Biomethane method package: proposed new method activity under the Emissions Reduction Fund

Bioenergy Australia Pty Ltd

PO Box 127, Civic Square, ACT 2608

Phone: 0439 555 764

Email: shahana@bioenergyaustralia.org.au

BIOENERGY AUSTRALIA SUBMISSION

Biomethane method package: proposed new method activity under the Emissions Reduction
Fund

Bioenergy Australia (BA) is the national industry association committed to accelerating Australia’s bio
economy. Our mission is to foster the bioenergy sector to generate jobs, secure investment, maximise
the value of local resources, minimise waste and environmental impact, and develop and promote
national bioenergy expertise into international markets.

BA thanks the Clean Energy Regulator (CER) for its engagement this year on the development of the
biomethane method and for this opportunity to provide input on the proposed new method activity
relating to biomethane under the Emissions Reduction Fund (ERF). We would particularly like to note
how accommodating and helpful the staff at the CER have been throughout this process – it has been
a pleasure to work with the team.

Having reviewed the proposed biomethane method package, Bioenergy Australia seeks the
following additions and amendments:

1. Expand the package to include the alternative waste treatment method and source separated
organic waste method as a matter of urgency
2. Expand the package to include an agricultural waste method
3. Extend the crediting period to support greater participation in the method
4. Accelerate credits in line with the King Review
5. Incorporate additional carbon abatement activity
6. Improve consistency in the calculation of losses between generation, biomethane and
pipeline infrastructure
7. Be wary of unintended consequences caused by the ‘newness test’
8. Remove requirement for natural gas to be combusted in Australia
9. Clarify credit creation for biomethane used in power generation
10. Consider credit ownership of post-diversion treatment for animal effluent
11. Reconsider the restriction of generation of electricity and biomethane from biogas after 7
years
12. Formula update required to consider impact of upgrading to biomethane
13. Electricity use should be offset via voluntary purchasing of LGCs
14. Clean Energy Regulator to develop method specific calculators

These items will be addressed in detail below.

Expand the package to include the alternative waste treatment method and source separated organic
waste method as a matter of urgency

Bioenergy Australia understand that the methods for alternative waste treatment and source
separated organics have not yet been incorporated into the biomethane ERF package due to a lack
of time and resources. However, we are concerned that the absence of these methods will have a
detrimental effect on the ability of the biomethane ERF to achieve market stimulation and emissions
reduction.

We understand that there is still the intention to include alternative waste treatment and source
separated organics within the biomethane ERF package and we encourage the CER to pursue this as
a matter of urgency, preferably within the first half of 2022.

The inclusion of source separated organics and alternative waste treatment methods are necessary
to support the diversion of organic waste from landfill, and to support the emerging anaerobic
digestion market. BA remains concerned that development projects will stall (due to the newness
test), adding further costs to this emerging market. Additionally, synergies can be gained by co-
digesting organics diverted from landfill with the proposed animal effluent and waste-water
treatment methods. The proposed methods for animal effluent and wastewater need to allow
organics diverted from landfill, including organics which may be otherwise sent to composting in the
absence of these methods.
Expand the package to include an agricultural waste method

Bioenergy Australia understand that the development of an agricultural waste method is being
considered by the CER, with $200,000 in funding allocated to research the carbon calculations
required to satisfy the offset integrity standard. We wish to reiterate the vital importance of
including agricultural waste within the method as agricultural waste represents the vast majority of
available feedstock. Indeed, the 2017 Deloitte Access Economic report suggests that 86% of
Australia’s available organic feedstock for biogas production comes from the agricultural sector.
Failure to incorporate agricultural waste will result in sub-scale projects that will not be cost
competitive against alternative options for natural gas.

The recently released Bioenergy Roadmap highlights the need to ‘consider tailored options to
support regional bioenergy projects targeting agricultural residues’. We wish to emphasise that
ongoing exclusion of agricultural waste will be detrimental to the success of the biomethane method
in achieving emissions reductions and promoting industry growth and request that the development
of an agricultural waste model be prioritised for development in early 2022. We recommend
additional resources and funding be allocated to accelerate the develop of this method.

Extend the crediting period to support greater participation in the method

The biomethane ERF package is an important factor in supporting the production of biomethane
that can be provided to customers to decarbonise their gas supply. The number of credits available
to a biomethane project directly impacts the premium over the wholesale gas price which producers
will require customers to pay for biomethane. In many cases, biomethane is the most viable option
for many major industrial customers to decarbonise their gas supply and as such, even small changes
in the price of biomethane impacts their current and future competitiveness.

