Carbon footprint of cannabis industry raises concerns

Energy-intensive cultivation businesses have significantly impacted electricity use in states that have legalized cannabis. Some states worry that this drastic increase in electricity demand will negatively impact their infrastructure and carbon footprint while increasing costs. In response, some state and local governments have taken reactive measures including taxes, fees and regulation.

However, Pennsylvania, which legalized medical marijuana in 2016, requires an energy-intensive grow process. The commonwealth apparently has not yet considered the impacts of the industry’s electricity consumption. To gain a competitive edge via lower ongoing operating costs, while calming concerns about increased energy use, growers should consider how to conserve energy and mitigate their carbon footprint from the outset of their business. Pennsylvania’s energy industry provides a plethora of energy-efficient and renewable options growers can utilize.

Carbon Footprint

Various research and reports conclude that nationally, marijuana growers used approximately 1.7% percent of America’s electricity in 2015 at a cost of about $6 billion.

Cannabis is one of the most energy-intensive agricultural commodities because growers produce plants indoors, either due to regulations, security and/or efficacy. Growers use artificial lighting that produces heat, and they must control atmosphere of the grow room using dehumidification, ventilation and air conditioning.

One estimate says that using traditional lighting (non-LED) with the commensurate atmosphere control, the energy to produce one marijuana plant equates to the energy needed to run seven refrigerators for the same amount of time. A 2013 study by BOTEC Analysis Corporation estimated it takes about 2,000 kilowatt-hours to grow one pound of cannabis — nearly 300 times that required to produce aluminum, at 7 kilowatt-hours per pound.

A calculator available from the Oregon Department of Energy estimates that a grower with 2,000 square feet of total grow area with “high energy usage” may use approximately 400,000 kilowatt-hours per year. On the other end of the spectrum, the energy use for the same square footage of grow area with “low energy usage” is approximately one-tenth this amount.

With more states legalizing marijuana for medical and/or recreational use, the cultivation industry is booming with a correlated jump in energy use.

This surge in energy use has resulted in grid reliability issues in some areas. Moreover, in states where electricity generation is highly dependent on fossil fuels — especially coal — growing marijuana has a huge carbon footprint and has significantly interfered with state goals to reduce their carbon footprint.

A 2015 article published by Bloomberg estimated that grow facilities in the 23 states where marijuana was legal in 2015 were responsible for greenhouse gas emissions almost equal to those of every car, home and business in New Hampshire. Colorado is an extreme example. In 2014, it was estimated that fewer than 1,200 licensed growers consumed about $19.6 million dollars of electricity. In Denver, where 60% of electricity is from coal-burning power plants, city officials said electricity use rose 1.2% in a year — 45% of which was due to marijuana cultivation. This surge in energy use has stymied Denver’s policy to cut emissions from its power plants 38% by 2030 and overall power use by 7% in three years.

Regulatory and Utility Responses

It appears many states have not calculated the issues surrounding energy use prior to marijuana legalization, and thus state and municipal governments, agencies and electric utilities have been faced with a reactive approach to these issues.

Currently, states and municipalities impose various techniques to curb electricity use and emissions, including taxes, energy use fees or a requirement to either offset electricity use with renewable energy or pay an additional charge of 2 cents per kilowatt-hour. Denver’s Department of Environmental Health has formed a Cannabis Sustainability Workgroup to develop best practices and guidelines for growers.

Electric utilities serving states with legal marijuana grow industries have, in some areas, been hesitant to implement measures such as time-of-use programs or funding to offset costs of energy efficient equipment.

These utilities have cited a gray area under federal law regarding the legality of growing marijuana as the reason they hesitate to engage growers in efficiency programs.  For example, the Bonneville Power Administration, a federal non-profit electricity marketer in the Pacific Northwest, has rules that prohibit subsidizing cannabis operations. Thus, its utility clients who supply retail customers must tread carefully in serving marijuana growers and offering efficiency incentive programs.

The industry’s electricity consumption is on regulators’ radars nationwide. In 2015, the National Association of Regulatory Utility Commissioners (NARUC) hosted a panel addressing the industry and utility responses, energy efficiency options and regulator’s roles in policy. One of the issues discussed was whether energy-efficiency funds should be made available to growers. A panelist also mentioned how utilities should handle costs associated with grid infrastructure upgrades when necessary to support a grow warehouse, cautioning against the use of surcharges and upfront payments in some circumstances.

Pennsylvania

In Act 16 of 2016, which legalized marijuana for medicinal use, the Pennsylvania Legislature did not specifically address or provide for the ability to regulate growers’ use of electricity. To date, this issue does not appear to be a public consideration of the state’s Legislature, regulatory agencies or electric utilities.

