Appalachian coal, which contributes substantially to greenhouse gas emissions in the U.S., is poised to take advantage of California's cap-and-trade carbon market.
By destroying the methane that is currently released into the air from ventilating underground mines, coal companies may snatch a chunk of the coveted carbon market in California -- the only place in the U.S. where there is a limit and a price on carbon.
There may be enough coal mine methane in the U.S. to offset 60 million metric tons of carbon dioxide over a 10-year period, according to the California Air Resources Board. At $10 a ton, that's $600 million in new money for coal companies and their project partners.
"One of the biggest push backs we've seen in California against the [coal mine methane generated credits] is that it is somehow going to incentivize more coal mining," said Jerry Gureghian, CEO of Green Holdings, a company that has been waiting for the California market to open its doors to coal mine methane so it can fund such projects in the U.S.
Its first would be a "multimillion-dollar" project at Consol Energy's Enlow Fork mine in Washington County, which would offset 201,000 tons of carbon dioxide.
Verdeo would pay Consol for the use of its ventilated air, destroy the methane in that airstream and sell the credits generated from that to companies in California. Because greenhouse gas emissions contribute to global, not regional, warming, projects anywhere in the U.S. qualify under California's system as long as they are approved by the California Air Resources Board.
The board was scheduled to vote on a protocol for qualifying coal mine methane projects for carbon credits in late October but, at the last minute, postponed the decision until early next year, as opponents have argued that awarding credits to coal mine methane would deflect resources from greener technologies with a more local impact.
"That's what held us back," Mr. Gureghian explained. "Since our project depends 100 percent on the revenue of that ..."
Cecil-based Consol began piloting coal mine methane capture efforts in 2007, with help from the Department of Energy. In 2011, it launched a project at its McElroy mine in West Virginia through a contract with Verdeo, a U.S. subsidiary of Singapore-based Sindicatum.
The coal company "is interested in developing such projects because we consider this activity to be strategic to the coal markets in which we participate and pertinent to the assessment of potential regulatory changes," said Lynn Seay, a Consol spokeswoman
That puts Consol "ahead of the game" in knowing what technology to use and how to navigate the California market, she said.
If federal regulators decide to cap emissions from coal mines, Consol will have coal mine methane projects in its pocket to mitigate the blow.
It's also a new source of revenue for the coal company, said John Savage, managing director at Verdeo, whose deal with Consol involves Verdeo footing the bill for the equipment that destroys the methane and paying a royalty to Consol for the use of its ventilated air.
"It's like an oil and gas deal," Mr. Savage said. "Somebody owns the gas and somebody wants to develop it. [Coal companies] are glad if someone wants to come in and say, 'Hey, we'll spend the money to mitigate your emissions and we'll pay you a royalty to do that.' "
Verdeo was founded in 2008 to take advantage of the national cap-and-trade regime that seemed, at the time, like an inevitability.
A cap-and-trade system puts a ceiling on emissions from certain polluters. To stay within those limits, companies can either reduce their emissions, buy allowances from other companies' reductions, or buy offsets, which are generated by projects outside of the regulated industries. Planting trees, which absorb carbon dioxide, is one way to generate an offset. Keeping methane from the atmosphere is another.
Methane is a potent greenhouse gas. Depending on which national or international organization is doing the measuring, it is between 21 and 72 times more potent than carbon dioxide at trapping heat in the atmosphere during a 20-year period.
Methane is present in coal and mining releases it, so mines are constantly ventilated to keep methane concentrations in the air below the 2 percent.
But, "even though the concentrations are very small, the volumes are very large," Mr. Gureghian said.
The air coming out of the Enlow mine is about 0.8 percent methane, but there's 181,000 cubic feet of it being ventilated each minute.
At McElroy, the air is 1.2 percent methane, and 209,000 cubic feet of it is released each minute. Destroying that methane offsets the emissions of a 50 megawatt coal plant each year.
Ventilated air methane projects have been trading on several voluntary carbon markets in the U.S. but they're fetching only about $1 dollar per credit.
For a project the size of Enlow or McElroy, the difference between selling on the voluntary market and selling into the California carbon market is the difference between $300,000 and $3 million a year.
"It's an environmental commodity," Mr. Savage said.
Projects and buyers have been lining up for years to take advantage of that spread.
According to analysis firm Ecosystem Marketplace, in 2012 "the total value of offsets generated in North America was $151 million, with 60 percent of overall value contributed by pre-compliance buyers preparing for California's cap-and-trade program."
"Without a price on carbon, none of these projects will happen," Mr. Savage said.
Coal companies wouldn't do this themselves, he said.
"The reality is, for a small company like ours, we can develop a business by doing some of these projects," Mr. Savage said. "If you're operating a billion-dollar mine, it's just not worth your time to put a lot of industrial equipment for what to you is an immaterial and risky return."
Anya Litvak: email@example.com or 412-263-1455