Initial Thoughts on the Design of a Renewable

Initial Thoughts on the Design of a Renewable Natural Gas Standard: RNG GHG Performance, Cost Effectiveness, Program Design and Examples from other Jurisdictions Presented to the California Public Utilities Commission December 6, 2019 Sam Wade Director, State Regulatory Affairs Coalition for Renewable Natural Gas 1

About the RNG Coalition The leading advocacy and education voice for Renewable Natural Gas (RNG) in North America 2

The RNG Coalition is the advocacy voice for the RNG Industry in North America. Our members produce 95%+ of the RNG in the USA and Canada, and are competitors collaborating for the common good.

RNG Coalition Membership

RNG Coalition Membership

RNG Coalition – Academia Membership

ADDRESSING METHANE IS A CRITICAL PART OF CALIFORNIA’S DECARBONIZATION GOALS Overall GHG Trend is Encouraging So Let’s Take ACTION! SB 605 SB 1383 SB 1440 But Methane from Wastes Remains an Increasing Problem Regulations Make it Real 2030 Low Carbon Fuel Standard Organic Waste Reduction Regulation Renewable Natural Gas Standard? 7 Figure source: https: //www. arb. ca. gov/cc/inventory/pubs/reports/2000_2016/ghg_inventory_trends_00 -16. pdf

What is the Greenhouse Gas Performance of RNG Projects? Commercially available supply of RNG has strong greenhouse gas performance relative to conventional fuels like diesel and geologic natural gas 8

EXAMPLE STEPS IN THE LIFECYCLE ANALYSIS TO ESTABLISH A CARBON INTENSITY (CI) FOR AN RNG PROJECT • • • The California Air Resources Board’s (CARB) Low Carbon fuel Standard Program (LCFS) contains a robust accounting framework for evaluating the lifecycle greenhouse gas performance of RNG Projects This CARB figure shows a landfill that achieves a 35% reduction relative to conventional (fossil) compressed natural gas (CNG CI score is 88) X 49 g/MJ X This scoring can easily be adapted to non-vehicle end uses by removing the compression step and vehicle efficiency penalty 9 https: //ww 3. arb. ca. gov/fuels/lcfs/background/basics-notes. pdf

CALIFORNIAN AIR RESOURCES BOARD PUBLISHES CI SCORES FOR ALL RNG PROJECTS SERVING CA The best RNG projects achieve a GHG reduction of over 500% relative to fossil gas, due to methane destruction 10 https: //ww 3. arb. ca. gov/fuels/lcfs/fuelpathways/pathwaytable. htm

Is RNG Supply Cost Effective? Yes, relative to other sources of greenhouse gas reductions 11

COST EFFECTIVENESS ALREADY ADDRESSED IN CARB SCOPING PLAN • Under AB 32, cost-effectiveness means the “relative cost per metric ton of various GHG reduction strategies” compared to each other (CARB 2017 Scoping Plan, page 44) • Reduction in methane from organic waste sources was included in the SLCP strategy, which was found to be cost effective relative to other implemented options • Other RNG (modeled by E 3 for CARB as pipeline-injected power-tohydrogen) was found to be more expensive in the 2030 timeframe, but with high uncertainty (Scoping Plan Appendix D, page 23) CARB, California’s 2017 Climate Change Scoping Plan (Table 10 from Page 46) https: //ww 3. arb. ca. gov/cc/scopingplan/scoping_pla n_2017. pdf 12

RNG SUPPLY CURVE – E 3 AND THE UNIVERSITY OF CALIFORNIA, IRVINE More recent analysis by E 3 includes a more robust RNG supply curve Key Observations: • Biomethane is lower cost relative to other renewable gases • Optimistic scenario shows potential for cost decline of hydrogen and synthetic natural gas • Biomethane supply used in all scenarios • Includes population-weighted share of nation-wide feedstock supply Aas, Dan, Amber Mahone, Zack Subin, Michael Mac Kinnon, Blake Lane, and Snuller Price. 2019. Natural Gas Distribution in California’s Low-Carbon Future: Technology Options, Customer Costs and Public Health Benefits. California Energy Commission. Publication Number: CEC-500 -2019 -055 -D. https: //ww 2. energy. ca. gov/2019 publications/CEC-500 -2019 -055 -D. pdf 13

