
whether this program will actually result in a net
reduction of carbon on behalf of participating
ratepayers. If NC GreenPower were to obtain
more capital reserves with which to invest in
projects, outside of its customer base, as well as
outline a comprehensive credit retirement plan,
then perhaps it could be a more serious
possibility.
CHAPTER 4
Leading Options for Aggregating Swine
Offsets in N.C.
Based on the existing options for aggregation in
North Carolina and our review of other possible
alternatives, there are essentially three serious
aggregation options for the swine sector that
would facilitate a market for high integrity
offsets in the state. They include: (1) a private
approach in which an LLC is customized to act
as an aggregator; (2) a public sector approach in
which a hybrid of various state agencies act to
collectively embody the role of aggregator; and
(3) a non-profit option in which an academic
institution in association with other entities acts
as the aggregating entity. It is possible that some
form of all three of these options could operate
concurrently in the state, with the development
of each largely dependent upon access to
capital. We provide a brief review of these
options with potential capital pools in mind.
A. PRIVATE APPROACH:
CUSTOMIZED AGGREGATOR
LLC
In instituting a swine offsets framework, North
Carolina will be forced to navigate an array of
competing stakeholder interests, unique
circumstances, and variable objectives. Such a
challenge calls for a robust and multifaceted
approach, combining both private and public
mechanisms for project development and
12
marketing. This section identifies and addresses
a preferred private-side approach: forming a
new LLC entity specifically designed to provide
aggregation services to North Carolina’s swine
offset producers.
The most suitable business form for a private
aggregator in North Carolina not surprisingly
appears to be the LLC. Initially, the experience
of existing aggregators demonstrates that the
LLC offers a viable, and perhaps even
preferential, structure for operating a private
aggregation business. Further, when viewed
against the specific circumstances at hand in
North Carolina, the LLC’s inherent features
appear particularly advantageous.
Specifically, perhaps the most significant
advantage of the LLC in this instance is its
flexibility. As formerly noted, promoting and
marketing swine offsets in North Carolina
implicates a complex set of interests. Dealing in
the face of such complexity demands flexibility.
The flexibility afforded by the LLC form would
allow for multiple interests to be incorporated
into the management of a single aggregating
58
entity. For example, as an alternative way of
effecting farmer-managed aggregation, farmerrun organizations and/or a farmer co-op could
be named as individual members or managers
of an aggregating LLC, which has no limit to the
59
number of members. This would allow for the
benefit of direct farmer participation while
ensuring that the actual offset providers
maintain a collective voice in the aggregation
and sale of their credits.
Similarly, while their legal status might
prevent them from having an actual ownership
interest (i.e., acting as actual members or
managers), state agencies and interested nonprofit organizations could seek representation
60
on LLC advisory boards. In this case, the
aggregating LLC’s operating agreement could be
structured in such a way as to grant such
advisory boards influence over management
61
decisions. Thus, the flexible LLC format would
offer North Carolina a vehicle for bringing a
number of important stakeholder interests to
the forefront in effecting the business of
marketing statewide swine offsets.
In addition to allowing for collective
management, the flexible nature of the LLC also
lends itself to easy transition into other business
62
forms. This may prove to be a major advantage
in the future. An evolving credit marketplace
may, over time, become relatively more
hospitable to public corporations or other
63
alternative business platforms. An LLC
aggregator, unlike aggregators operating under
most traditional private business forms, would
be able to transform accordingly with relative
ease. In this way, electing to operate as a more
adaptable LLC limits the risk of loss associated
64
with entering an uncertain marketplace.
Another major factor underscoring the
appropriateness of the LLC form for a private
aggregator option in North Carolina is apparent
investor preference for this specific business
65
model. Owing to additional benefits like passthrough taxes and liability protection, LLCs are a
66
favorite format for most private investors. As
capital demands are not likely to be met by
stakeholder member groups alone,
attractiveness to outside investors is critical to
the successful establishment and sustainable
operation of a private aggregator. Given the
state’s sizable swine industry, along with recent
legislative enactments driving demand for
methane-derived and animal waste-derived
electricity in the state, North Carolina’s
developing agenda for swine waste-derived
offsets trade is likely to attract a significant
number of potential investors. Organized under
the investor-friendly LLC format, a private
aggregating entity could be presented to
incoming investors as a ready investment
67
target. Conversely, the choice of a limiting
business model could undermine investor
68
interest.
B. PUBLIC APPROACH:
CUSTOMIZED STATESPONSORED AGGREGATION
PROGRAM
An alternative to the farmer-managed
aggregation program described above is a statesponsored aggregation program. There are
numerous benefits to having the State act as the
aggregating entity for offsets generated by swine
farmers in North Carolina. And, there are several
state agencies that have great potential to serve
as an aggregator.
Benefits include the ability of a Statesponsored agency to create universal criteria for
offsets that would be applicable across North
Carolina. The state could also rank or assign the
number of offsets that could be counted by a
project based on the value or quality of each
project—a concept that could be implemented
under any of the aggregating option scenarios.
Moreover, as the carbon offsets market, as part
of a larger greenhouse gas emissions market, is
an emerging market that should experience
ever-increasing demand, these criteria could
potentially be used as a basis for national, and
perhaps even international, standards.
Furthermore, in terms of public-private
partnership potential, state agencies are in
unique positions to form partnerships with
private business entities as well as alternative
entities such as non-profit organizations, thus
allowing for the involvement of numerous
sectors of the economy and for expansion into
sectors beyond swine. Finally, a state-sponsored
aggregation program would allow for effective
and convenient implementation of any
potential state or federal legislation concerning
ownership rights of generated offsets.
State agencies that could serve as aggregators
include: (1) the North Carolina Department of
the State Treasurer; (2) the Division of Soil and
Water Conservation; and (3) the State-NGO
hybrid initiative Ecosystem Enhancement
13
Program (EEP), each of which are described in
more detail below.
