Emerging Incentives for the Development of CMM Emission Reduction Projects Updated February 2020


EPA-430-F-19-024
Emerging Incentives for the Development
of CMM Emission Reduction Projects
Updated February 2020
1EPA^'
Coalbed Methane
'OUTREACH PROGRAM
Coal mine methane (CMM) is a major source of anthropogenic greenhouse gas (GHG) emissions,
accounting for an estimated 9% of global methane emissions by 2020.1 Considerable progress has
been made, as of 2016, in the United States in reducing CMM emissions, which have dropped
below 1990 levels.2 Major U.S. coal mines are now capturing and using, selling, or destroying the
gas. Emerging state and federal financial and regulatory incentives enable coal mines to develop
and operate CMM emission reduction projects for both economic and environmental reward. Mines
benefit financially from avoided energy costs and/or from revenues generated from CMM recovery
and use or destruction, while reducing GHG emissions.
Potential Markets for CMM
The largest and most prevalent CMM emission
reduction projects in the United States involve
capture and sale of produced gas directly to
natural gas pipelines. Using CMM to fuel
electrical generation via gas turbines or
internal combustion engines is another
potentially profitable way to generate revenue
by selling energy into the electricity grid.
Alternatively, mines can reduce costs by
using power generated onsite to run
ventilation fans and other equipment.
Other uses for CMM include producing heat
for coal drying or heating mine ventilation air
during the winter months, feedstock fuel for
manufacturing and processing end uses, and
vehicular fuel (e.g., liquefied or compressed
natural gas). Methane emission reduction
credits or offsets associated with CMM
emission reduction projects may be sold into
emerging carbon markets (see next page).
Carbon credit revenues can be generated for
emission reductions from both active and
abandoned coal mines.
State Alternative Energy and Renewable
Portfolio Standards
Several major coal-
producing states have
enacted alternative
energy and renewable
energy programs that
include coal-related
methane as a
targeted renewable or
clean energy resource
•	In 2004, Colorado created a Renewable
Portfolio Standard (RPS) by ballot initiative
requiring utilities to generate or purchase
enough renewable electricity to supply 10-
30% of their electric sales by 2020.3
Legislation enacted in 2013 expanded the
list of "eligible energy resources" to
include CMM.
•	Established in 2012, Indiana's Voluntary
Clean Energy Portfolio Standard Program
provides utilities with incentives to
voluntarily increase the amount of clean
energy resources - which includes coal
bed methane - in their electricity
portfolios, with a goal of 10% by 2025.4
•	Ohio's Alternative Energy Resource
Standard (AERS) was created by S.B. 221
State Programs that
include CMM/coalbed
methane (CBM):
Colorado, Indiana, Ohio,
Pennsylvania, Utah
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in 2008. The AERS applies to electric
utilities and electric service companies
with Ohio customers and requires utilities
to provide 12.5% of their retail electricity
from alternative energy sources by 2026.5
Amendments passed in 2009 expanded
the "advanced energy resource" definition
to include methane gas emitted from
operating or abandoned coal mines, and
amended the "advanced energy project"
definition to include CMM pipeline sales.
Ohio's House of Representatives voted in
March 2017 to turn the AERS into a
voluntary standard. The bill then went to
the Ohio Senate, where it stalled.6
•	Pennsylvania was the first state to define
CMM as an alternative energy fuel in its
Alternative Energy Portfolio Standard
(AEPS), signed into law November 30,
2004. Eligible technologies include
demand-side management, waste coal,
CMM, and coal gasification. The AEPS
requires each electric distribution company
and electric generation supplier that sells
electricity to customers in Pennsylvania to
supply 18 percent of its electricity from
alternative energy resources by 2021, with
at least 8 percent from "Tier I" resources
(which includes CMM) by May 31, 2021.7
•	Utah established a renewable portfolio
goal in the "Energy Resource and Carbon
Emission Reduction Initiative" (S.B. 202)
enacted in March 2008. Under this act, to
the extent that it is cost-effective to do so,
retail electric sales of each electrical
corporation and municipal electric utility
shall consist of "qualifying electricity" or
renewable energy certificates (RECs),
equal to 20 percent of its adjusted retail
electricity sales. Unlike other state RPS
policies, Utah's does not include any
interim targets and the first compliance
year is 2025. Amendments passed in 2010
expanded the source to include "methane
gas from an abandoned coal mine or a coal
degassing operation associated with a
state-approved mine permit" as part of
waste gas or waste heat captured or
recovered for use as an energy source for
an electric generation facility.8
Regulatory Incentives
In recent years, federal and state land
management agencies have provided
regulatory incentives in the form of royalty
relief and/or other rights granted in coal or oil
and gas leases or amendments for mine
operators to utilize or destroy CMM. Recent
efforts include:
•	The U.S. Dept. of Interior's Bureau of
Land Management (BLM) Colorado
State Office amended two federal coal
leases in December 2017 for the West Elk
Mine. The amendments extended 2009
coal lease amendments to a new area of
the mine that allow the mine operator to
"...develop, produce, and capture for use
or sale any or all of the coal mine
methane..." 9
•	Utah's Trust Lands Administration has
been asked to consider coal or oil and
gas lease amendments and royalty
waivers or reductions for CMM captured
and destroyed on School Trust Lands.10
•	Wyoming's Office of State Lands and
Investments has adopted a Natural Gas
Flaring Policy that enables owners/
operators to request oil and gas royalty
relief for approved flaring operations that
do not constitute waste. CMM emission
reduction projects that gather and produce
low quality methane from shut-in CBM
wells surrounding surface coal mines could
be excellent candidates for royalty relief.11
Carbon credits, however, are particularly
useful for improving the cash flow of
projects that are otherwise economically
marginal.
