Air Board Proposes Manufacturing Decarbonization Incentive

Earlier this year, the California Air Resources Board (CARB) proposed adding a Manufacturing Decarbonization Incentive (MDI) to the state’s Cap-and-Invest program. The MDI would help manufacturing facilities in California to reduce their greenhouse gas emissions by allocating free allowances to facilities that switch from fossil fuels for process energy to biomethane, biomass, renewable electricity or low carbon hydrogen. The MDI is intended to accelerate emissions reductions at facilities that are generally hard to electrify or hard to decarbonize. That includes manufacturing of glass, cement, steal, wood products, and much of food processing.

The Cap-and-Invest (formerly known as cap and trade) program sets an annual cap on facilities’ greenhouse gas emissions and gradually reduces that cap to achieve the state’s overall emissions reduction requirements. Large emitters can satisfy their emissions requirements in one of three ways: direct emissions reductions at the facility, purchasing carbon offset credits for reductions that happen offsite, or purchasing allowances to emit (essentially, pollution permits). Both the cap on annual emissions and the number of allowances is reduced each year to meet the state’s greenhouse gas reduction requirements.

The MDI would help manufacturers to achieve their greenhouse gas reductions by covering up to half of the costs of purchasing low carbon, renewable fuels to displace fossil fuel use. This could provide a new and valuable market for bioenergy, but only helps instate projects if the allowances require that the fuel be produced in California or at least delivered to California. The MDI requires that renewable electricity or electrolytic hydrogen purchased with these allowances must be delivered to the western grid, but does not require that biomethane be delivered. That means that California could spend billions of dollars on biomethane that is never delivered to California, would not displace instate use of fossil fuels, and would not help to reduce landfill waste, dairy methane emissions, or wildfire risks.

BAC submitted comments to CARB on behalf of a broad coalition of interests in support of the MDI, but urging CARB to require that biomethane purchased with MDI allowances must be delivered to the western grid, consistent with requirements for electricity and hydrogen.

See: Comments on the MDI.