RNG SUPPLY CURVES - ICF California United States • ICF conducted biomethane supply curve analysis for both California and the US • Developed as part of a paper that considered key design principles for a CA renewable natural gas standard • Contains a helpful ordinal ranking for feedstock types • ICF relied, in part, on prior work by the American Gas Foundation from 2011. ICF is in the process of conducting updated work for AGF. ICF, Design Principles for a Renewable Gas Standard, 2017 https: //www. icf. com/resources/white-papers/2017/design-principles-for-renewable-gas 14

SIMPLE $/METRIC TON EXAMPLES Illustrative Carbon Emissions Intensity Reduced (g CO 2 e/MJ) Emissions Reduced (Metric Tons CO 2 e/per MMBTU) Cost ($ per MMBTU) Cost Effectiveness ($/Metric Ton CO 2 e) Fossil Gas (without compression and vehicle effects) 76 0 0 3 N/A Example Landfill (see slide 9) 49 27 0. 029 8 174 Diverted Organics to AD Example 0 76 0. 080 17 174 Dairy Example -150 226 0. 239 45 174 • These illustrative values are chosen to provide an easy comparison to the $175/Metric Ton CO 2 e value given for a 50% RPS from the 2017 Scoping Plan (see slide 12) • Provides a simple example of how cost effectiveness analysis could be conducted using lifecycle CI values 15

EVEN ON AN ENERGY BASIS, RNG IS NOT EXPENSIVE RELATIVE TO HISTORICAL PRICES PAID FOR RENEWABLE POWER • $150/MWh = $44/MMBtu (enough to get the entire biomethane supply curve according to both E 3 and ICF) 16 Mark Bolinger, Joachim Seel, Utility Scale Solar Empirical Trends in Project Technology, Cost, Performance, and PPA Pricing in the United States – 2018 Edition Lawrence Berkeley National Laboratory https: //emp. lbl. gov/sites/default/files/lbnl_utility_scale_solar_2018_edition_report. pdf

RECENT STUDIES OF HOW TO REACH CA’S GHG REDUCTION GOALS SHOW SIGNIFICANT BIOMETHANE USE ACROSS ALL SECTORS Source: Aas et al. 2019 (E 3) Study % Biomethane in Pipeline Both In-state and Outof-state RNG Supplied? Page References EFI (uses ICF Biomethane Supply Curve) 10% by 2030 Yes Page 218 and 248 Aas et al. (E 3/UCI) high electrification case 25% by 2050 Yes Page 33 17 Energy Futures Initiative, May 2019, Optionality, Flexibility, and Innovation, Pathways for Deep Decarbonization in California, https: //static 1. squarespace. com/static/58 ec 123 cb 3 db 2 bd 94 e 057628/t/5 ced 6 fc 515 fcc 0 b 190 b 60 cd 2/1559064542876/EFI_CA_Decarbonization_ Full. pdf.

SO IS RNG COST EFFECTIVE? • No, relative to conventional geologic gas, but that’s a false option given our statutory GHG and SLCP goals • Yes, relative to historical values paid for California renewable power • Yes, relative to abatement costs of other GHG strategies needed to hit California’s goals (on a $/metric ton basis) • Yes, because recent credible studies all use RNG as a key strategy to achieve our climate goals • How much can we hope that price declines as the RNG industry scales? Unknown, but we need to try to find out by designing a policy that incents the lowest-cost RNG to come to market. 18

What Tools Should Be Used to Promote RNG Use? Policies that differentiate between sources of RNG based on their greenhouse gas performance, that offer enough value to incent fuel switching, and that create competition between sources should be preferred 19

