Assessing California’s Climate Policies—Agriculture

Assessing California’s Climate Policies—Agriculture GABRIEL PETEK | LEGISLATIVE ANALYST DECEMBER 2021 AN LAO REPORT LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Executive Summary Chapter 135 of 2017 (AB 398, E. Garcia) requires our office to annually report on the economic impacts and benefits of California’s greenhouse gas (GHG) reduction targets. In this report, we assess the effects of the major programs within the agricultural sector that are aimed at reducing emissions and sequestering carbon, as well as make recommendations to the Legislature that, if implemented, could help inform its future policy and budget decisions. Agriculture Is Significant Source of GHG Emissions. The California Air Resources Board (CARB) estimates that agriculture is responsible for the emission of 32 million metric tons of carbon dioxide equivalent (MMTCO2e), making it the fifth largest source of California’s GHG emissions. Most—about 70 percent—of the emissions from the agriculture sector are methane emissions from livestock. Several State Agricultural Programs to Reduce GHG Emissions and Sequester Carbon. The state has several programs within the agricultural sector that aim to reduce emissions and sequester carbon. In this report, we assess the following programs, which are administered by the California Department of Food and Agriculture: (1) Dairy Digester Research and Development Program, (2) Alternative Manure Management Program, (3) Healthy Soils Program, and (4) State Water Efficiency and Enhancement Program. Through 2020-21, the state has provided a total of $383 million to support projects from these programs, and CARB estimates that the projects funded to date provide a total of 2.5 MMTCO2e benefits annually. (The 2021-22 budget included an additional $340 million over two years for these programs.) Overarching Takeaways From Review of Major Agricultural Programs. Overall, we find that each of the four programs assessed in this report have significant potential to provide GHG benefits as intended. However, we also find that—for varying reasons—the magnitude of GHG benefits estimated for each program could be overstated. To the extent the Legislature continues to fund these programs, we recommend that state departments be directed to conduct additional evaluation and research to better assess the GHG benefits. Improved information could then be used to help the Legislature target limited state funding to cost-effectively achieve its policy goals—that is, to maximize GHG and methane reductions at the lowest cost possible. Additional evaluation and research activities likely would result in additional state costs. However, we find that in many cases, these costs would be modest compared to the amount of total state spending on these programs and could be covered within departments’ existing research programs or future program augmentations. The figure on the next page provides an overview of our major findings and recommendations for each program. www.lao.ca.gov 1 AN LAO REPORT Summary of Major Findings and Recommendations Program Findings Recommendations Dairy Digester Research While GHG reduction estimates for Direct CARB to update its GHG quantification and Development Program DDRDP are significant, there are key methodology to more accurately estimate the (DDRDP). Provides grants to dairy assumptions that likely overstate GHG benefits associated with DDRDP. operations and developers for these GHG benefits, such as not the implementation of digesters considering the effects of other that result in methane emission state and federal programs that also reductions. incentivize the use of digesters. Alternative Manure Management Unclear the extent to which grant Direct CDFA to conduct more robust monitoring Program (AMMP). Provides grants recipients are implementing AMMP and reporting of how AMMP projects are being to implement non-digester practices projects consistent with what was implemented. that reduce methane emissions at assumed when the GHG benefits dairy and livestock operations. were estimated, potentially resulting in innaccurate cost-benefit calculations. Healthy Soils Program (HSP). Estimated carbon sequestration benefits Direct CDFA to evaluate the extent to which GHG Provides grants to increase statewide might be overstated for a few reasons, benefits are overstated, including tracking implementation of various practices including (1) uncertainty regarding whether grantees are continuing practices after that improve soil health, sequester whether grantees are continuing incentives end. Also consider supporting other carbon, and reduce GHG emissions. practices after program funding has areas of research related to program outcomes, expired and (2) the likelihood that including on the soil sequestration benefits of some grant recipients would have practices when implemented across different undertaken similar actions even in the combinations of crops, climate, and soil types. absence of receiving state funding. State Water Efficiency and Estimated water and GHG benefits Direct CDFA to research (1) the extent to which Enhancement Program (SWEEP). could be overstated to the extent that subsidizing on-farm water efficiencies results in a Provides grants to agricultural on-farm efficiencies achieved allow rebound effect, (2) the magnitude of the potential operations to implement irrigation operations to extend irrigated acreage rebound effect, and (3) the degree to which GHG and pumping systems that reduce or switch to more water-intensive emissions are affected. on-farm water use and GHG crops over the long run, also know as emissions. a “rebound effect.” GHG = greenhouse gas; CARB = California Air Resources Board; and CDFA = California Department of Food and Agriculture. 2 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT INTRODUCTION Chapter 135 of 2017 (AB 398, E. Garcia) requires researchers. We begin the report by providing our office to report annually on the economic background information on the state’s GHG goals impacts and benefits of the state’s greenhouse gas and emissions within the agricultural sector. Then, (GHG) reduction targets. In this report, we assess for each of the four agricultural programs to reduce the effects of four programs within the agricultural emissions and sequester carbon, we (1) provide sector that are aimed at reducing emissions and an overview of the program; (2) assess the costs sequestering carbon. Our assessment is largely and benefits; and (3) identify recommendations based on our review of available program data; designed to improve the state’s understanding agency reports; academic studies; and interviews of the programs’ effectiveness, as well as with state officials, program participants, and their outcomes. BACKGROUND State Has Ambitious GHG Reduction Goals. figure, the agricultural sector is estimated to emit Chapter 488 of 2006 (AB 32, Núñez/Pavley) 8 percent—32 MMTCO2e—of statewide GHGs, established the goal of limiting GHG emissions making it the fifth largest source of emissions. (We statewide to 1990 levels—431 million metric tons note that in prior years, our office has published of carbon dioxide equivalent (MMTCO2e)—by reports evaluating state programs to reduce 2020. (CO2e is a standardized unit of measurement GHG emissions from the transportation and that is used to compare emissions from different electricity sectors.) GHGs—such as CO2, methane, and nitrous oxide— Emissions from the agricultural sector come based on their global warming potentials.) In 2016, from a variety of activities. In recent years, roughly Chapter 249 (SB 32, Pavley) extended the limit to 40 percent below 1990 levels— to 259 MMTCO2e—by 2030. Figure 1 As shown in Figure 1, emissions State Has Met 2020 Goal, but 2030 Goal More Ambitious have decreased since AB 32 was enacted and were below the MMTCO2e 2020 