1. The North Carolina Department of
the State Treasurer
Under the direction of the former state Treasury
secretary Richard Moore, the North Carolina
Department of the State Treasurer identified the
environment as one of seven “high priority”
initiatives. As part of the environmental
initiative, the North Carolina Retirement System
(NCRS) engaged with companies and investors
to address the issue of climate change though its
joint implementation of the Carbon Disclosure
69
Project as well as its active membership in the
Ceres and the Investor Network on Climate
70
Risk. Due to its historical interest and
involvement with climate change issues as well
as the agency’s access to an extensive network of
investors, the Department of the State Treasurer
is a very attractive option to serve in the role of
aggregator for offsets generated from the swine
industry.
In order to serve in this role, the Treasurer’s
authority may need to be expanded statutorily.
Making the Treasurer’s office a truly viable
option, however, may require amendment to the
statutory powers of the Treasurer. Although
what specifically would be required is not
discussed here, it is worth noting that the need
to expand the Treasurer’s statutory authority
may prove to be too great of an obstacle.
Instead, rather than serve as aggregator, the
Treasurer could serve to hold or purchase offset
credits on behalf of the state.
2. The Division of Soil and Water
Conservation (DSWC)
The DSWC, within the North Carolina
Department of Environment and Natural
Resources, already has numerous programs in
place that could aid in its role as aggregator to
the swine industry, as it is serving as a project
developer already. These programs include the
Lagoon Conversion Program; a subset of the
Agricultural Cost Share Program that offers
swine farmers up to 90% cost share for the
conversion of existing lagoon and sprayfield
systems to innovative animal waste
14
management systems that meet the
performance standards for new and expanded
farms. The DSWC recently was awarded a
Natural Resources Conservation Service
Cooperative Conservation Partnership Initiative
grant to install innovative systems on producers
eligible for Environmental Quality Incentive
71
Program funding.
Another program that could possibly aid in
the Division’s role as aggregator is the newly
established Methane Capture Pilot Program.
This program, a joint partnership with the North
Carolina Utilities Commission and the North
Carolina Department of Environment and
Natural Resources, through the DSWC, aims to
convert swine waste into renewable energy via
the capture of methane gas from lagoons and
the use of a bio-gas generator to convert
methane to electricity. This energy is then
purchased by the individual swine farmer’s
72
power utility. Participation in the Methane
Capture Pilot Program is not currently limited to
facilities that are in compliance with the
performance standards for new and expanded
swine farms, but the statute requires that
projects that address other pollution issues
73
receive priority. The program has identified
potential participants that appear to be capable
of generating high integrity offsets. However,
although the program has been in place for
almost two years, no sale of electricity has
actually occurred, begging the question of
whether it would be capable of aggregating
offsets absent any core projects.
3. The Ecosystem Enhancement
Program (EEP)
The EEP is a joint initiative between the North
Carolina Department of Environment and
Natural Resources (NCDENR), the North
Carolina Department of Transportation
(NCDOT), and the United States Army Corps of
Engineers. It is yet another example of a Statesponsored, multi-party program that could
serve as an aggregating entity for the North
Carolina swine industry. The objective of this
program is to provide compensatory mitigation
for projects undertaken by the NCDOT via the
facilitation of projects that advance
environmental stewardship as well as preserve,
enhance, and/or restore functions within
specific watersheds in anticipation of future
74
NCDOT sponsored projects. This specific
State-sponsored initiative could be expanded to
include the production of high integrity offsets
that could subsequently be utilized to mitigate
the impacts of projects undertaken by State
agencies such as the NCDOT.
And, just as the EEP was founded through a
joint partnership involving several state
agencies, an ideal aggregator for the North
Carolina swine industry may involve the
creation of a hybrid entity comprised of several
State actors, specifically NCDENR, NCDOT and
the Army Corps of Engineers. One such
potential scenario would be the development of
a new initiative within the EEP designed to
achieve reductions in greenhouse gases via high
integrity offsets developed by North Carolina
swine producers. Such an initiative could be
placed under the supervision of the DSWC as it
already has experience in implementing similar
programs. The DSWC could in turn then work in
conjunction with the Department of the State
Treasurer in order to procure funding and
facilitate marketing of the credits generated
through the Treasury’s extensive connections
with investors involved in global climate change
mitigation efforts.
Absent these specific state-sponsored
options for direct involvement in aggregating
carbon offsets, North Carolina should take
action now to encourage carbon offset projects
because of the economic benefits that would
result from the revenue these projects would
generate. Even more importantly, the state
should work to support carbon offset project for
the co-benefits, such as air and water quality
improvements, that would accrue to the entire
state, especially if project that meet the
performance standards were pursued. At a
minimum, North Carolina should be working to
facilitate one-to-one arrangements for carbon
offset projects wherever possible. The state can
promote these by adopting or recommending
some basic standards and guidelines for carbon
offset projects. One important signal the state
could send would be to recommend a particular
standard for offset generators to apply that
would be most likely to be recognized under a
mandatory greenhouse gas emissions trading
75
regime.
Finally, the state could encourage carbon
offset projects by itself becoming a purchaser of
offset credits. If the state were to adopt a carbon
neutrality pledge, or at least some part of state
government would pledge to carbon neutrality,
such as NCDENR or the state university system,
the state could buy and retire offsets to cover its
own carbon footprint. Acting in this capacity,
the state could serve as a major purchaser and
hence catalyst for carbon offset projects.
C. NON-PROFIT APPROACH
As previously mentioned, the role of aggregator
could be undertaken by a non-profit that wishes
to have more control over the carbon offsets it
purchases. Potentially, the non-profit could
serve as a carbon offset supplier for other likeminded institutions and organizations, perhaps
even private institutions.
Universities represent one such category of
non-profits that could take on an aggregator
role. Universities, especially those that have
signed the American College and University
76
Presidents’ Climate Commitment, are
currently making carbon neutrality pledges and
seeking high integrity offset projects, putting
them ahead of the curve on carbon offset
project development. If a university were to
serve as an aggregator or project developer, it
could provide an honest broker to producers
and purchasers alike by evaluating and
catalyzing projects free of a profit motive. It
appears that there would be significant
academic value to be gained from developing
methods and technologies for offset generation,
and that academic institutions could pool funds
to purchase or develop projects, thus addressing
capital constraints. Duke University, having
started a Carbon Offsets Initiative in June 2009
as an outgrowth of its investigation of carbon
offset options, could be a candidate for
aggregating projects in North Carolina. The
university is now working to develop swine
waste-based projects that meet environmental
performance standards.