HOW WOULD A RNG PROCUREMENT STANDARD BUILT ON THE LCFS CI SCORING WORK? Carbon Intensity (g CO 2 e/MJ) 77 76 Gas worse than the CI target generates deficits 75 74 Renewable Gas better than the CI target generates credits 73 72 2021 2022 2023 2024 2025 2026 Conventional Geologic Gas Baseline 2027 2028 2029 2030 Targeted CI by Year • Key metric should be “mass of CO 2 e/energy of gas delivered” (matches LCFS) • Annually each gas supplier must show that they had enough credits (from RNG sales) to match their deficits (from conventional gas sales) • This example shows about a 5% CI decline by 2030 from a 10% blend of RNG at the weighted-average CI of RNG currently in LCFS (39 g CO 2 e/MJ) *All CI estimates taken from the LCFS program are adjusted to remove compression and vehicle efficiency factors 20

WHAT WOULD A RNG PROCUREMENT STANDARD ACHIEVE? • Would incent biomethane in the near-term and renewable H 2 or synthetic gas (SNG) in the longer term (if cost effective) • Utility counterparties would facilitate long-term contracts that RNG project developers prefer, likely would see lower prices for RNG than in the LCFS/RFS • Stretch goal: technology neutral. Could also incent other low-CI sources of thermal energy (solar, etc) and/or simultaneous demand reduction through electrification, etc. • Including all “fuel-switching” technologies in the same program would allow for fair competition between the technologies (true LCFS-analog) 21 Figure Source: Aas et al. , Figure 13

What are Other Jurisdictions Doing to Promote RNG Use? Policies to promote utility procurement of RNG are becoming more common 22

STATE LEGISLATION RELATED TO UTILITY RNG PROCURMENT HAS BECOME QUITE COMMON IN THE WEST

SPECIFIC EXAMLES OF RNG BLENDING TARGETED IN OTHER WEST COAST POLICIES British Columbia Climate Action plan calls for 15% RNG by 2030 Oregon Senate Bill 98 (of 2019) allows Oregon utilities to procure up to 5% RNG starting in 2020 and 30% by 2045 24 https: //olis. leg. state. or. us/liz/2019 R 1/Downloads/Measure. Document/SB 98/Enrolled https: //www 2. gov. bc. ca/assets/gov/environment/climate-change/action/cleanbc_2018 bc-climate-strategy. pdf

CANADIAN CLEAN FUEL STANDARD WILL INCENT RNG SUBSTITUTION ACROSS ALL END USES OF FOSSIL GAS • Will set separate requirements for liquid, gaseous and solid fossil fuels • World-leading policy in that it considers using a lifecycle carbon-intensity based tradeable credit framework to promote fuel switching to displace fossil gas use • Borrows heavily from California LCFS • Gaseous fuels timeline: • Draft regulations targeted for publication in the Canada Gazette, Part I, in mid 2021 • Final regulations in 2022 • Rule in force by 2023 25 https: //www. canada. ca/content/dam/eccc/documents/pdf/climate-change/pricing-pollution/Clean-fuel-standard-proposedregulatory-approach. pdf

CONCLUSIONS • RNG is a cost-effective source of GHG abatement • Implementation of a Renewable Gas Standard—in line with legislative direction from SB 1440—is critical to decarbonize any remaining California demand for the energy services currently provided by fossil natural gas (along with demand reduction due to efficiency, electrification, etc. ) • Aligning the accounting with the Low Carbon Fuel Standard eliminates any environmental concerns about high-carbon RNG • Communication with other leading jurisdictions (such as Canada, British Columbia, Oregon, Washington, etc. ) about how to set up these policies is crucial, but California leadership is needed 26

SPEAKER CONTACT SAM WADE RNG Coalition Director, State Regulatory Affairs 916. 588. 3033 x 11 Sam@RNGCoalition. com 27