The draft ERF Biomethane Method credits a project for a maximum of 12 years rather than for the
project life. A typical biomethane project is operated over 20-25 years and continues to reduce
emissions over this time. For a typical project, extending the crediting period from 12 to 20 years
would decrease the price of biomethane to customers by up to $3-5/GJ. The provision of
competitively priced biomethane to customers is essential in order to increase the liquidity and
marketability of biomethane relative to fossil fuel alternatives.
Bioenergy Australia notes the financial model completed by its member, Helmont Energy, that was
provided to the CER as part of the co-design phase. The financial model clearly shows the impact of
extending the crediting period and the incremental impact on the required biomethane price.

Failure to extend the crediting period, could result in projects being uneconomic and BA remains
concerned that the market of biomethane will not eventuate if investment capital cannot be
attracted to this sector.

Additionally, BA notes that the biomethane does not currently provide consumers a reportable
emission reduction (either via Consumer Energy Reporting Transparency, National Greenhouse
Energy Reporting or Guarantee of Origin) and any premium likely to be paid by consumers will be
limited. These particular issues must be resolved in connection with the biomethane ERF method for
this market to develop. BA strongly urge the CER and DISER to consider amending CERT, NGER, GOO
and extending the crediting period so that biomethane can participate in the voluntary market and
be priced competitively to consumers.

Germany provides a clear example of the effect of removing support mechanisms too early. Their 20
year ‘EEG’ feed-in-tariff (for biogas derived electricity & biomethane) officially ended on January 1st
2021. However, it had to be temporarily extended until the end of 2021 due to the widespread &
immediate impact its expiry had on Germany’s 9,500 bioenergy facilities. Recent revision to the EEG
law has included continued support for large-scale bioenergy facilities due to their ability to support
variable renewable generation into the future.

By comparison, the proposed 12 year crediting period would seem inadequate to establish a biogas
and/or biomethane industry in Australia.

Accelerate credits in line with the King Review

The biomethane package would benefit from a compressed crediting structure providing increased
certainty for project developers. The King Review suggests that the application of compressed
crediting is to be assessed on a method-by-method basis, and the Report’s recommendations outline
the requirements a project should meet to be eligible. The nature of biomethane projects (with the
consideration that the current market in its infancy) is well placed for the application of compressed
crediting. How these projects meet the King Review recommendations is outlined as follows:
● Biomethane projects involve significant upfront costs to deploy the technology. It is not
currently expected that carbon revenues or secondary benefits will offset this significant
cost. This is primarily due to the misalignment of crediting period and project life.
● The abatement from these projects can be easily forecast due to the nature of the
methods.
● Although future abatement is contingent on ongoing capital outlay, it is not expected to
be at the same level as the initial outlay to construct a biomethane facility capable of
injecting into the grid or for refuelling.

Compressed crediting would assist project proponents to de-risk a biomethane project. This is
especially critical during the coming years while the industry is in its infancy.

Incorporate additional carbon abatement activity

The creation of biomethane using anaerobic digestion technology has many benefits, including the
creation and production of digestate and clean CO2 from gas upgrading. These products can provide
additional carbon abatement to industry via offsetting synthetic fertiliser, soil carbon and industrial
CO2 production. These components of the carbon benefit should be considered in the biomethane
method.

An additional benefit to the production of biomethane is the production of stabilised digestate. It is
established that carbon sequestration can be achieved through application of anaerobically digested
sludge (digestate) to soil1. Research on mechanisms to enhance anaerobic digestion and its methane
yield through enrichment of feedstocks with captured CO2 are also ongoing. The magnitude of
sequestration able to be achieved is dependent on the digestion feedstock, production mechanism
and method of digestate application. Consequently, understanding of the level of abatement is
currently developing. While the level of abatement is not able to be quantified for this submission,
the fact remains that the by-products of biomethane production contribute to carbon sequestration.

1
References on carbon sequestration via Anaerobic Digestion and land application of digestate:

Role of Digestate and Biochar in Carbon-Negative Bioenergy, accessed from:
https://pubs.acs.org/doi/pdf/10.1021/acs.est.9b03763

Carbon Sequestration In Soil Amended With Anaerobic Digested Matter, accessed from:
https://www.researchgate.net/publication/333059253_Carbon_sequestration_in_soil_amended_with_ana
erobic_digested_matter#:~:text=Our%20broad%20estimation%20shows%20that,the%20incorporation%20
of%20maize%20silage.&text=Characteristics%20of%20SOM%20and%20EOM%20used%20in%20the%20exp
eriment
The ongoing research in this area will likely result in future quantification of the level of abatement
that can be achieved, which may be included in a future biomethane method

Improve consistency in the calculation of losses between generation, biomethane and pipeline
infrastructure

The transport emission factor for biomethane is currently 2% based on the unaccounted-for gas
fractions in NGERs. However, this figure in NGERs accounts for both metering error and actual
emissions, which represent 45% and 55% respectively, as noted in Section 3.81 of NGERs “0.55[%] …
represents the proportion of gas that is unaccounted for and released as emissions.” Therefore, the
correct figure would be 55% x 2% = 1.1%. Given the method has strictly reflected figures in the
national inventory, such as for destruction efficiency, not reflecting this factor would be inconsistent.