15
CHAPTER 5
Aggregator and Integrator Contracts and
Related Issues of Credit Ownership
In evaluating options for developing an
aggregating body for North Carolina’s swine
sector, it is also prudent to address questions
surrounding the ownership of the credits
themselves. Establishing clear title to the offsets
is critical to any transaction, and particularly
important to establish in light of the integratorproducer relationship that serves as the
industry norm. This section thus provides
background on the obligations that arise under
the aggregator relationship and what that
means in the context of swine waste-derived
offsets.
A. BACKGROUND
Typically, aggregators contract directly with
individual offset providers. In the case of
agricultural offsets, aggregators most
commonly contract with the land manager—
the person who is on record at the Farm Service
Agency as having control of the land and who is
authorized to receive commodity programs
77
payments. Per the terms of aggregator
contracts, the land manager or farmer is
required to carry out the agreed-upon offset
activity in accordance with stipulated
requirements for the duration of the contract,
which typically runs from five to six years for
agricultural offsets. For its part, the aggregator
agrees to administer the pooling and sale of the
associated credits, as well as the scheduled
return of proceeds, minus a percentage-based
aggregation fee.
While enrollment in an aggregation contract
is voluntary, once executed, it is legally binding
on both parties. Current aggregator contracts
make it clear that a transfer of ownership will
not relieve an offset provider of his contractual
obligations. In the event of such a transfer, the
original offset provider must ensure that the
new landowner will continue with the offsetting
78
activities under contract. Failure to do so will
79
constitute a breach.
16
In North Carolina, swine producers work
almost exclusively as “growers” for large
corporate integrators under production
contracts. Under these contractual
arrangements, integrators agree to supply
individual growers with a certain number of
hogs over a specified time period. In addition to
furnishing livestock, swine integrators may
finance indirectly other capital components,
including farming equipment. Growers or
producers, on the other hand, supply the
necessary human capital, each taking on the
role of swine farm operator. As such, growers
assume responsibility over all physical aspects
of production, including waste management.
This includes an obligation to carry out
production in line both with integrator
specifications and various environmental and
health regulations, which the state generally
imposes on swine farm operators.
B. GENERAL OVERVIEW OF
CARBON OFFSET
OWNERSHIP ISSUES
Both aggregators and the exchange platforms
they employ make demonstration of clear
80
ownership a prerequisite to credit eligibility. In
other words, in order to access aggregators, and
indeed the offsets marketplace in general, an
offset producer must be able to establish clear
title to tradable credits. For any offsets project
then, uncertainties with respect to the ultimate
allocation of credit rights will obviously be
problematic. Whenever such questions arise,
they present a real disincentive for landowner
participation and, as such, a significant obstacle
for project development. Generally risk-averse
investor groups, such as farmers or foresters,
will be understandably reluctant to pursue
offset production where their right to the
resulting credits is questionable. Thus, in
developing any offset project or program, steps
must be taken at the outset to adequately
address any potential credit ownership issues.
This will require anticipating and resolving
beforehand, as completely as possible, any likely
carbon offset ownership disputes.
Carbon offset ownership is fairly
straightforward where an offsetting project
implicates only one individual or entity. In such
a case, a single participant provides the
necessary project inputs and should therefore
expect to acquire uncontestable ownership
rights in project outputs, including tradable
81
credits. By contrast, the ultimate distribution
of credit rights is far less obvious where an offset
project involves inputs from multiple sources.
Under these circumstances, two or more project
participants may each have a defensible claim
to the associated credits.
There are no reported cases to indicate how
courts would view carbon credits under existing
producer contracts that contain no carbon
offset terms. Surprisingly, even the most active
offsetting and aggregating states have not
enacted laws to clarify ownership issues.
Nevertheless, although this area of the law is
immature, project developers may be able to
shed enough light on the issue of ownership to
bring doubts below a disincentive threshold.
Project developers can attempt to clarify
ownership issues in several ways. First, project
developers can make sure credit rights are
defined as clearly as possible in all project
contracts and, to the extent possible, in
integrator contracts as well. Second, project
developers can borrow from principles in
existing case law and draw inferences from
existing regulations in weighing relative
ownership rights. Third, project developers can
seek to clarify state policy regarding credit
ownership.
C. SWINE OFFSETS IN NC:
INTEGRATOR CONTRACTING
AND RELATED CREDIT
OWNERSHIP ISSUES
Given the fact that nearly all swine production
in North Carolina occurs via integrator-grower
contracts, swine offsets generation in the state
will likewise necessarily involve simultaneous
inputs from both integrators (capital) and
individual growers (labor). Thus, swine offset
production in North Carolina represents a
specific example of the type of instance
discussed above as tending toward uncertainties
over credit ownership—where multiple parties
contribute to, and therefore have a cognizable
interest in project outputs. In order to prevent
such uncertainty from stifling interest among
swine producers, project developers in North
Carolina must endeavor to anticipate and
proactively resolve any potential disputes
between integrators and growers. Section VI.B.
above introduced several general steps for
clarifying credit rights and resolving potential
ownership disputes. The subsequent paragraphs
will explore the specific application of these
steps to swine offsets in North Carolina.
1. Clarify Credit Rights in Contracts
Working to clearly define credit rights in
associated contracts is a critical first step for
project developers in North Carolina. Initially,
project developers should work with swine
producers to proactively address credit
ownership in integrator contracts. The ultimate
goal here will be to insert language into
integrator contracts that expressly places credit
rights in the hands of individual growers. Ideally,
this would be done on a widespread level,
establishing such language as a standard part of
all integrator contracts. However, as suggested
above, integrators may view their contributions
to swine production as entitling them to some
share in the credits associated with offset
production. Assuming that the prospect of offset
trade attracts the attention of integrators, they
will likely be reluctant to agree to such a
wholesale relinquishing of their potential stake
in carbon offsets generated on the farms with
which they contract. However, given the relative
bargaining power of large corporate swine
integrators, reworking integrator contracts on
such a broad scale may be an overly ambitious
goal. If integrator contracts can at all be an
avenue for clarifying credit ownership in favor of
farmers, it may only be possible on a case-bycase basis.
