(Updates with reaction from ClimeCo and T&M Limited Partnership)
California’s Air Resources Board is investigating if 15,070 offsets issued to a livestock methane project in Indiana were generated while the facility was in non-compliance with state laws, it announced on Tuesday.
The regulator said the T&M Bos Dairy offset project in Fair Oaks, Indiana, operated by Environmental Credit Corp., which was bought by Pennsylvania-based ClimeCo last month, may have been in breach of permitting rules of the state Department of Environment Management’s Office of Air Quality.
“ARB has made an initial determination that compliance offset credits issued for livestock methane destruction events that took place at T&M Bos Dairy may be subject to invalidation,” ARB said in an FAQ published on its website.
“At this time, ARB is making no judgment about the validity of the compliance offset credits under investigation. The offsets remain valid until the investigation is complete and the Executive Officer makes a final determination.”
Attempts to reach Environmental Credit Corp. were unsuccessful, and a representative of ClimeCo declined to comment.
Dirk Eggleston, controller at T&M Limited Partnership, which operates the dairy farm, told Carbon Pulse that the company is in the process of responding to ARB and that he is confident the offsets in questions will not be invalidated.
According to ARB data, the dairy farm in June 2014 received a total 4,077 early action California Carbon Offsets (CCOs) for abatement activities in 2011 and 2012, and a further 10,993 vintage-2013 units this past July.
ARB did not disclose any information on the owners of the registry accounts in which the 15,070 CCOs in question are being held.
Under California law, if an installation is found to not have been in compliance with environmental, health and safety regulations at local, state or national levels during its reporting period, ARB can invalidate the CCOs issued against emissions reductions achieved during that timeframe.
During an investigation, ARB freezes the CCOs in the online registry account in which they are held, blocking any transfers of the credits until a final determination is made.
Any pending issuance of credits to the T&M Bos Dairy project is also being postponed for the duration of the probe.
Holders of the CCOs now have 25 days to provide additional information to assist ARB in its investigation. Once all information is submitted, ARB’s executive officer has 30 days to rule on the matter, meaning a decision is expected by Nov. 23 at the latest.
RISK
California has issued some 24.5 million offsets to date, including 12.5 million early action credits, according to ARB data.
Standard CCOs eligible for California’s carbon market can be declared ineligible by the regulator for up to eight years after they have been issued, presenting a large degree of regulatory risk for investors and market participants.
The state’s first invalidation occurred in November 2014 when 88,955 ODS CCOs generated at the Arkansas-based Clean Harbors Incineration Facility were nullified for regulatory violations unrelated to the offsets themselves.
The event was a major headache for California ETS participants last year, with the effects still being felt this year through reduced liquidity and investment in the offset market, which has helped create a sizeable CCO deficit.
While another ARB offset investigation will be highly undesirable for the nascent California market, ETS participants may find a tiny bit of solace in the fact that the number of CCOs linked to this latest probe is comparably smaller.
By Mike Szabo – mike@carbon-pulse.com