target in 2019. However, the rate of reductions needed to reach 600 the SB 32 target are much greater. Agricultural Sector Is Fifth 500 AB 32 Target Largest Source of State GHG 2020 Emissions. The California 400 Air Resources Board (CARB) SB 32 Target maintains a GHG inventory that 300 2030 estimates emissions from most Actual Emissions sectors of the state. According 200 to the inventory, there were 418 MMTCO2e emitted in California 100 in 2019. Figure 2 on the next page shows the total amount of 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 emissions from each sector in CARB’s inventory. As shown in the MMTCO2e = million metric tons of carbon dioxide equivalent. www.lao.ca.gov 3 AN LAO REPORT 70 percent of emissions from the agricultural Agriculture Is State’s Largest Source of sector (or 5 percent from all sectors) are related Methane Emissions. Methane is one of the GHGs to livestock. Livestock emissions are mostly from referred to as Short-Lived Climate Pollutants, which methane generated from enteric fermentation remain in the atmosphere for a much shorter period and manure management (discussed more of time than longer-lived climate pollutants such below). Other significant sources of agricultural as CO2. The atmospheric lifetime of methane is emissions are fertilizers (16 percent)—mostly in the about 12 years. (CO2 has a variable atmospheric form of nitrous oxide—and fuel use (8 percent)— lifetime since some portion of excess CO2 is mostly CO2. absorbed quickly by the oceans and terrestrial Figure 2 Agricultural Sector Is Fifth Largest Source of State GHG Emissions 2019 Other <1% Other <1% Fuel Use 1% Landfills Fertilizers 1% 2% Refrigerants 4% Livestock 5% High GWP Light-Duty Vehicles Commercial Agriculture 5% 28% 4% 8% Waste 2% Residential Commercial and 7% Residential Transportation 40% 10% Imported Electricity 5% Electricity 14% Heavy-Duty Vehicles 8% In-State Generation 9% Industrial 21% Other 3% Refineries 7% Oil and Gas Cogeneration (Thermal) 2% Other Fuel Use Production 2% 5% Cement Plants 2% 4% Total = 418 MMTCO2e GHG = greenhouse gas; GWP = global warming potential; and MMTCO2e = million metric tons of carbon dioxide equivalent. 4 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT vegetation, while some remains in the atmosphere from dairy and other livestock. The two largest for thousands of years.) Despite the comparatively sources of methane emissions from livestock were short period that it remains in the atmosphere, (1) manure management from dairies (45 percent) methane is a potent GHG that is 25 times more and (2) enteric fermentation from dairies effective at trapping heat in the atmosphere than (35 percent). Methane is produced from manure CO2 over a 100-year period. management when manure is stored in anaerobic According to CARB, methane accounted for conditions—those that lack oxygen. Manure 39 MMTCO2e (9 percent) of GHG emissions in management systems can be broadly divided into 2019, making it the second largest source in the “liquid” and “dry” systems. Liquid systems—such state. (CO2 accounted for 83 percent of total as manure that is flushed from barns to open GHG emissions in 2019.) As shown in Figure 3, lagoons—create an anaerobic environment that is the agricultural sector is the largest source ideal for methane production, while dry systems— of methane emissions in the state, producing such as solid storage and animal grazing—tend 22 MMTCO2e in 2019 or 56 percent of statewide to produce smaller amounts of methane. Enteric methane emissions. fermentation is the natural production and release of methane mostly through eructation (burping) as Livestock Are Primary Sources of Agricultural ruminant animals (cattle, sheep, and goats) digest Methane. In 2019, a total of 96 percent of methane their feed. emissions from the agricultural sector came Figure 3 Statewide Methane Emissions Largely From Agriculture 2019 Electricity Generation 1% Transportation <1% Commercial and Residential 2% Industrial 19% Dairy Enteric Fermentation 35% Dairy Manure Management 45% Agriculture 56% Recycling and Waste Non-Dairy 22% Livestock Enteric Fermentation 15% Other Agriculture 4% Non-Dairy Livestock Manure Management 1% Total = 39 MMTCO2e Agriculture = 22 MMTCO2e MMTCO2e = million metric tons of carbon dioxide equivalent. www.lao.ca.gov 5 AN LAO REPORT In California, most methane emissions from that CARB and CDFA determine the regulations livestock are related to dairy. The high amount of are technologically and economically feasible, as methane emissions is largely due to the dairy cow well as cost-effective. The legislation also requires population and the widespread use of flush water that future regulations be designed to minimize lagoon systems at these operations. The sector is and mitigate the shift of emission sources to other supported by 1,300 dairies that house 1.7 million states or countries (referred to as “leakage”) and dairy cows. California led the nation in total milk an evaluation of the achievements made by state production in 2019 with 40.6 billion pounds, valued programs. at $7.3 billion. Several State Agricultural Programs to State Has Methane-Specific Reduction Goals Reduce GHG Emissions and Sequester Carbon. for Dairy and Livestock. Chapter 395 of 2016 In this report, we assess the following programs, (SB 1383, Lara) established the goal of limiting all of which are administered by CDFA: (1) Dairy methane emissions statewide to 40 percent below Digester Research and Development Program 2013 levels—to 24 MMTCO2e—by 2030. (The (DDRDP), (2) Alternative Manure Management legislation also established statewide goals for Program (AMMP), (3) Healthy Soils Program (HSP), black carbon and hydrofluorocarbons.) In addition, and (4) State Water Efficiency and Enhancement the legislation established a methane reduction Program (SWEEP). As shown in Figure 4, these goal for dairy and livestock manure management programs provide financial incentives to reduce the operations to 40 percent below 2013 levels costs of adopting technologies and practices that by 2030. reduce GHG emissions and sequester carbon. Senate Bill 1383 also directed CARB, in We note that in addition to these four programs, consultation with the California Department of the state oversees several other programs that Food and Agriculture (CDFA), to adopt regulations likely do provide some GHG emission reduction no earlier than January 1, 2024 to achieve the benefits in the agricultural sector. However, they dairy and livestock reduction goals—provided are not included in this report because they are not Figure 4 Overview of Major GHG Programs in Agriculture (Dollars in Millions) Annual Year Number of MMTCO2e Program Description Established Fundinga Projects Reductions Dairy Digester Grants to dairy operations and developers for 2015 $195 117 2.1 Research and the implementation of digesters that result in Development methane emission reductions. Program Alternative Manure Grants to implement non-digester practices 2017 67 114 0.2 Management that reduce methane emissions at dairy and Program livestock operations. Healthy Soils Program Grants to increase statewide implementation 2017 40 675 0.1 of various practices that improve soil health, sequester carbon, and reduce GHG emissions. State Water Efficiency Grants to agricultural operations to implement 2014 81 828 0.1 and Enhancement irrigation and pumping systems that reduce Program on-farm water use and GHG emissions. a Reflects funding through 2020-21. The 2021-22 budget provided an additional $340 million over two years for these programs, but grants had not yet been awarded to new projects at the time this report was prepared. GHG = greenhouse gas and MMTCO2e = million metric tons of carbon dioxide equivalent. 