Whether or not project developers are able to
resolve ownership disputes by influencing the
producer–integrator contractual relationship,
they can nonetheless minimize uncertainty by
17
clearly defining credit rights in offset project
contracts. Initially, contracts with aggregators or
individual offset producers should clearly
identify what is to be transferred or sold, i.e., the
82
type, quantity, and value of project offsets. In
addition, these contracts should clearly identify
swine producers as the outright owners of offset
credits. While the determination of ownership in
these contracts is not ultimately controlling, if
clearly constructed it will go a long way towards
resolving uncertainty over credit ownership in
favor of swine producers. Finally, these
contracts should identify a dispute resolution
process, as well as venue and choice of law in
the event that contractual or ownership
83
disputes arise.
2. Arguments Based on Existing Law
As stated above, there is not yet a body of law
directly addressing credit ownership disputes.
However, existing common law and statutory
law allows for reasonable arguments in support
of swine producers’ rights to offset credits as
against integrators. The most direct analog
comes from the case of Roseland Plantation LLC
84
v. United States Fish and Wildlife Service. Part
of the controversy in that case concerned a
landowner’s rights to the tradable credits
associated with a forest sequestration project on
his land. Addressing this issue, the Roseland
court resolved that “…the right to report,
transfer, or sell carbon credits is a part of the
bundle of rights associated with property
85
ownership.” Thus, for swine farmers that
actually own the farmland on which an offset
project is conducted, Roseland would support
the argument that they begin with outright
ownership of the associated credits for all
activities occurring on their property.
Additional support for this argument is
found in the terms of existing contracts and
state regulations. Current integrator contracts
and state regulations treat swine farmers as the
constructive owners of swine waste. State
statutes controlling swine waste are aimed
86
directly at farm operators, not landowners.
Under these statutes, it is the farm operator who
is responsible for obtaining a permit to store
87
swine waste. Likewise, liability for permit
violations is placed squarely on the farm
88
operator. Integrator contracts similarly impose
general waste management responsibility on
individual growers. With state regulations and
integrators putting swine producers in
constructive ownership of swine waste, it
follows that they should be recognized as the
natural owners of the byproducts of waste
management, including any credits resulting
from carbon offsetting activities.
3. Clarifying State Policy
While contracts and existing law can be used to
bolster the case for placing offset credit rights in
the hands of farmers, they cannot provide
definitive answers to ownership questions. Such
absolute certainty can only come through direct
legislative action. Thus, to the extent possible,
project developers should seek clarification of
credit ownership issues through formal state
89
policy and legislation.
CHAPTER 6
Recommendations
The development of an aggregating entity
capable of identifying capital for offset projects
and implementing carbon offset projects on a
large scale will be a step-wise process. Below are
general recommendations for increasing the
scale of carbon offset projects from individual
bi-lateral projects to a large-scale market based
system.
18
Take Leadership—Climate Neutrality
Pledges and Adoption of Offset Goals
The state or at least some subset of state
government such as the Department of
Environment and Natural Resources or the state
90
university system should adopt a carbon
neutrality pledge or establish a state carbon
budget, to develop a plan for reducing
greenhouse gas emissions over time and how to
obtain offsets. In addition, the state, and
specifically the Office of the Governor and
leadership within the state Department of
Environment and Natural Resources should
publicize and support the role carbon offset
markets can play both to mitigate greenhouse
gas emissions and to support rural economies.
In the private sector, institutions that have
taken on climate neutrality pledges and are
making investments in carbon offsets should
work to facilitate and catalyze other projects.
Duke University, in Durham, North Carolina,
has begun its own carbon offsets program to
explore the development of high-integrity local
and regional carbon offsets, including offsets
from swine farms that meet the environmental
performance standards established in 2007.
Indentify Verifiers/Validators
Identification of qualified verifiers and
validators for high integrity offset projects will
help to increase the speed with which individual
projects are developed. To address potential
shortfalls in verification services, state
government agencies may want to consider
serving in a paid, contract capacity to verify and
validate carbon offsets generated on swine
farms. Other potential future governmental
verifiers might include USDA Natural Resource
Conservation Service staff or state Soil and
Water Conservation District staff. Verification/
validation services could be offered to both
private and non-profit aggregators. See
Appendix B for more information on verifiers.
Indentify Funding Sources
• Assist Farmers and Offset Developers with
Identifying Capital. Despite the recent
economic downturn, investors are still
interested in identifying carbon offset
projects to fill and diversify their carbon
offset portfolios in preparation for an
anticipated mandatory cap-and-trade
regulatory regime. By identifying state,
federal or private funding that could be
leveraged with other investments, more funding could be available to help swine
farm carbon offset projects move forward.
• Leverage Incentives for Renewable
Energy. With the first phase of the
renewable energy and energy efficiency
portfolio standard taking effect in 2012 and
the Methane Capture Pilot Program
authorizing a payment of up to $0.18/kWh
for energy produced on up to 50 swine
farms, the ability to stack payments for
offsets and renewable energy could make
the difference in moving projects forward.
• Seek Green Economy Funding. Other
potential sources of funding to target are
those flowing to green job initiatives. The
federal economic stimulus package is
aimed at encouraging investment in
renewable energy, including that produced
from swine farms, and sustainable
businesses. An anticipated energy bill could
increase that funding pool. Research has
been conducted by the Environmental
Defense Fund in conjunction with the Duke
Environmental Law and Policy Clinic to
identify possible mechanisms for private
and public investment in green job
initiatives. Those ideas could be the
foundation for developing either an LLC or
nonprofit aggregating entity, and could help
to provide start-up capital.
