Insuring Biogas Operations
The United States now has over 2,000 locations producing biogas in all 50 states. What is the opportunity to insure these businesses?
Converting waste into energy is not science fiction, it’s happening now and is a rapidly growing industry. Insuring this type of transformative operation doesn’t come without risk. Undoubtedly there may be unintended liability exposures for the biogas industry. In this article we’ll touch on the process of anaerobic digestion production of biogas, risk exposures most standard insurers may look to exclude from coverage, and why the environmental alternative energy insurance marketplace is more suitable for comprehensive coverage.
Biomethane or biogas is generated when microorganisms, in the absence of oxygen, digest/break down organic materials such as food and animal waste. Biogas can be produced from: farm manure, sludge from wastewater treatment plants, captured gas at landfills, food waste systems, yard clippings, and crop residues. Anaerobic digesters create ideal oxygen-free conditions and speed up the process. In the U.S. biogas research with the use of anaerobic digesters started in the late 1970’s at Penn State, Cornell, and Wisconsin. The United States now has over 2,000 locations producing biogas in all 50 states with 250 anerobic digesters on farms, 1,269 water resource recovery facilities, 66 standalone systems that digest food waste, and over 650 landfills. The E.U. has close to 5 times more operating digesters with Germany leading the way.
The government sees promise in these projects. There are 96 U.S. financial incentives nationwide for this industry including corporate tax credits, property tax reductions, and loan/grant programs. By processing waste in this manner, we may see less pollution in our waterways and on our farmland. Capturing methane gas from food waste and purifying it for fuel produces a lot of energy. One hundred tons of food waste per day can generate energy to power 800 – 1,400 homes each year.
There are special insurance risks and opportunities for insurance agents in this field. The basic nature of the biogas process involves many different volatile and/or toxic components which could be addressed in a Pollution policy. Biogas contains 50 -70% methane, 30-40% percent carbon dioxide and trace amounts of carcinogens such as arsenic, ethylbenzene, nitrous oxide, lead and toluene present. Biogas is toxic, flammable, and potentially explosive. Noxious gases are also released through ventilation systems from confinement houses, and environmental contaminants are also released through vapor from waste decomposing in lagoons, spray fields, and other waste collection sites. Although manure digesters might have the potential to reduce methane emissions into the air, emissions of other air pollutants, such as nitrogen oxides may increase to unacceptable levels. Breathing air with a high concentration of nitrogen oxides can cause breathing problems, headaches, and chronically reduced lung function.
A typical Commercial General Liability policy will not protect biodigester operators from third party bodily injury/property damage pollution claims. Depending on how the lawsuit is filed, the insurance company may also choose not to defend and cite the pollution exclusion built into the policy. An explosion, subsequent clean up, and restoration of the affected area may not be properly covered due to the hostile fire exclusion.
A typical General Liability/Pollution Liability package policy can better protect these operations. Within this type of policy, the definition of a pollutant is extremely broad. The ISO definition of a pollutant is “any solid liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste.” A combined package policy is a more effective solution for the insured since one insurance company, underwriter, and policy review and handle a claim on its merit to determine where it fits into the policy vs. two separate carriers trying to determine if their policy should respond. An example of this difference is our Pollution policies are not “Named Peril” like other insurance policies. Environmental carriers can insure construction projects of a system, including all subcontractors, and for a multi-year term to include the statue of repose. They can also write annual renewable policies for system operations at a third-party location. Gradual pollution coverage can address water runoff issues from farm lagoons, air quality, and odor issues, the application of residual onto crops, damaging landfill liners or cap, or improper discharge into waterways from water treatment facilities. The treated residual digestate is a byproduct rich in nitrogen which is often used as fertilizer and other soil amendments. There are pollution risks associated with applying this material on crops/farmland, especially near water sources.
There is also environmental exposure pertaining to the transportation of biogas. When using public gas pipelines, the gas needs to be compressed to the pressure at which the pipeline is operated. Leaks do occur and Premises Pollution Liability can be obtained to insure these exposures for the owner andoperator of the pipeline. Depending on the geographic location, its often difficult to obtain Auto Liability and physical damage coverage for compressed natural gas distribution trucks. Besides the over the road pollution exposure, unloading and dispensing compressed gas into fuel stations is an additional hazard that can be included for coverage under a GL/Pollution package policy. The disposal and transportation of biogas digestate may also pose issues for some insurance markets.
There are many reasons why the environmental insurance marketplace should be involved in writing these risks. The surplus lines marketplace has the ability to modify coverage forms and add back exposures typically excluded (or not addressed) by admitted markets. Packaging coverages together can better protect this industry and leaves a renewable energy insured with fewer coverage gaps. An environmental insurance specialty wholesaler may add value bringing additional markets into play and reviewing policy forms to ensure effective coverage. For more information or to discuss a biogas account, please contact us.
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Sources
https://americanbiogascouncil.org/biogas-market-snapshot/
https://www.eesi.org/papers/view/fact-sheet-biogasconverting-waste-to-energy
https://biotech4.co.uk/news/2022/03/29/is-food-digestate-safe-for-land/
“Composition and Toxicity of Biogas Produced from Different Feedstocks in California.” Environmental Science & Technology 53 (2019) Yin Li, Christopher P. Alaimo
https://thecounter.org/misbegotten-promise-anaerobic-digesters-cafo/
https://extension.psu.edu/agricultural-anaerobic-digesters-design-and-operation
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