Anaerobic digestion insurance transfers risk away from biogas processing facilities, helping to promote a sustainable solution for reducing greenhouse gas (GHG) emissions in the United States.
Anaerobic digesters convert waste to energy and are increasingly being used by farmers to capture methane generated from livestock waste, which is a significant source of GHG emissions.
Not only do these digesters help reduce emissions, but they also offer an incremental source of revenue for farmers.
What Is Anaerobic Digestion?
Anaerobic digestion is the process of breaking down organic matter, such as livestock waste, in an oxygen-free environment to produce biogas.
While anaerobic digesters are not as common in the United States as they are in Europe,1 waste to energy facilities are becoming increasingly popular on U.S. farms, especially those with large-scale animal agriculture operations.
Anaerobic digesters provide an opportunity for farmers to capture the methane from manure lagoons and turn it into a renewable energy source.
In addition, anaerobic digesters help reduce the odor and other environmental impacts associated with manure storage and disposal.
How Does Anaerobic Digestion Work?
To perform anaerobic digestion, animal waste and other materials are combined in an oxygen-free, airtight tank (the term anaerobic means without air) where it is heated to 100-102 degrees and mixed several times a day.
Microorganisms consume organic material in a process of anaerobic digestion which takes 2-4 weeks during which time the waste material2 is broken down into two valuable commodities:
- Biogas
- Solid digested material, or “digestate”
Biogas
Biogas is primarily composed of methane and carbon dioxide (CO2).
CO2 is the most commonly cited greenhouse gas, however compared to CO2, the global warming potential (GWP) of methane is approximately 80 times greater over a 20 year period… As such, it’s a powerful greenhouse gas that incentivizes us to curtail excess methane emissions.
After methane is captured, it can be refined (upgraded to propane and/or natural gas) and stored for use as diesel fuel in transportation or it may be injected into a natural gas pipeline and resold.
If transporting the gas is not possible, it may be used on site to generate electricity, heating, or burned to create incremental revenue, etc.3
Digestate
In addition, breaking down organic matter in the anaerobic digestion process produces a solid byproduct called “digestate”.
Digestate has many uses, including as a nutrient-rich fertilizer or soil amendment. Digestate may also be used as an environmentally friendly filler for composite products as well as for animal bedding, providing additional benefits to the farm’s operations.
Anaerobic Digestion Insurance Risks
Capturing and refinement of biogas involves chemical compounds, both toxic and volatile, as well as non-toxic materials that may be considered “pollutants”.
Unfortunately, commercial general liability insurance excludes pollution incidents and the breadth of the CGL pollution exclusion is underpinned by the defined word “pollutant“.
The term “pollutant” doesn’t have to equate to “hazardous”.
The standard definition of “pollutant” in the CGL policy uses broad language and may be further expanded by endorsement to exclude almost everything pollution-related.
A pollutant is simply something that’s not where it’s supposed to be – and as a result – creating a liability or causing some sort of damage.
"Pollutants" mean any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."
Claims examples include lawsuits filed by neighbors over odors produced by anaerobic digester facilities and other environmental pollution claims.
One lawsuit occurred in Nebraska with 16 lawsuits being filed by individual homeowners neighboring a methane processing plant.
The methane processing facility owner, Big Ox, began operations in September 2016, separating solids from industry wastewater to create and refine methane before injecting it into a nearby natural gas pipeline. Soon after it began operations, Big Ox was subject to odor complaints and was cited for numerous environmental violations until it shut down in 2019. The company subsequently filed separate environmental claims against other companies.
In each of these lawsuits, a standard commercial general liability policy would have likely denied the claim because of a total or absolute pollution exclusion.
Types of Anaerobic Digestion Insurance
Anaerobic digestion insurance coverage options that can address standard commercial general liability insurance exclusions for most pollution risks are expanding in the U.S.
A more comprehensive anaerobic digestion insurance solution can be achieved with a combined alternative energy and environmental liability insurance policy form.
Below are some anaerobic digestion insurance coverage types and descriptions:
- General Liability: Provides defense costs and protects against claims of 3rd party bodily injury and property damage during development, construction, operation and sale.
- Pollution/Environmental Liability: Protects against pollution and environmental risks associated with building and operating an anaerobic digester facility.
- Property, Inland and Ocean Marine and Equipment Breakdown: Protects against loss of property on-site, in transit over land and/or sea, and loss of income while in operation.
- Builder’s Risk: Protects against damage to projects that are under construction, prior to completion of build-out.
- Workers Compensation: Protects businesses’ from liability due to physical injury of employees while working on the job.
- Excess Liability: Provides an additional layer of liability coverage beyond primary CGL limits in the event those limits are exhausted in one or more covered claims.
- Directors & Officers Insurance: Protects the executives, directors and officers (D&O) and their personal assets against claims when the entity is unwilling or unable to defend.
To minimize the cost of anaerobic digestion insurance for biogas facilities, your insurance broker should help collect information for the underwriting process that includes, but may not be limited to:
- Digester design (eg. steel digester vs. membrane)
- Pressure sensors and redundancy controls
- Emergency response plans
- Site plan and physical characteristics
- History of claims (if any)
- Site environmental condition and exposure
- Power purchase agreement (PPA) – if any
- Feed stock source
There are many benefits of using anaerobic digesters on farms and the federal government is encouraging the development of anaerobic digestion facilities in the U.S.
The Inflation Reduction Act (IRA) also broadens the tax incentives to build new biogas digestion facilities.
By capturing and utilizing the methane produced by livestock waste, farmers can reduce their GHG emissions and contribute to the fight against climate change.
Footnotes
- According to the American Biogas Council, there are approximately 2,300 biogas facilities in the U.S. compared to over 20,000 in Europe alone.
- Biogas may be produced from manure, landfill waste, food waste, yard clippings, wastewater treatment sludge and crop residue.
- Companies like Vespene Energy and Nodal Power are helping landfill owners capture waste methane and generate incremental revenue through bitcoin mining.