• Seek Farm Bill and Other Cost-Share
Funding. Money flowing through the
Federal Farm Bill and Natural Resources
Conservation Service (NRCS) specifically
could be a source of capital to help with all
or some components of innovative
systems. NRCS may also be a source of
expertise for helping to verify offsets or
provide baseline measurements for
emissions of greenhouse gases. The energy
bill and EPA programs aimed at agricultural
pollution reduction could also provide
future funding. The state already has
succeeded in securing a $1M grant for
innovative swine waste management
systems that reduce greenhouse gas
emissions through the NRCS’s Cooperative
Conservation Partnership Initiative. It
should continue to seek out such funding
and partnerships.
19
Educate
Establish a State Registry
Conduct education and outreach to farmers and
landowners, with particular emphasis on the
benefits of generating high integrity offsets as
opposed to lagoon-cover only projects. High
integrity offset projects have many advantages,
not the least of which include the ability to
ensure permitting where lagoon covers may be
increasing nitrogen application to sprayfields
beyond accepted NRCS nutrient application
rates. Moreover, educating farmers on how the
offset transactions work and undertaking
projects with transparency will foster trust in
those transactions by farmers and investors
alike.
The establishment of a state registry to track
carbon offsets generated in the state will provide
a significant service to those interested in
generating carbon offsets and will protect
against double-counting.
Organize Stakeholder Meetings
State, federal, nonprofit and agricultural entities
should continue to organize stakeholder
meetings to determine how to move forward on
aggregation. EPA Region 4 is particularly wellsuited for serving to facilitate such outreach and
planning.
Prove the Concept
It is essential to get projects on the ground and
the offsets they generate to some market or final
purchaser. The most likely scenario may be
through academic institutions that have
committed to carbon neutrality and are
interested in swine carbon offsets in particular.
At least one such project, funded through the
NRCS-DSWC’s CCPI program and involving a
partnership between Duke University and Duke
Energy is expected to be operational by
September 2010. Having even one of these
transactions completed will spur considerable
interest within the farming community and
from investors.
Protect Ownership Rights of Producers
The state should work to institute measures to
protect farmers in contracting. Part VI provides
specific recommendations.
20
Appendices
22
Background & Services
1 unit of exchange= the
reduction or removal of one
metric ton of carbon dioxide
from the atmosphere
Unit of Exchange for Carbon
Offset
VCS provides a standard for
voluntary emissions reductions
and removal projects.
Voluntary Carbon Standard was
initiated by The Climate Group,
the International Emissions
Trading Association and the
World Economic Forum in late
2005.
Voluntary Carbon Unit
(VCU)
Voluntary Carbon Standard
(VCS)91
The Climate Action Reserve is
a national offsets program that
establishes regulatory-quality
standards for the development,
quantification and verification
of GHG emissions reduction
projects in North America; issues
carbon offset credits generated
from such projects; and tracks
the transaction of credits over
time in a transparent, publiclyaccessible system.
Carbon Reserve Tons
(CRTs)
Climate Action Reserve
(CAR or the Reserve)92
ACR provides an electronic
registry system for Members
to register serialized offsets as
well as record the purchase,
sale and retirement of projectbased offsets. Members can also
report their verified corporate
GHG inventories and corporate
emissions reductions on the
Registry.
In 1996, the Environmental
Defense Fund founded the
Environmental Resources
Trust and launched the GHG
Registry, now known as the
American Carbon Registry. The
American Carbon Registry and
Environmental Resources Trust
joined Winrock International
in 2007, expanding the Winrock
team of climate change, forestry,
clean energy, agriculture, and
carbon market experts.
Emissions Reduction Tons
(ERTs)
American Carbon Registry
(ACR)93
Chicago Climate Exchange
launched as a pilot program
in 2003 as an international
rules-based emission reduction,
audit, registry and trading
program based in the U.S. CCX
rules require that all emission
baselines, annual reduction
commitments and Offset
projects are annually subjected
to independent audit by
authorized experts.
Carbon Financial Instrument
(CFI)
Chicago Climate Exchange
(CCX)94
Primary Standards for Voluntary Carbon Offset Projects
by Registry System
APPENDIX A
23
Eligible Livestock/
Agricultural Methane Systems
Approved Standards,
Methodologies, Protocols &
Tools, with Focus on Livestock
Waste Management
Appendix A
(cont’d)
VCS Standard 2007.1 provides
rules for project proponents
and institutional structure for
validation and verification
of voluntary GHG emission
reductions or removals. The
standards uses, as its core, the
requirements in ISO 140642:2006, ISO 14064-3:2006 and
ISO 14065:2007.
95
VCS allows the use of CDM and
CAR methodologies to baseline
scenario and monitoring
methodologies.
Voluntary Carbon Standard
(VCS)91
• Centralized digesters
• Co-digestion of organic waste
(greenhouse gas benefits not
quantified for non-manure
waste streams)
• Methane destruction onsite
(enclosed flare, open flare,
electricity generation, thermal
energy production)
• Methane destruction off-site
(direct use via pipeline)
• Methane destroyed as fuel for
vehicles (onsite or off-site)
• Biogas destruction in fuel cells
Project developers that install
manure biogas capture and
destruction technologies use
the Livestock Project Reporting
96
Protocol Version 2.1 to
register GHG reductions with
the Reserve. The protocol
provides eligibility rules,
methods to calculate reductions,
performance-monitoring
instructions, and procedures for
reporting project information
to the Reserve. Additionally, all
project reports receive annual,
independent verification by
Reserve-approved verifiers.
Guidance for verifiers to verify
reductions is provided in the
corresponding Livestock Project
Verification Protocol.
The Reserve establishes
regulatory-quality standards for
the development, quantification
and verification of GHG
emissions reduction projects in
North America.
Climate Action Reserve
(CAR or the Reserve)92
Accepts a variety of project types
from locations worldwide. ACR
does not register renewable
energy certificates (RECs) or
indirect emissions reductions as
offsets. ACR Livestock Waste
Management Standard (jointly
developed with USDA and
California Energy Commission)
for methodologies and tools
for agricultural methane/
biodigester projects is currently
in process of scientific peer
review and forthcoming
for stakeholder and public
comments.