6 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT targeted specifically to the agricultural sector, are equipment—also primarily is intended to reduce primarily intended to reduce criteria air pollutants, air pollutants and is not specifically targeted within or are smaller in scale than the programs we the agricultural sector. analyze. For example, the Funding Agricultural In the following section, we provide our Replacement Measures for Emission Reductions overarching takeaways from the programs (FARMER) Program—which provides financial assessed in this report. Then, for each individual incentives to purchase cleaner heavy-duty trucks program, we (1) provide an overview of the and agricultural equipment—is primarily intended program; (2) discuss our assessment of its costs to reduce air pollutants, such as particulate matter and benefits; and (3) identify recommendations (PM) and nitrogen oxides (NOx). Additionally, the designed to improve the state’s understanding Carl Moyer Program—which provides financial of the program’s effectiveness, as well as incentives for the replacement of engines and other its outcomes. OVERARCHING TAKEAWAYS FROM REVIEW OF MAJOR PROGRAMS Merit in Having Agricultural Programs That and (3) uncertainty regarding the degree to Reduce GHG Emissions and Sequester Carbon. which practices being implemented to achieve Overall, we find that the four programs assessed GHG benefits are maintained over the long term. in this report have merit in providing GHG benefits. Additional Research Needed to More We find that they are appropriately targeted to Accurately Assess GHG Benefits of Programs. meeting state GHG emission goals by seeking To the extent the Legislature continues to fund emission reductions and carbon sequestration these programs, we recommend that state within the agricultural sector, which is a significant departments be directed to conduct additional source of statewide emissions, particularly from evaluation and research to better assess the methane. Moreover, despite certain limitations GHG benefits. Additional research could improve that we identify for the programs (discussed more the amount and quality of information available on below), our review of the academic literature and the costs and benefits of each program, including interviews with researchers indicate that each specific subcomponents of programs (such program is a reasonable approach with significant as for different types of practices to sequester potential to incentivize GHG emission reductions or carbon in soils). Improved information could then carbon sequestration statewide. be used to help the Legislature target limited Overall GHG Benefits for Programs Likely Are state funding to cost-effectively achieve its policy Overstated. While the programs assessed in this goals—that is, to maximize GHG and methane report likely are resulting in some GHG reductions, reductions at the lowest cost possible. Additional we find that there are several instances where the evaluation and research activities likely would magnitude of these benefits likely is overstated. In result in additional state costs. However, we find many cases, program benefits are overstated due that in many cases, these costs would be modest to (1) shortcomings in the methodologies used to compared to the amount of total state spending calculate GHG benefits, (2) uncertainty regarding on these programs and could be covered within whether projects are being implemented in ways departments’ existing research programs or future that achieve the projected level of GHG reductions, program augmentations. www.lao.ca.gov 7 AN LAO REPORT DAIRY DIGESTER RESEARCH AND DEVELOPMENT PROGRAM Overview of DDRDP effluent, and dry matter. As shown in Figure 5, the captured biogas can be used to generate heat Anaerobic Digesters Capture Methane. or electricity, which can be used on site or sold An anaerobic digester is a closed structure that to a local utility. Alternatively, the biogas can be captures methane from organic matter, such as upgraded to biomethane—pipeline-quality gas that livestock manure. The specific design of digesters is fully interchangeable with conventional fossil can vary, but on dairy farms they are usually large natural gas—and sold to a local utility to be used for engineered tanks or impermeable covers placed several purposes, such as transportation fuel. over existing lagoons. Manure that has been (We note that biomethane sometimes is referred flushed from animal stalls is fed into the digester to as renewable natural gas.) Additionally, the and contained for a period of time as anaerobic liquids and dry matter can be used for other bacteria decompose the manure to produce several purposes such as fertilizer, soil amendments, and outputs, including biogas (largely methane with animal bedding. some amounts of CO2 and other trace gases), liquid Figure 5 Anaerobic Digester Overview Manure Anaerobic Digester Digestate Biogas Upgraded Biogas Liquids Solids Solid Separator Electricity Biomethane Heat Internal combustion Pipeline-quality gas, Boiler, Heater engine, fuel cell vehicle fuel Lagoon/ Liquid Storage Compost, Bedding Soil Amendment, Fertilizer On-Farm Use Fertilizer for Field, Building heating and water heating Local Utility Flush Water Electricity generation, natural gas pipeline, vehicle fueling station 8 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT DDRDP Funds the Installation of Digesters on grants to 117 digester projects. (We note that the Dairy Operations. DDRDP provides competitive 2021-22 budget provided an additional $80 million grants to dairy operations and developers for from the General Fund over two years for DDRDP the implementation of digesters that result in and AMMP—with budget bill language providing methane emission reductions. Projects must funding priority to AMMP.) At the time of this report, use the captured biogas for energy production 60 digester projects have been completed while or transportation fuel. The program funds up to the remaining projects are still in the construction 50 percent of the total project costs, with the and development phases. All of the digesters maximum grant amount capped at $3 million per funded through DDRDP have been covered project during the initial years of the program and lagoon digesters. Prior to 2021-22, DDRDP has $2 million per project in 2020. In recent years, the been funded entirely from the Greenhouse Gas average project cost has been around $5 million. Reduction Fund (GGRF), which is supported by Most digesters funded under DDRDP are proceeds of the state’s cap-and-trade program on owned by a partnership established between GHG emissions. the digester developer and dairy operation. The Environmental Credits Incentivize Use of digester is generally operated and maintained Biogas for Transportation Fuel. In California, by the developer, with the dairy operation being there are two major financial incentives to responsible for supplying manure. Different implement digester projects: (1) revenues generated arrangements exist for how revenues are split from selling biomethane (or electricity generated between the developer and the dairy operation. In from biogas) and (2) environmental credits. Digester most cases, the developer receives revenues from projects are able to receive environmental credits selling biomethane or electricity and environmental under the state’s Low Carbon Fuel Standard credits (discussed more below). The dairy operation (LCFS) Program and the federal Renewable Fuel generally receives lease payments from the Standard (RFS) Program, each of which are developer, and in some cases, will receive a portion designed to incentivize the production of alternative of the revenues generated from the digester. transportation fuels with lower carbon content Over 100 Projects Funded Since 2015. The than traditional fossil fuels. (Please see the nearby program has provided a total of $195 million in box for a more detailed description of LCFS and Key State and Federal Incentive Programs