Pennsylvania remains dependent to some degree on coal for electricity generation, meaning a surge in energy use from marijuana cultivation may have a large carbon footprint. As of 2015, coal and nuclear both represented 36% of the state’s electricity generation. Natural gas generation came in third at 24% and renewables at 2%.  However, Pennsylvania has an abundance of natural gas, and new gas-fired electricity generation is increasing in the state.

The Pennsylvania Department of Health’s regulations require grow facilities to be indoor, thereby mandating the operations be energy intensive. In addition to lights and environmental controls, growers are also required to install a system to monitor, record and regulate the grow atmosphere. Plus, Pennsylvania requires significant security and surveillance measures, necessitating additional electricity consumption.

Pennsylvania’s electric distribution companies (commonly referred to as EDCs) face significant uncertainty due to a potentially increasing load. In December 2016, the Department of Health announced that in the first phase of permitting it will grant up to 12 permits across six regions of Pennsylvania, with two permits per region. These regions do not align with the service territories of the 11 EDCs, so some may have no grow operations in their territories, while others may have multiple. Moreover, neither the Department of Health, nor Act 16, have placed a limit on the number of plants that can been grown or the square footage of a facility. Coupled with the lack of any requirement for applicants or the Department of Health to notify an EDC that a grow facility may be constructed in its territory, this means some EDCs may face an unknown and increasing load as early as 2018, with apparently no proactive plans to deal with this issue.

Being Energy Savvy

Regardless of regulated or mandated reductions in energy consumption, growers should respond to the economic incentives of energy efficiency — the ability to gain a competitive advantage by reducing the largest input cost to a grow operation. Electricity can represent as much as 50% of a grower’s overhead, which should be reason enough for many cultivators to seriously consider their power source and reducing consumption from the outset of their business. While product prices may adequately offset energy costs initially, as additional growers are permitted, competition will increase and the ability to remain profitable may rely on a grower’s ability to manage energy costs.

Growers should also consider public perception. Efficient operations that use renewable energy can avoid “energy hog” labels and prevent being caught in the crossfire between environmental regulation and activist groups.

Moreover, ensuring the EDC territory where the grower will be located is aware of its presence can avoid issues that will be newsworthy, such as causing grid reliability problems that may affect other customers in the area. Avoiding or mitigating these issues will reduce the chance of increased government regulations or fees related to electricity use in the cannabis industry.

Considerations for Growers

Energy efficiency and use of renewable resources can be expensive. However, many efficiencies will pay off over time through reduced electricity bills, especially given that this is such a huge input to production. Government and utility incentives may be available to assist with some of the upfront costs if business entities are set up correctly from the start (which can best be achieved by seeking legal guidance in setting up business entities). In addition, there are myriad options and strategies a grower can use to decrease energy bills.

Savvy growers will attempt to gauge their energy costs before startup, research energy-efficient equipment and energy products available, and weigh their options to come up with a cost-effective energy strategy. In addition to Oregon’s energy use calculator, various online sources provide information on use of efficient equipment, such as LED bulbs. Denver’s Cannabis Sustainability Workgroup also offers a guide to managing peak demand, which, in conjunction with certain energy products, can significantly reduce costs.

Regarding energy products, Pennsylvania allows customers to shop for their energy generation supplier (EGS). An EGS can offer substantially discounted rates for large-use customers. Along with EDCs, they also offer products such as time-of-use programs, green energy, smart meters and demand response.

Growers may also consider partnering with a solar or wind energy generator or obtaining their own solar or wind equipment to self-generate renewable energy. In Pennsylvania, growers could potentially sell surplus power back to its EDC (although many sources report that grower energy consumption will usually surpass grower installed renewable sources). There are also various entities that provide funding for renewable energy and energy efficiency projects.

Finally, growers should recognize their status as a large utility customer and maintain an open line of communication with their EDC and EGS.

In some scenarios, growers could face utility charges for grid infrastructure improvements. Utilities can make various changes to their tariffs and rates that can have wide-ranging effects on costs for certain classes of ratepayers. Ratepayers — especially large customers, who are not monitoring these changes and advocating for their rights to just and reasonable rates and service — face utility rates and practices that may ignore their interests. Large growers could be assisted by retaining regulatory counsel for these types of matters.

 

Whitney E. Snyder helps businesses remain legally compliant as they plan, form and operate medical cannabis-related enterprises. She is an attorney at Cannabis Law PA (cannabislawpa.com), which helps clients navigate the medical marijuana licensing, permitting and regulatory compliance processes necessary to thrive. Snyder also advises on and litigates various energy and utility matters as an attorney with HMS (hmslegal.com), which provides legal services to energy, utility and other regulated businesses.

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