ACR also allows for the use of
methodologies and tools from
other protocols including CDM,
U.S. EPA Climate Leaders, VCS,
and WRI/WBCSD GHG Protocol,
to the extent they comply with
the Registry’s offset project
eligibility standard.
ACR publishes standards,
methodologies, protocols and
tools for GHG accounting are all
based on ISO 14064 and sound
97
science.
American Carbon Registry
(ACR)93
Agricultural methane collection
systems include various
anaerobic digester systems such
as complete mix, plug flow, and
covered lagoons.
CCX has developed rules
for emissions reductions
for agricultural methane
collection and combustion
98
at livestock operations.
Protocol outlines the process
and requirements for Project
Proponents to register GHG
emission reductions resulting
from the voluntary destruction
of methane originating from
animal agricultural operations.
Chicago Climate Exchange
(CCX)94
24
Basic Specification for Offset
Projects, with Focus on
Livestock Waste Management
Appendix A
(cont’d)
• Non-AFOLU Projects with a
start date of January 1, 2002 or
later are eligible
• Validation shall be completed
within two years of the Project
Start Date.
• Projects must be:
– Real
– Measurable
– Permanent
– Additional
– Independently verified
– Unique
– Transparent
– Conservative
Voluntary Carbon Standard
(VCS)91
• Projects with a start date of
January 1, 2001 or later are
eligible. Projects are eligible to
receive credits for 10 years from
start date.
• The project must exceed
any reductions that would
have occurred as a result of
compliance with federal, state
or local regulations. Projects
must also be in compliance
with all federal, state and local
environmental regulations
(e.g., compliance with air and
water quality laws).
• Project must meet strict
additionality requirements,
must represent “better than
business as usual”.
• There must be clear ownership
of the emissions reduction.
• Project must not be registered
with any other GHG registry
for the same vintages of
reductions.
• Proper accounting and
monitoring.
• Calculations and data
inputs are free of material
misstatement.
Climate Action Reserve
(CAR or the Reserve)92
• Non-AFOLU Projects with a
start date of January 1, 2002 or
later are eligible.
• Requires crediting period of
5 years or less for non-forest
projects with opportunities for
renewal.
• Regulatory Test—Projects
must exceed regulatory
requirements.
• Common Practice Test—
Projects must go beyond
common practices.
• Implementation Barriers
– Projects must overcome
implementation barriers
(institutional, financial, or
technical).
American Carbon Registry
(ACR)93
• Methane collection/
combustion projects activated
on or after January 1, 2003 may
qualify.
• Qualifying projects may earn
offsets during the years 20032010.
• Project proponents need
to demonstrate clear
ownership rights of the
emission reductions from the
destruction of methane.
• Selling energy to a third party
or using gas for onsite energy
use does not preclude project
from receiving credit, provided
ownership of greenhouse gas
attributes has been retained.
• Methane collection projects
that include electricity
generation may also qualify
for Emission Offsets from
Renewable Energy based on
displaced emissions.
•All projects must be
independently verified by a
CCX-Approved Verifier.
Chicago Climate Exchange
(CCX)94
25
Approved Verifiers & Validators
Verification approval for listed
firms is valid until December 31,
2009 (see website).
• Designated Operational
Entities (DOEs) approved
99
under CDM
• Accredited Independent
Entities (AIEs) approved under
100
JI
• Certification Bodies (CBs)
approved under the California
Climate Action Registry
(only for verification, not
101
validation)
• International Organization for
Standardization
• VCS Temporary Accreditation
program—Scientific Systems,
Inc. (Forestry and land
management)
As of January 1, 2010, the
California Registry will require
verification bodies of emission
reduction projects to receive
ISO 14065 accreditation by the
American National Standards
Institute to support emissions
reduction project activities
reported to the CAR.
Climate Action Reserve
(CAR or the Reserve)92
Voluntary Carbon Standard
(VCS)91
Registry’s approved verifiers:
• Battelle Memorial Institute
• Consot SRL—Servisios de
Consultoria
• First Environment, Inc..
• ICF International
• Landfills +, Inc..
• Ruby Canyon Engineering
• URS Corp.
Requires independent
verification of all projects using
the Registry’s approved verifiers,
below, or from verifiers who are
approved under CDM, JI and
CAR.
American Carbon Registry
(ACR)93
For Agricultural methane,
approved project verifiers
include:
• Agri-Waste Technology, Inc.
• First Environment Inc.
• SES Inc.
• SGS Environmental Services,
Inc.
• Tetra Tech EM Inc.
• TUV SUD Industrie Service
GmbH
Chicago Climate Exchange
(CCX)94
Approved Verifiers and Validators by Registry System
APPENDIX B
APPENDIX C
Project Accomplishments
In addition to this report, this grant has supported the following work and
outreach:
• Gauged producer interest in carbon offset and renewable energy projects.
•R
 eviewed options for innovative waste management systems that meet the
environmental performance standards for use on existing swine farms for carbon
offset production and compared them to cover-only and lagoon-and-sprayfield
options.
• Created a simplified carbon offset estimator for producers to use in determining
the capability of their farms to generate offsets by type and number of hogs.
Carbon offset estimator will be available on Duke University’s website in the fall of
2009.
•O
 rganized 2009 Carbon and Renewable Energy Markets Producer Forum in
Kenansville, NC, to update producers on opportunities to generate carbon offsets
and renewable energy on their farms. Survey results could lead to the
identification of new projects. Approximately 265 people responded positively to
the invitation, and 75 farmers were in attendance.
26
Notes
1
The Role of Offsets in Meeting Duke University’s
Commitment to ‘Climate Neutrality’: A Feasibility Study, Duke
University (Nov. 2008), available at http://www.nicholas.duke.
edu/institute/dukeoffsets.pdf (citing USDA AgStar).
2
Swine Farm Environmental Performance Standards Act,
Session Law 2007-523, establishing standards for ammonia,
odor, pathogen reductions and water quality. The specific
standards have been codified at 15A NCAC 02T .1307,
available at http://h2o.enr.state.nc.us/aps/afou/documents/1
5ANCAC02T.130712-18-2008.pdf.