for Alternative Fuels There are two major environmental credits that digester projects are able to receive when captured biogas is upgraded to biomethane and sold as transportation fuel. Low Carbon Fuel Standard (LCFS) Program. The purpose of the state’s LCFS program is to reduce the average carbon intensity of transportation fuels in the state by incentivizing the production and use of low carbon fuels. The program establishes statewide carbon intensity standards for transportation fuels supplied. Entities that supply fuels below the standard (such as biomethane) generate credits that can be sold to entities generating deficits by supplying fuels above the standard (such as fossil gasoline or diesel). At the time of this report, market prices for LCFS credits were about $175 per metric ton of carbon dioxide equivalent. (Please view our report Assessing California’s Climate Policies—Transportation to view our analysis on the cost and benefits of LCFS.) Federal Renewable Fuel Standard (RFS) Program. RFS is a federal program that requires a certain volume of renewable fuels to replace or reduce the quantity of petroleum-based transportation fuels supplied nationally. Under the program, producers of renewable fuels earn credits that can be sold to refiners or importers of petroleum-based fuels in order to meet specified renewable volume requirements under the program. At the time of this report, market prices for RFS credits were about $3 per gallon of renewable fuel produced. www.lao.ca.gov 9 AN LAO REPORT RFS and how the credits work.) According to a from fossil fuels.) Given that most digester projects recent CARB report, LCFS and RFS credit sales upgrade biogas to biomethane for transportation can make up roughly 60 percent and 35 percent of fuel, avoided CO2 emissions for most projects a digester project’s revenues, respectively, with the largely come from the displacement of fossil fuels remaining amount coming from biomethane sales. used in the transportation sector. The current Consequently, 92 percent of all DDRDP-funded methodology also includes avoided CO2 emissions projects (including those in progress) upgrade for projects that displace fossil fuels in natural gas captured biogas to biomethane to be used as pipelines and in electricity and heat generation. transportation fuel. (We also note that some of Estimated GHG Reductions for Program the digesters that produce electricity can earn Likely Are Overstated. While CARB’s GHG LCFS credits if the energy generated is used for reduction estimates for DDRDP are significant, electrical vehicle charging.) we find that the department relies on a couple of key assumptions that likely overstate the benefits Assessment of Costs and Benefits of the program. First, CARB’s quantification DDRDP Projects Are Estimated to Provide methodology assumes that reductions for a project Significant GHG Reductions. CARB estimates are completely attributable to DDRDP and does that all DDRDP projects (including those funded not account for any impacts from other state and but not yet implemented) will provide significant federal programs. This assumption likely would GHG reductions totaling 2.1 MMTCO2e annually. overstate the benefits of the program since other The estimated emission reductions for each project programs also incentivize the development of will vary based on several factors, particularly digester projects and are thus responsible for some the amount of manure flushed into the digester portion of the resulting GHG benefits. In particular, and the end use of the biogas captured. CARB LCFS and RFS provide substantial revenue estimates that the program reduces emissions incentives for the development of digesters in the at a state cost of $9 per ton, which is one of the state. We note that the various programs support lowest cost-per-ton estimates among GGRF-funded different phases of a digester project. For instance, programs. (For context, allowances under the DDRDP specifically supports capital costs, while cap-and-trade program—which puts a price on LCFS and RFS provide revenues after the project each ton of GHG emissions in the state—sold for is built. However, even with this distinction, it is about $28 per ton at the November 2021 auction.) unlikely that the same number of digester projects In CARB’s methodology, emission reductions would be built in the absence of LCFS and RFS. for DDRDP projects come from two major sources. Second, estimated GHG benefits for the First, estimates include reductions associated program likely are overstated due to assumptions with avoided methane emissions—specifically, made when quantifying the emission reductions the methane emissions captured by the digester from digester projects that upgrade biogas to that otherwise would have been released into the biomethane for transportation fuel. CARB’s air. According to information provided by CARB, quantification methodology assumes that all of the more than 75 percent of the estimated emission biomethane produced will offset diesel fuel used reductions are from avoided methane, though the in heavy-duty vehicles. In our view, it is uncertain amount can vary depending on the project. the degree to which this offset occurs in practice. Second, estimates include reductions associated A direct offset is unlikely to occur since diesel with avoided CO2 emissions, which are based heavy-duty vehicles in the state cannot refuel with on the assumption that fossil fuels are displaced natural gas. Instead, the biogas produced from by the biogas (and biomethane) produced by a dairy digesters simply increases the supply of digester. (We note that the combustion of biogas natural gas available for vehicles. Additional supply [and biomethane] produces CO2 emissions, but could indirectly incentivize businesses to purchase these emissions are not included in the state’s GHG heavy-duty vehicles that run on natural gas instead inventory because they are biogenic rather than of diesel by reducing the cost of natural gas fuel. 10 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT However, it is unlikely that digester-produced Recommendations biogas is fully offsetting the use of diesel as is Require CARB to Update Quantification currently assumed in CARB’s methodology. Methodology. We recommend the Legislature Air Pollution Benefits Also Likely Are direct CARB to make a couple of updates to its Overstated. CARB also estimates co-benefits methodology for quantifying the GHG benefits related to reductions in air pollutants, such associated with DDRDP. First, the methodology as NOx and PM. Most of these reductions are should be updated to better reflect the share of associated with the assumption that biomethane GHG benefits associated with DDRDP relative produced by a digester will displace diesel fuel in to other state and federal programs. The current heavy-duty vehicles, which is a significant source methodology likely overstates the benefits of the of these air pollutants. Because we find that the program by attributing all of the GHG benefits estimates of diesel offsets likely are overstated, it is to DDRDP and assuming no impacts from other similarly likely that CARB’s estimates overstate the programs. Second, the methodology should be air pollution benefits of the program. updated to better reflect emission reductions We note that dairy operations are also a major associated with the use of biomethane as source of statewide ammonia and volatile organic transportation fuel. As we discussed above, compounds, which are precursors to PM and the current methodology likely overstates the ozone, respectively. To the extent that the increased benefits of the program by assuming that all of the revenue produced by operating digesters creates a biomethane produced by a digester project will financial incentive for dairies to become larger, this offset diesel fuel used in heavy-duty vehicles. (We