California’s Air Resources Board has decided not to invalidate 15,070 carbon offsets that were issued to a livestock methane project in Indiana after a four-month probe found the credits were generated while the facility was in compliance with state laws.

California’s second-ever offset invalidation decision was being closely watched by market participants despite concerning a tiny fraction of the nearly 25 million in circulation.

The T&M Bos Dairy project in Fair Oaks, Indiana, was put under investigation by ARB late last September, and the credits, issued between 2014 and 2015, were frozen in the state’s online registry.

New California Carbon Offset (CCO) issuances to the project were also suspended for the duration of the probe.

The holders of the offsets in question have not been revealed, but ARB’s decision will bring a sigh of relief as a decision the other way would have rendered the units invalid for compliance use in California’s cap-and-trade scheme and effectively worthless.

Standard CCOs can be declared ineligible by ARB for up to eight years after they have been issued. Crucially, liability is with the buyer, presenting a large degree of regulatory risk for investors and market participants and provoking wide interest in how regulators handle the invalidation probes.

The Bos Dairy investigation has caused less of an outcry than the first probe, when in 2014 California froze over half of the 8 million credits it had issued to date while it investigated the Arkansas-based Clean Harbors Incineration Facility.

That investigation lasted seven months and ended with the invalidation of just 88,955 ozone depletion CCOs, despite the regulatory violations being unrelated to the offsets themselves.

FINAL RULING

In its final determination published on Wednesday, ARB said it had deferred to the judgment of the Indiana Department of Environment Management (IDEM), which was responsible for interpreting and implementing the relevant state regulations, and which had written to ARB to recommend that the Bos Dairy project be cleared of any wrongdoing.

The probe was launched after the facility operated by Environmental Credit Corp., which was bought by Pennsylvania-based ClimeCo last August, received a letter in Mar. 2015 from IDEM alleging that the project had violated state air quality laws.

During ARB’s investigation, IDEM explained to the California regulators that, following widespread confusion over how Indiana’s air permitting laws applied to farms, the ‘violation letter’ had been issued while the state was in the midst of developing new policies, and that it was intended as an informal notification to farming operations of the need for permits under these new rules.

“Bos Dairy had already received air permit approval from IDEM on Jan. 9, 2015, prior to the issuance of the informal violation letter; therefore, any air permitting issues had been resolved by the time the violation was issued,” wrote IDEM Commissioner Carol Comer in a Nov. 2015 letter to ARB.

ISSUANCES

Separately, ARB on Wednesday announced that it had issued a total 509,156 new offsets over the past fortnight, with a huge chunk of around 241,000 going to a new forest project for reductions made between 2006 and 2012.

The issuances took the total number of credits handed out to date to 37.15 million, but around 13 million of that was turned in by companies for 2013 and 2014 compliance.

A second batch of California offsets were also made golden early last month, meaning they no longer have invalidation risk and, as such, should fetch higher prices on the secondary market.

Some 107,542 credits issued in Oct. 2013 to an ODS project operated by EOS Climate Inc. saw their three-year invalidation timeframe run out on Jan. 2.

According to data compiled by Carbon Pulse, the milestone means a total 414,059 offsets have been made golden since last September. A further 305,827 units are scheduled to shed their invalidation risk this coming June.

Meanwhile, Quebec, which has linked its carbon market to California’s, also on Wednesday announced that it had approved a new landfill methane destruction project, its sixth.

The latest facility is capable of cutting 10,787 metric tonnes of CO2e annually over 10 years, and is owned by WSP Canada Inc., which also operates three of the other methane projects listed under the scheme.

B y Mike Szabo – mike@carbon-pulse.com