3
U.S. General Accountability Office, Carbon Offsets: The U.S.
Voluntary Market is Growing, but Quality Assurance Poses
Challenges for Market Participants (Aug. 2008), GAO-08-1048,
available at http://www.gao.gov/new.items/d081048.pdf.
4
See H.R. 2454, American Clean Energy and Security Act of
2009 (“ACES”), which passed the U.S. House of
Representatives on June 26, 2009, and is now under debate in
the U.S. Senate. As of September 8, 2009, the latest version of
the bill was “placed on calendar in the Senate”, available at
http://thomas.loc.gov/cgi-bin/query/D?c111:4:./
temp/~c111YME9lu::.
5
Whether such early action will be rewarded by the mandatory
market once it is put in place is a policy question currently
under debate.
6
U.S. General Accountability Office. Carbon Offsets: The U.S.
Voluntary Market is Growing, but Quality Assurance Poses
Challenges for Market Participants (Aug. 2008), GAO-08-1048,
available at http://www.gao.gov/new.items/d081048.pdf, at 3.
7
The Role of Offsets in Meeting Duke University’s
Commitment to ‘Climate Neutrality’: A Feasibility Study, Duke
University (Nov. 2008), available at http://www.nicholas.duke.
edu/institute/dukeoffsets.pdf, Figure 2.
8
Highlights of GAO 08-1048, a Report to Congressional
Requesters on Carbon Offsets, 2008. Full document available
at http://www.gao.gov/new.items/d081048.pdf.
9
The Role of Offsets in Meeting Duke University’s
Commitment to ‘Climate Neutrality’: A Feasibility Study, Duke
University (Nov. 2008), available at http://www.nicholas.duke.
edu/institute/dukeoffsets.pdf, at 51.
10
The North Carolina Farm Bureau has hosted several
informational meetings with AgraGate in order to explore the
possibility of forming a contract facilitation partnership. Erin
Gray, Private Landowner Participation In The Carbon Market:
Opportunities In North Carolina, April 2008, at 35, available at
http://dukespace.lib.duke.edu/dspace/
bitstream/10161/471/1/MP_elg12_a_200805.pdf.
11
The Montana Farm Bureau Federation (MFBF), South
Dakota Farm Bureau (SDFB), and Florida Farm Bureau
Federation (FFBF) have each entered into contract facilitation
agreements with AgraGate. See AgraGate Press Release I,
available at http://www.agragate.com/docs/AgraGate_
Montana_facilitator_ release.pdf (discussing AgraGate/MFBF
partnership); AgraGate Press Release II, available at http://
www.agragate.com/docs/AgraGate_SD_facilitator_release.pdf
(discussing AgraGate/SDFB partnership); FFBF website,
available at http://www.floridafarmbureau.org/carbontrading
(discussing AgraGate/FFBF partnership).
12
North Dakota Farmers Union Carbon Credit Program,
available at http://carboncredit.ndfu.org.
13
Id.
14
The Rocky Mountain Farmers Union (RMFU) and the
Wisconsin Farmers Union (WFU) are among the Farmers
Union organizations that participate as facilitators in the NFU
credit program. See WFU Press Release, dated July 7, 2008,
available at http://www.wisconsinfarmersunion.com/index.
php?option=com_content&view=article&id=22:07-07-2008carbon-credit&catid=1:latest-news&Itemid=68; see also
RMFU website, available at http://www.rmfu.org/co-op/
renewable-energy/carbon-credits/.
15
See North Dakota Farmers Union Carbon Credit Program,
available at http://carboncredit.ndfu.org.
16
See, e.g., AgraGate Press Release I and II, supra note 12.
17
Id.
18
For a general overview of cooperatives, visit Wikipedia’s
website, available at http://en.wikipedia.org/wiki/
Cooperative.
19
Id.
20
Id.
21
See N.C. Gen. Stat. § 54-129.
22
N.C. Gen. Stat. § 54-132 (emphasis added).
23
The legal reason is as follows: although the Act broadly
defines “agricultural products” as including “any farm
products,” it is questionable whether methane offsets
generated during the storage and treatment of swine waste
would constitute a farm product. As used in this context, it
could be argued that “farm products” should be limited to
direct units of agricultural output, such as crops or pork. On
the other hand, methane offsets may reasonably be
characterized as “by-products” of pork production and would,
therefore, fit within the scope of the Act. Swine waste is
certainly such a by-product. Arguably, waste-borne offsets
should, by extension, also be considered by-products,
especially because they will garner additional financial inputs
for the farmer, like other saleable byproducts. From this
argument, it follows that North Carolina’s swine farmers could
legally form a farmer cooperative for the purpose of producing
and marketing carbon offsets activities on the state’s swine
farms to the extent that the activities involve the by-products
of swine production, such as swine waste.
24
N.C. Gen. Stat. § 54-145.
25
N.C. Gen. Stat. § 54-130.
26
N.C. Gen. Stat. § 54-141(1).
27
See generally, National Carbon Offset Coalition, Inc.,
available at http://www.ncoc.us/.
28
Id.
29
See 26 U.S.C. § 501(c)(3).
30
Id.
31
As previously noted in this subsection, the Delta Institute
conducts its aggregation work through its Pollution
Prevention Energy Efficiency Center LLC.
32
For more information about the American College and
University Presidents’ Climate Commitment, visit http://www.
presidentsclimatecommitment.org/.
27
33
For example, in evaluating potential offset projects, Duke
University, and ACUPCC member institution, prioritized
offsets generated from the avoidance or capture of methane
from swine farms. See Duke Offsets report. Its internal
standards for those offsets requires that any offset projects at
swine farms must adhere to the performance standards for
new and expanding farms. Id.
34
See Duke Offsets report, available at http://www.nicholas.
duke.edu/institute/dukeoffsets.pdf.
35
For a list of CCX approved aggregators, visit the Chicago
Climate Exchange website, available at http://www.theccx.
com/content.jsf?id=64.
Id.
63
Id.
64
Id.
65
Id.
66
Id.
67
Id.