could potentially increase the amount of emissions note that updates to the methodology also would that come from these operations. enable revised air pollution estimates.) Program Has Potential to Reduce Nitrate Once completed, revised GHG reduction Contamination. Manure is commonly used as estimates should be calculated for all previously a source of nutrients for plants given that it is funded DDRDP projects. Doing so should provide high in nitrogen, phosphorus, and potassium, the Legislature and administration with more which are all essential for plant growth. However, accurate estimates of the program’s emission the storage of manure in lagoons can lead to impacts and cost-effectiveness—information nitrate (the oxidized form of dissolved nitrogen) which can assist in future budget decisions and contamination in groundwater if not properly policymaking. We find that the one-time costs contained. Based on conversations with associated with updating the methodology are researchers, one potential benefit of DDRDP is likely to be small and could be covered with existing that the program’s requirements could reduce the resources within CARB. occurrence of such contamination. This is because Consider Research on Other Impacts of the program requires all covered lagoon digester Program. We also find that it is largely unknown projects to be double lined, which is the highest the degree to which the program (1) contributes regulatory standard in the state. To the extent that to additional air pollution by creating an incentive these lagoons were otherwise not double lined or for larger dairy operations and (2) reduces nitrate had some level of seepage prior to the installation contamination from lagoons. To the extent that of the digester, there could be water benefits from the Legislature is interested in obtaining more the program. However, we are not aware of any information on these potential impacts, it could research on the magnitude of this benefit. consider providing additional funding to research these questions further. www.lao.ca.gov 11 AN LAO REPORT ALTERNATIVE MANURE MANAGEMENT PROGRAM Overview of AMMP the installation of solid separators, with the remaining projects implementing compost bedded Funds Alternative Management Practices pack barns (26 percent) and flush to scrape on Smaller Dairy and Livestock Operations. systems (14 percent). Digester projects are not feasible on every dairy operation for various reasons, such as the lack of Assessment of Costs and Benefits herd size needed to make a digester financially AMMP Projects Are Estimated to Provide viable. Accordingly, the state created AMMP Small GHG Reductions. CARB estimates that all to provide competitive grants to implement projects funded from AMMP (including those still non-digester practices that reduce methane under development) will provide GHG reductions emissions at dairy and livestock operations. totaling 0.2 MMTCO2e annually. The estimated While large dairies are eligible under the program, emission reductions are almost entirely avoided AMMP generally supports projects on smaller methane. CARB estimates that the program dairies. AMMP provides up to 100 percent of reduces emissions at a state cost of $61 per the total cost to implement alternative manure ton—making it one of the more cost-effective management practices, with a maximum grant GGRF-funded programs. Importantly, current of $750,000. program reports do not provide estimates of the Specifically, AMMP funds technologies and emission reduction benefits or cost-effectiveness specific management practices that increase the broken out by individual AMMP project type. This amount of manure that is managed in dry form, thus makes it difficult to know if certain AMMP activities limiting the amount of methane emissions that result are more cost-effective than others. from manure being stored in anaerobic conditions. While AMMP is estimated to have resulted To be eligible for funding, an operation previously in significantly lower emission reductions than must have been producing methane emissions from DDRDP, we find that AMMP has potential value manure stored in a lagoon or other predominantly liquid anaerobic environments. As shown in Figure 6, there are Figure 6 several eligible activities that can Overview of Activities Funded Under AMMP receive funding under the program. Over 100 Projects Funded Number of Activity Description Projects Since 2017. The program has provided $67 million from GGRF Solid separationa Installation of technology that separates manure 68 solids prior to entry into a wet/anaerobic to 114 projects. (We note that environment (such as a lagoon). the 2021-22 budget provided an Alternative manure Installation of a compost bedded pack barn or 30 additional $80 million from the treatment and slatted floor pit storage manure collection. General Fund over two years for storage both DDRDP and AMMP—with Flush to scrapea Installation of technology that collects manure 16 budget bill language providing from scraping (such as with an automated scraper or vacuum truck) instead of flushing funding priority to AMMP.) At the with water. time of this report, 78 AMMP Pasture-based Conversion of a non-pasture dairy or livestock — projects have been completed, management operation to pasture-based management and/ while the remaining are still in the or increasing the amount of time livestock spend at pasture at an existing pasture development and construction operation. phases. Roughly 60 percent a Must be implemented in conjunction with some form of drying or composting collected manure. of the funded projects are for AMMP = Alternative Manure Management Program. 12 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT because it is consistent with the statutory goal Program Likely Main Driver in Adopting of reducing methane emissions from manure Alternative Manure Management Practices. management and because digesters generally In most cases, the types of practices funded by are not economically feasible for most small AMMP do not otherwise provide sufficient cost operations. However, while AMMP and DDRDP are savings or revenues to incentivize implementation. focused on reducing methane emissions from In contrast to digesters, AMMP projects reduce— manure management, there is currently no rather than capture—methane emissions and, state program to reduce methane emissions therefore, cannot generate revenues from the sale from enteric fermentation. (Please see nearby of the biogas and biomethane or environmental box for a more detailed description of emerging credits through LCFS and RFS. Additionally, under strategies to address methane emissions from the state’s current cap-and-trade regulation, enteric fermentation.) AMMP projects cannot receive carbon offset credits—environmental credits generated by nonregulated entities that can be sold to regulated Addressing Methane Emissions From Enteric Fermentation Enteric fermentation and manure management from livestock are the two major sources of methane emissions from the agricultural sector. While the state has two programs—the Alternative Manure Management Program and the Dairy Digester Research and Development Program—that address emissions from manure management, there are currently no programs to reduce emissions from enteric fermentation. Enteric fermentation emissions are 50 percent (11 million metric tons of carbon dioxide equivalent) of methane emissions from the agricultural sector and represent a significant opportunity to reduce methane emissions statewide. Potential ways to reduce enteric fermentation emissions include breeding of low-methane producing animals and including feed additives into existing diets. Based on several reports, feed additives provide the most promising way to reduce enteric fermentation emissions due to their ability to potentially deliver methane emission reductions shortly