The emerging carbon credits market consists
of two main types:
•	Regulated Carbon Markets: Cap-and-
trade systems under regulatory regimes,
such as California's Air Resources Board
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(ARB) Emissions Trading Program and
the Northeast's Regional Greenhouse
Gas Initiative (RGGI).12
Carbon Financing for CMM Project
Development
In California, the ARB Emissions Trading
Program helps the state achieve its goal of
reducing GHG emissions. In 2014, the ARB
approved amendments to the state's GHG
cap-and-trade program, adding mine
methane capture projects as an eligible offset
project type. In July 2017, the cap and trade
program was extended to 2030.13
• Voluntary Carbon Exchanges: Voluntary
- yet legally binding - membership-based
cap-and-trade systems (e.g., Climate
Action Reserve, American Carbon Registry,
Verra - formerly Verified Carbon
Standard).
In general, CMM recovery, sale, and/or use
projects can offer financial returns that are
economically feasible. These CMM projects
capture methane that would otherwise have
been vented into the atmosphere, and either
use or destroy the methane; thus, reducing
GHG emissions. If properly monitored and
verified, these emission reductions could
qualify as GHG offsets that can be sold as
"carbon credits" in voluntary or compliance
markets. However, in most cases, carbon
credits alone do not provide sufficient funding
for CMM recovery projects that require
significant capital investments (such as for
electricity generation and natural gas
processing and transmission).
Additional information can be found on
CMOP's website at
httDs://www.eDa.aov/cmoD/Droiect-resources.
1 U.S. EPA. 2012. Global Anthropogenic Non-CC>2 Greenhouse Gases Emissions: 1990-2030. EPA430-R-12-
006. Available: https://www.epa.aov/alobal-mitiaation-non-co2-areenhouse-aases/alobal-anthropoaenic-non-
co2-areenhouse-aas-emissions.
2 U.S. EPA. 2018. Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2016. EPA 430-R-18-003.
https://www.epa.aov/ahaemissions/inventorv-us-areenhouse-aas-emissions-and-sinks-1990-2016
3 DSIRE. 2018. Renewable Energy Standard. Updated June 14. Available:
http://proarams.dsireusa.org/svstem/proaram/detail/133.
4 State of Indiana. 2019. Indiana Choice Program. Renewable Energy by 2025. Indiana Office of Energy
Development. Available: http://www.in.gov/oed/2649.htm.
5 DSIRE. 2018. Alternative Energy Portfolio Standard. Updated June 29. Available:
http://programs.dsireusa.org/svstem/program/detail/2934.
5 DSIRE. 2018. Alternative Energy Portfolio Standard. Updated June 29. Available:
http://programs.dsireusa.org/svstem/program/detail/2934.
7 Pennsylvania General Assembly. 2004. Alternative Energy Portfolio Standards Act - Enactment Act of Nov.
30, 2004, P.L. 1672, No. 213, CI. 66. Available:
http://www.leois.state.pa.us/cfdocs/leois/li/uconsCheck.cfm?vr=2004&sessInd=0&act=213.
8 Utah State Legislature. 2010. Renewable Energy - Methane Gas. H.B. 192 Enrolled. Available:
http://le.utah.gov/~2010/htmdoc/hbillhtm/HB0192.htm.
9 BLM. 2017. United States Forest Service Supplemental Final Environmental Impact Statement for Federal
Coal Lease Modifications COC-1362 & COC-67232 (including on-lease exploration plan). U.S. Department of
Interior Bureau of Land Management. December 15.
10 Based on discussions with representatives of Utah's Trust Lands Administration and Wyoming's Office of
State Lands.
11 Wyoming Office of State Lands and Investments. 2014. Natural Gas Flaring Policy. Effective date March 1,
2014. Available: https://drive.google.eom/file/d/lFlMowva4ibEi9VPADv467C7-V32I4VTR/view.
12 Ten East Coast states participate in RGGI: Connecticut, Delaware, Maine, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, Rhode Island, and Vermont. RGGI does not currently address CMM
emission reductions.
13 CARB. 2017. California Air Resources Board's News Updates. Available: https://ww2.arb,ca.oov/news/carb-
approves-cap-and-trade-improvements.
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