The combustion factor in the biomethane method is 98%, however the existing factor for
combustion is 100% destruction. This may create an incentive to flare the biomethane rather than
inject it into the network which would result in additional emissions than there otherwise would
have been.

The current method reduces the abatement credited by the production emissions of biomethane,
but does not credit for the reduction in the supply chain emissions of the natural gas it replaces. We
understand that this is due to the concern that the production of natural gas, and so the supply
chain emission, will not be reduced by the additional biomethane supplied. However, all customers
that we are working with on the procurement of natural gas are replacing their existing natural gas
supply with renewable gas and so the domestic demand for natural gas will reduce. This reduction in
domestic demand will not impact the price of natural gas as the price is determined by international
LNG markets and so will not incentivise the increase in any other domestic demand. On aggregate, if
this method is successful, biomethane can displace production, especially from more expensive gas
supplies.

Be wary of unintended consequences caused by the ‘newness test’

BA notes that the wastewater and animal effluent methods require projects to demonstrate at least
12 months of data to satisfy the newness test. BA seeks that new abattoir and wastewater
treatment facilities (or new projects that produce wastewater and animal effluent) are not unfairly
penalised for developing a biomethane project upon commencement and development of the
relevant facility (Clause 9 of the animal effluent method).
Remove requirement for natural gas to be combusted in Australia

Under the eligibility criteria for biomethane projects, projects must demonstrate that the natural gas
is being combusted in Australia. This provision adds a cost and complexity for biomethane projects
that sell biomethane to gas market participants (retailers) that may trade gas domestically or
internationally (via LNG terminals). BA notes that the conversion component is not impacted by the
point of combustion and therefore should be included, regardless of whether the biomethane is
exported and used outside of Australia. BA notes that this provision creates a disincentive for
biomethane producers to export product in higher priced international markets which could help
support investment in biomethane and create an export market for biomethane (via LNG). A
mechanism that deals with any double counting of displacement carbon abatement should be
considered in the methods, should a biomethane project find markets for biomethane outside of
Australia.

Clarify credit creation for biomethane used in power generation

The method supports the creation of credits if biomethane were to be used in power generation on
site. It is unclear whether this activity creates a double counting issue noting that biomethane used
in power generation (locally) is eligible to earn LGCs under the RET.

Consider credit ownership of post-diversion treatment for animal effluent

Under clause 9FG, a facility can earn credits if eligible organic waste is diverted to a composting
facility or stockpiled. Consideration should be given to organic waste that is diverted to another
eligible anaerobic digester which could create ACCUs. In this circumstance, the custody of these
ACCUs should reside with the secondary AD facility (not the primary facility).

Reconsider the restriction of generation of electricity and biomethane from biogas after 7 years

Section 17 (animal effluent method) disallows projects that generate electricity and upgrade biogas
to biomethane from being credited after 7 years. This provides a disincentive to biogas projects that
intend to partially utilise biogas for biomethane production and the residual biogas for firming
generation (firming power). This is a potential issue that will emerge as pipeline capacity could
constrained to biomethane supply limits. Similarly, a project that generates electricity for more than
7 years should not be penalised for switching to biomethane. BA is unclear as to the intention of this
provision and requests that it be reconsidered. If we have misunderstood this section, please
provide clarity.
Formula update required to consider impact of upgrading to biomethane

Section 24 of the animal effluent method references a variable for the equation “WBG CH4”. Its
value refers to the Supplement which assumes that the biogas is not upgraded. This value should
represent a methane fraction which is closer to 99% given that the methane will have been
upgraded prior to the dispatch system. BA recommends the Supplement be amended to account for
upgraded biomethane.

Electricity use should be offset via voluntary purchasing of LGCs

Emissions from electricity consumption should take into consideration offsets voluntarily purchased
such as LGCs to reduce electricity emissions (Section 29).

Clean Energy Regulator to develop method specific calculators

Noting that the biomethane package amendments to the existing methods have added complexity,
the CER is encouraged to assist project proponents with navigating these changes through the
provision of method specific calculators to reduce the administrative burden on both existing and
new projects.

Thank you for taking the time to consider our submission. Any questions or request for further
assistance are welcome and can be directed to Georgina Greenland at
georgina@bioenergyaustralia.org.au

Sincerely,

Shahana McKenzie, CEO Bioenergy Australia