after adoption. There are no commercially available feed additives at this time. However, recent research has resulted in progress in finding a feed additive that could reduce enteric fermentation emissions from livestock. For instance, early studies have tested potential feed additives that show methane emission reductions between 20 percent and 40 percent. Given that research is still in the testing phase, there is still some uncertainty regarding when one will become commercially available. Some reports indicate that a feed additive could be available within the next few years, while others indicate that it will take a decade or more. Overall, a viable feed additive will need to (1) show long-term effectiveness, (2) not have significant negative impacts on animal health and productivity, (3) be widely available, (4) be cost-effective for dairy and livestock operations, and (5) have limited external impacts on the environment and surrounding communities. Enteric fermentation emission reduction strategies—specifically feed additives—will be an important issue for the Legislature to track as the state tries to reach its methane and overall greenhouse gas reduction goals. As part of its oversight in achieving statewide goals, the Legislature could request regular updates from various stakeholders—administration, academics and industry—on the development of enteric fermentation emission reduction strategies and the progress that academia and industry are making in producing a viable feed additive for the dairy and livestock sector. Additionally, the Legislature could support additional research or demonstration projects if future feed additives seem promising—with results helping inform future policies and programs. www.lao.ca.gov 13 AN LAO REPORT entities. According to CARB, this exclusion is due employ similar technologies and equipment. At the to difficulties in quantifying methane emission same time, conversations with researchers suggest reductions relative to facility baseline emissions. that there may be instances where operators are Instead, the incentives to develop AMMP not utilizing equipment as expected. In particular, projects rely on potential revenues from selling high costs associated with running equipment— value-added manure products or cost savings from such as electricity costs associated with solid using products to offset expenditures. Value-added separators—could affect an operator’s willingness manure products include soil amendments and to utilize equipment as intended to meet estimated compost made from separated solids. In many emissions. While CDFA currently confirms cases, these financial incentives are not enough whether projects are operational and being for dairy operations to implement projects given utilized, it does not confirm that the equipment the high up-front costs to construct, as well is consistently being operated for the duration as uncertainty regarding the degree to which and at the capacity assumed when the emission the practices will result in savings or additional reduction estimates were developed. Therefore, revenues. For instance, dairy operations must be it is unclear whether current estimates accurately able to find an end user who wants the value-added capture the extent to which projects are meeting manure products and is willing to pay a price estimated GHG benefits. that covers the cost of storage, processing, and Recommendations transport. Given these constraints, it is likely that a Direct CDFA to Make Monitoring of large portion of these projects would not have been Implementation and Reporting More Robust. undertaken in the absence of AMMP funding. We recommend that the Legislature direct CDFA Unclear Whether AMMP Projects Are to conduct more robust monitoring of how AMMP Implemented in Ways That Achieve Estimated projects are being implemented. Specifically, this GHG Benefits. Emission reduction estimates could include more detailed and frequent reporting for AMMP projects are largely based on the by grantees and site inspections from CDFA. projected amount of manure that will go from Additionally, we recommend that the Legislature being managed under anaerobic conditions to dry direct the department to report on the emission conditions. Therefore, projects must be operated in reductions and cost-effectiveness of each type accordance with operational assumptions in order of project in future program reports. More robust to meet estimated reductions. However, various monitoring could provide greater confidence that reports indicate that operation-specific factors can projects are being incorporated by dairy and make actual emission reductions for projects highly livestock operations as expected and meeting variable. For instance, the emission reductions from estimated emission reductions. Similarly, reporting a solid separator will depend on many variables, on the effectiveness of the different AMMP such as how well the system is maintained, the activities could provide the Legislature with better composition of the manure, and whether the flow information on how to target future funding. We find of manure is exceeding the system’s throughput that costs to implement these changes are likely to capacity. These operation-specific implementation be small and could be done by using a small share factors result in varied emission reduction of future AMMP funds. outcomes between projects, even when operations 14 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT HEALTHY SOILS PROGRAM Overview of HSP several healthy soil practices, such as conservation tillage, can improve crop yields over time. Some Promotes Adoption of Practices That practices have also been found to provide on-farm Sequester Carbon in Soils. The objectives of water benefits. For instance, cover crops have been HSP are to increase statewide implementation shown to improve water infiltration rates and soil of practices that improve soil health, sequester water-holding capacity by improving soil structure carbon, and reduce GHGs. The program attempts over time. We note the magnitude of these benefits to achieve this through two categories of projects: will vary between practice and in many cases, will (1) incentive projects and (2) demonstration materialize as practices are continued over the projects. Incentive projects provide competitive long run. grants of up to $100,000 to farmers and ranchers to implement one or more eligible HSP practices Over 650 Projects Funded Since 2017. The (discussed below). Demonstration projects program has provided $40 million to 675 projects. provide competitive grants of up to $250,000 Incentive projects have made up roughly 90 percent to partnerships of farmers, ranchers, and of the total projects. (We note that the 2021-22 collaborating entities—such as universities and budget provided an additional $160 million over nonprofits—to implement similar on-farm practices two years for HSP—$135 million from the General with the additional requirement that the grantees Fund and $25 million from GGRF.) Prior to 2021-22, collect data on carbon sequestration and other the program largely has been funded through co-benefits and/or create outreach to promote GGRF, but has received some funding from the healthy soil practices to other farmers and ranchers. Proposition 68 (2018). As show in Figure 7, the program supports the Assessment of Costs and Benefits implementation of a wide variety of management Research Suggests Potential for Carbon practices. In general, the program promotes carbon Sequestration in Soils. Research suggests sequestration in soils by funding practices that that there has been a significant loss of carbon are known to increase organic matter inputs or in soils over time due to changes in land use reduce soil disturbance. Common examples include conservation Figure 7 tillage and the use of cover crops. Conservation tillage is a set of