68
Id.
69
The Carbon Disclosure Program is an initiative that aims to
seek information regarding carbon emissions from the world’s
largest companies (available at http://www.cdproject.net/).
70
See LLC.com, available at http://www.llc.com/LLC_Benefits.
html.
Mar. 19, 2007 NC State Treasurer Press release available at
https://www.nctreasurer.com/NR/rdonlyres/377F1A99-EC934106-B1BE-9BBE9834ACE7/0/CeresRelease2.pdf.
37
71
36
Id.
38
See generally, “Note: Corporate Law -- Limited Liability
Company Act, N.C. Gen. Stat. G.S. 57C-1-01 to 57C-10-07
(1993),” 72 N.C.L. Rev. 1654 (1994).
39
Id. at 1654-55 (“ The Limited Liability Company Act (“the
Act”), 7 which took effect November 1, 1993, 8 allows business
owners, professionals, and entrepreneurs to take advantage of
the best features of both the corporation and the partnership:
limited liability and partnership tax treatment, respectively.”
40
See LLC.com, available at http://www.llc.com/LLC_Benefits.
html.
41
Id.
42
Id.
43
Andrew Foster, Esq., Associate Clinical Professor of Law and
Director, Duke University Law School Community Enterprise
Clinic, personal communication, Nov. 18, 2008.
44
Id.
45
Id.
46
See id.
47
See generally, Michigan Conservation and Climate Initiative,
available at http://michiganclimate.org/.
NC Department of Environment and Natural Resources,
Press Release: “New initiative promotes swine lagoon
conversion program,” June 15, 2009, available at http://www.
enr.state.nc.us/newsrels/20090615.pdf.
72
See NC Division of Soil and Water Conservation Nonpoint
Source Program, available at http://www.enr.state.nc.us/
dswc/pages/nonpointsource.html.
73
S.L. 2007-523 (“In selecting swine farms for participation in
the pilot program, the Department and the Commission may
also consider the ability of the methane capture system to
reduce the emissions of other pollutants, including
ammonia.”).
74
See NC Ecosystem Enhancement Program, available at
http://www.nceep.net/.
75
A great number offset developers are tending toward
adherence to the Climate Action Registry standards in
anticipation of expected federal climate change legislation
and/or regulation.
76
For a list of university and college presidents that have
pledged climate neutrality at their institutions, visit http://
www.presidentsclimatecommitment.org/signatories/list.
77
See, e.g., Michigan Conservation and Climate Initiative,
available at http://michiganclimate.org/.
See, e.g., North Dakota Farmers Union Carbon Credit
Program, available at http://carboncredit.ndfu.org (describing
offset project contracts under the NFU credit program).
49
78
48
See Georgia Forestry Commission’s Carbon Sequestration
Registry, available at http://www.gacarbon.org/GFCCSHome.
aspx?AspxAutoDetectCookieSupport=1.
50
See Texas Forest Service Carbon Credit Program, available at
http://texasforestservice.tamu.edu/main/article.
aspx?id=5312.
51
See Methane Capture Pilot Program, available at http://
www.enr.state.nc.us/dswc/pages/methane_capture.html.
52
See Illinois Conservation and Climate Initiative, available at
http://illinoisclimate.org/overview.php.
Id.
79
Id.
80
Michael D. Wallander, Cash For Carbon: Carbon Markets and
Regulatory Alternatives, PowerPoint presentation, available at
stlucie.ifas.ufl.edu/media/381783203_v_2_MDW_Personal%20
%20PIEC%20Carbon%20Markets%20Presentation.PPT.
81
An example of this would be a reforestation project funded
and operated by an individual landowner on his own private
land.
82
Wallander, supra note 79.
53
83
54
84
See id.
See generally, Michigan Conservation and Climate Initiative,
available at http://michiganclimate.org/.
55
See, e.g., id.
56
Current Developments, United States Department of
Agriculture, Natural Resource Conservation Service, Spring
2007, at 5, available at ftp://ftp-fc.sc.egov.usda.gov/MI/news/
Current%20Developments/Spring2007.pdf.
57
http://www.ncgreenpower.org/.
58
Foster, supra note 43.
59
Id.
60
Id.
61
Id
28
62
Id.
2006 U.S. Dist. LEXIS 29334 (2006).
85
Id. at 9-10.
86
See generally, NC Gen. Stat § 143-215.1; NC Gen. Stat. §
215.10(H) (defining a “grower” as the “person who holds a
permit for an animal waste management system …for a swine
farm”).
87
Id.
88
Id.
89
Clarification of state policy with respect to credit ownership
is especially necessary for state programs that provide cost
share assistance to swine farmers or swine offset projects.
Without such clarification uncertainties may arise as to the
state’s share in the resulting credits. While the state is not likely
to assert ownership in such an instance, if not addressed in
formal state policy, these uncertainties may limit the
attractiveness of associated credits for aggregation and sale.
See Wallander, supra note 79.
90
Some state universities have taken climate neutrality pledges
independently.
91
www.v-c-s.org
92
www.climateregistry.org
93
www.americancarbonregistry.org
94
www.chicagoclimateexchange.com
95
Voluntary Carbon Standard 2007.1 available at http://
www.v-c-s.org/docs/Voluntary%20Carbon%20Standard%20
2007_1.pdf
96
Climate Action Reserve Livestock Project Reporting Protocol
Version 2.1 (August 2008) available at http://www.
climateactionreserve.org/wp-content/uploads/2009/03/
Livestock-Project-Protocol/Current/
Livestock_Project_Reporting_Protocol_V2.1.pdf
97
For American Carbon Registry standards, see http://www.
americancarbonregistry.org/carbon-accounting/standards
98
For Chicago Climate Exchange offset project protocol on
Agricultural Methane Collection and Combustion, see http://
www.chicagoclimatex.com/docs/offsets/CCX_Agricultural_
Methane_Final.pdf
99
http://cdm.unfccc.int/DOE/list/index.html
100
http://ji.unfccc.int/AIEs/List.html
101
http://www.climateregistry.org/tools/verification/verifiers.
html
29