Unlocking Biofertilizer as Additional Revenue Source

When considering opportunities to produce and sell digestate, there are legal Issues for renewable natural gas project developers to consider.
By Chris Peterson | August 01, 2022

Global supply chain disruptions continue to wreak havoc on the price of conventional chemical fertilizers, including the raw materials used for fertilizer production such as ammonia, nitrogen, nitrates, phosphates, potash and sulphates. The ongoing Russia-Ukraine conflict has exacerbated matters, driving prices up even further. It is no wonder farmers are looking beyond traditional sources to fertilize crops. Such alternatives include biofertilizers, like those produced from the digestate byproduct left over from the anaerobic digestion of livestock waste and other organic materials. The market for biofertilizer is expected to nearly double over the next decade, reaching over $4 billion in total revenues on a compound annual growth rate ranging from 11 to 15%

For developers of renewable natural gas (RNG) projects, demand for digestate may be another source of revenue, as long as the rights to the digestate are clearly defined in the developers’ agreement with the feedstock suppliers.

Biofertilizers are substances containing micro-organisms that add nutrients to crops through nitrogen and phosphorus fixation, and assist in restoring the soil’s natural nutrient cycle. Biofertilizers are also more climate friendly, as their use reduces greenhouse gas emissions. Use of biofertilizers such as those produced from livestock waste digestate may also provide farmers with additional revenue from the generation and sale of carbon credits.

Voluntary Carbon Markets for Farmers
With large corporations seeking to reduce their carbon footprints and achieve net zero carbon emissions, demand has increased for carbon credits that allow such corporations to offset some of their emissions. Each carbon credit represents one ton of CO2 that was not released into the atmosphere. Farmers can generate these carbon credits by voluntarily participating in a carbon market and by instituting certain approved farming practices to reduce the farm’s carbon emissions. These practices may include planting cover crops, reducing tillage to increase the amount of carbon stored in the soil, and substituting synthetic fertilizers with organic matter soil amendments to reduce volatility and nitrous oxide emissions. Some of the voluntary carbon markets currently available to farmers include Indigo Carbon, Gradable Carbon, Nori Carbon Removal Marketplace, Nutrien Carbon Program and TruCarbon. Each market has specific requirements for farmers to generate a carbon credit. Once the credit is generated under the terms of the specific carbon market, the farmer is able to sell the credit. 

Understanding the voluntary carbon market may assist biofertilizer producers in marketing their product and maximizing its value. For RNG developers considering producing biofertilizer from digestate, this extra incentive for farmers should increase the value of biofertilizer production. RNG projects may therefore result in both the creation of green energy and a commercially viable, environmentally superior source of fertilizer.

Title to Digestate, Environmental Incentives
Just because an RNG project produces a valuable byproduct does not necessarily mean the RNG developer has the right to retain and utilize the digestate in whatever way it sees fit. Feedstock supply agreements should clearly indicate which party has title to the digestate, because the farmer may have interest in using dried fiber as bedding for cows or to otherwise utilize digestate as fertilizer on crops, which may conflict with a developer’s desire to process and commercialize the digestate into biofertilizer. The parties are, of course, free to agree to any arrangement that makes sense, including splitting the resulting digestate or entering into a joint venture to process and commercialize it into biofertilizer.

In the event a portion of the resulting digestate is returned to the farmer for use as a fertilizer, the parties should also make sure the rights to certain environmental incentives are transferred to the farmer with the digestate. As previously noted, farmers may have an interest in generating carbon credits by substituting some or all of their synthetic fertilizer with the digestate biofertilizer. And because feedstock supply agreements often assign all right and title to the feedstock and all environmental incentives associated with the feedstock (including the resulting digestate) to the RNG developer, the parties will want to make it clear that the farmer retains title to any environmental incentives resulting from the farmer’s use of the digestate on row crops.

Proper equipment and adequate funding must also be obtained to process the digestate into a usable form (for example, processing into pellets or granules for sale and easy storage). The entire process includes dewatering of the digestate into an ideal dry matter content, composting and granulation. Specialized equipment is necessary at each stage of the process. 

With proper planning, alignment with farmers on title to digestate and environmental incentives, documentation of such title in commercial agreements, and an adequate source of funding, RNG developers can generate additional revenue by processing the digestate byproduct left over from the anaerobic digestion process into saleable biofertilizer, at a time when the price of fertilizer is skyrocketing and demand from farmers continues to rise.

Author: Chris Peterson
Attorney, Husch Blackwell LLP
[email protected]
417-268-4057