Overview of Common HSP Practices practices that limit or reduce Number of tillage and increase the amount of Practice Description Projectsa plant residue remaining on fields, Compost Application of compost (organic material 459 while cover crops are non-cash added to soil). crops, often over the winter, that Cover crop Planting of non-cash crop for seasonal soil 212 will be left in place as residue or cover. incorporated into the soil. Hedgerow planting Planting of dense vegetation in a linear design 104 consisting of shrubs, low growing trees, Projects Also Intended woody herbs, or tall bunchgrasses. to Achieve Other On-Farm Mulching Application of plant residues or other suitable 88 Benefits. In addition to GHG materials to the land surface. benefits, practices funded under Conservation tillage Reduced frequency or intensity of soil 65 HSP can provide economic disturbance. benefits to farm operations, as Other practices Includes conservation cover, riparian forest 177 well as environmental benefits. In buffers, and others. particular, research has shown that a Some grants fund multiple practices per project. HSP = Healthy Soils Program. www.lao.ca.gov 15 AN LAO REPORT and management. Moreover, agriculture could on our conversations with researchers, there is provide an opportunity for sequestration because still significant uncertainty regarding the extent the vast majority of agricultural lands are not to which estimated benefits are accurate across managed optimally for soil carbon storage under different projects and locations. We note that traditional agricultural management practices. the demonstration projects under HSP attempt For instance, most annual croplands limit carbon to address this issue, along with research that is storage by leaving fields in bare-fallow conditions being conducted by academic institutions and outside of the main crop-growing season and by other research organizations. However, only employing intensive tillage practices that result in 25 percent of HSP funding has gone towards soil carbon being lost into the air. However, there demonstration projects. are several practices available that research has Second, research indicates that carbon shown to increase carbon stocks in soils and sequestration benefits for many of the healthy soil have been successfully practiced by farmers and practices are highly dependent on being maintained ranchers. In many cases, these practices are not long term. For example, converting a field from implemented due to implementation costs, the conventional tillage to no-till will sequester long-term maintenance needed to experience carbon over time as the practice is continued. benefits, and unfamiliarity in utilizing practices. However, a significant portion of the benefits One academic study found that implementing gained will be lost if the field is reverted back to carbon sequestration practices on agricultural conventional tillage. It is unclear whether grantees lands in the state could sequester nearly are maintaining practices after funding from the 40 MMTCO2e. We note that this number likely program has ended. (The program provides represents a maximum potential that the state is funding for one to three years depending on the unlikely to be able to achieve since it would require practice.) As of now, CDFA does not currently track practices to replicate results from academic studies whether grantees continue practices, which brings and be adopted and maintained indefinitely on all uncertainty on the permanence of the estimated harvestable irrigated lands in the state. GHG benefits of the program. HSP Projects Are Estimated to Provide Small Third, the program might also face “free-rider” GHG Reductions. CARB estimates that incentive issues that limit the degree to which the program and demonstration projects funded from HSP is actually resulting in increased adoption of new will provide relatively small GHG benefits totaling practices. (The term free rider refers to the situation 0.1 MMTCO2e annually. CARB estimates that the where program participants would have taken program reduces emissions at a state cost of similar actions even in the absence of receiving $118 per ton. Importantly, current program reports funding from the state.) For instance, conversations do not provide estimates of the GHG benefits with grantees indicate that some already or cost-effectiveness broken out by individual implemented healthy soil practices on a small part HSP project type. This makes it difficult to know of their operations and are using the program to if certain HSP activities are more cost-effective expand usage to other fields. To the extent that than others. those receiving funding might have expanded Carbon Sequestration Might Be Overstated practices even if the program did not exist, then the in Some Cases. We find that the estimated GHG carbon benefits associated with the program would benefits of HSP likely are overstated for several be overstated, and the cost-per-ton estimates reasons. First, while research is promising about would be understated. We note that CDFA prevents potential carbon sequestration, actual benefits applicants from using program funding on fields are not yet well researched for all variations of that already utilize eligible practices. However, this crops, climate, and soil types in the state. While the does not eliminate issues related to using HSP program extrapolates previous research findings funding to implement expansions that would have to estimate the impacts of HSP projects, based happened otherwise. 16 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Unclear Whether Program Promotes information on the cost-effectiveness of the Statewide Adoption of Healthy Soil Practices. program and individual practices, which could One of the main objectives of HSP is to promote inform future budget and policy choices. We find the adoption of healthy soil practices statewide. that the amount of funding necessary to track this However, it is currently unclear the extent to which information should be small and could be set aside the program is meeting this goal. This is because as a part of future augmentations for HSP. the state currently does not track statewide usage Consider Research for Other Identified rates of HSP practices. Without this information, Issues. We also note uncertainty with (1) the degree it is difficult to determine whether farmers and to which current GHG estimates for each HSP ranchers are changing their practices across the practice accurately reflect the full range of crops, state, as well as whether HSP is having any effect climate, and soil types in the state and (2) the on statewide adoption over time. degree to which the program faces the free-rider issue. Additional research on these topics could Recommendations help inform the accuracy of the state’s emissions Direct Share of Funding to Track Long-Term estimates. Therefore, the Legislature could consider Adoption in Grantees. Given that the GHG directing additional funding to CDFA to research benefits of HSP often are highly dependent these issues further. on practices being maintained long term, we Direct Share of Funding to Track Statewide recommend the Legislature provide additional Adoption of Healthy Soil Practices. Despite funding to CDFA to track whether grantees are increasing the adoption of healthy soil practices continuing practices after program incentives end. statewide being one of the program’s main Additionally, we recommend that the Legislature objectives, the state does not currently track how direct the department to report on the emission the use of these practices has increased as a result reductions and cost-effectiveness of each type of of HSP. Therefore, we recommend the Legislature project in future program reports. Understanding provide additional funding to CDFA to track this the degree to which grantees continue practices data long term. We find that funding to collect this would provide greater confidence on the information periodically should be modest and permanence of the estimated GHG benefits could be set aside as a part of future augmentations of the program. Increased accuracy of GHG for HSP. benefits would provide the Legislature with better www.lao.ca.gov 17 AN LAO REPORT STATE WATER EFFICIENCY AND ENHANCEMENT PROGRAM Overview of SWEEP $95 per ton. Additionally, the program is estimated to provide moderate water savings of 117,000 Funds On-Farm Energy and Water acre-feet (or 37.5 billion gallons) annually, which is Efficiencies. SWEEP provides competitive grants a state cost of roughly $70 per acre-foot over the to agricultural operations to implement irrigation lifespan of all funded projects. and pumping systems that reduce on-farm water use and GHG emissions. As shown in Figure 8, As part of CDFA’s required program evaluation the program provides funding to several different of SWEEP, the department collects water and activities. Projects generally utilize more than one energy use data from a random sample of projects activity to achieve both water and GHG benefits. to measure the actual benefits achieved over a Depending on the grant cycle, the maximum three-year period after project implementation. amount awarded to projects has ranged from Data is collected from 10 percent of funded projects $50,000 per project to $200,000 per project. for the purpose of this evaluation. The evaluation compares actual post-project water and energy use Over 800 Projects Funded Since 2014. The data with reductions originally estimated prior to program has provided a total of $81 million in project implementation. CDFA has completed this grants to 828 projects. (We note that the 2021-22 evaluation from the early rounds of SWEEP. budget provided an additional $100 million from the General Fund over two years for SWEEP.) According to a recent report from CDFA, nearly all projects incorporate Figure 8 some form of irrigation scheduling Overview of Activities Funded Under SWEEP technology as a water reduction strategy, while roughly half include Activity Description the conversion to micro-irrigation Water Reductions or drip systems. Common GHG Micro-irrigation or Conversion to micro-irrigation or drip systems from flood reduction strategies for projects drip systems irrigation. include improved pump energy Sensors for Installation of flow meters, soil moisture or plant sensors, efficiency (65 percent) and pump irrigation weather gauges, evapotranspiration-based scheduling, and fuel conversion (46 percent). Prior scheduling related components that allow the electronic communication between devices. to 2021-22, the program largely GHG Reductions has been funded through GGRF, but has received some funding Fuel conversion Installation of pumps that use less carbon intensive fuels (such as replacing a diesel pump with an electric pump). Installation from Proposition 68. of renewable energy on-site (such as solar) to offset fuel use. Assessment of Costs Improved Efficiency improvements from retrofitting or replacing pumps. pump energy Installation of variable frequency drives to reduce energy use and Benefits efficiency and match pump flow to load requirements. State Estimates Small GHG Low-pressure Installation of low-pressure irrigation systems to reduce systems pumping and energy use, such as the conversion of a and Modest Water Benefits. high-pressure sprinkler system to a low-pressure micro- CARB estimates that all funded irrigation system or lower-pressure sprinkler system. projects from SWEEP will provide Reduced pumping Reduced pump demand resulting from water reductions, such small GHG reductions totaling through water as improved irrigation scheduling leading to reduced pump reduction operation times. 0.1 MMTCO2e annually. Based on activities this estimate, the program reduces SWEEP = State Water Efficiency and Enhancement Program and GHG = greenhouse gas. emissions at a state cost of roughly 18 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT Overall, these results indicate that SWEEP projects Recommendation are meeting estimated GHG and water reductions Direct CDFA to Research Potential Rebound and show evidence that some projects are Effect of SWEEP. Given the potential rebound exceeding expectations. effect associated with water efficiency programs, Long-Term Benefits Could Be Overstated. we find that it is important for the state to better Despite results indicating that SWEEP is meeting understand whether estimated water and GHG estimated benefits, there is still uncertainty on reduction benefits from SWEEP persist over the whether the outcomes will persist over the long long run. Therefore, we recommend the Legislature run. In particular, some research has found that direct CDFA to research (1) the extent to which operations that benefit from water irrigation subsidizing on-farm water efficiencies results in a efficiency programs, similar to SWEEP, might rebound effect from operations increasing irrigated respond by utilizing the saved water in other ways, acreage or switching to more water intensive crops such as by switching to more water intensive in the long run, (2) the magnitude of the potential crops or expanding their irrigated acreage. rebound effect, and (3) the degree to which GHG This type of response is known as a “rebound emissions are affected. Doing so should provide effect.” Depending on the size of the potential the Legislature and administration with more rebound effect, increases in water usage could accurate estimates of the program’s emission and have an effect on GHG emissions—such as water impacts and cost-effectiveness—information through increased pumping compared to what which can assist in future budget decisions and was estimated. CDFA tries to limit the potential policymaking. Funding could initially be needed on of a rebound effect in the short run by requiring a one-time basis to assess the rebound effect for that grantees do not expand acreage under the past projects. We find that the costs for the analysis program. However, this is likely not sufficient in are likely to be small and could be covered using the long run given that expansion or changes a share of future SWEEP funding. Alternatively, in cropping practices can occur after program a one-time augmentation could be provided for funding is complete. research specifically for this purpose. CONCLUSION The state’s climate programs in the agricultural implementation. In light of these findings, we sector provide funding to a wide variety of activities identify recommendations for additional evaluation that attempt to reduce GHG emissions and and research to better assess the benefits of these sequester carbon. Based on our review, we find programs. Improved information could then be used that the programs have merit in providing GHG to help the Legislature target limited state funding benefits to the state. However, we find that benefits to cost-effectively achieve policy goals—that is, are likely overstated for various reasons, such to maximize GHG and methane reductions at the as shortcomings in the methodologies used to lowest cost possible. calculate GHG benefits and uncertainty in project www.lao.ca.gov 19 AN LAO REPORT 20 LEGISLATIVE ANALYST’S OFFICE AN LAO REPORT www.lao.ca.gov 21 AN LAO REPORT LAO PUBLICATIONS This report was prepared by Frank Jimenez, and reviewed by Brian Brown and Anthony Simbol. The Legislative Analyst’s Office (LAO) is a nonpartisan office that provides fiscal and policy information and advice to the Legislature. To request publications call (916) 445-4656. This report and others, as well as an e-mail subscription service, are available on the LAO’s website at www.lao.ca.gov. The LAO is located at 925 L Street, Suite 1000, Sacramento, California 95814. 22 LEGISLATIVE ANALYST’S OFFICE