By Nichola Groom

PIXLEY, Calif. (Reuters) - Joey Airoso has always been proud of his cows, whose milk goes into the butter sold by national dairy company Land O'Lakes. Now he has something new to brag about: the vast amounts of gas produced by his 2,900-head herd is powering truck fleets, homes and factories across the state of California.

"It's pretty incredible if you think about it," Airoso said during a recent tour of his 1,500-acre (607-hectare) farm, as a stream of watered-down manure flowed from cow sheds into a nearby pit. There the slurry releases methane that is captured and eventually piped into fueling stations and buildings.

Airoso is tapping into a growing market among U.S. utilities for so-called renewable natural gas, or biomethane, that is being driven by the fight against climate change.

For farmers, it is a way to get ahead of a wave of greenhouse gas regulation and make a bit of cash at the same time. And for utilities that buy or transport the gas, it is a way to respond to the increasing demands of customers and lawmakers to cut their reliance on fossil fuels.

"It is not something very many people are aware of yet, but it makes sense once it’s explained," said Emily O'Connell, director of energy markets policy at the American Gas Association, the trade group for gas utilities.

Renewable natural gas can come from manure, landfills or wastewater and is interchangeable with gas drilled out of the ground. It cuts greenhouse gas emissions by ensuring significant volumes of methane, that would have been produced anyway, never reach the atmosphere. Methane is a far more potent greenhouse gas than carbon dioxide when it escapes into the air unburned.

Nationwide, more than a dozen utilities have started developing renewable natural gas production through partnerships with farmers, wastewater treatment plants and landfill operators, while nine have proposed price premiums for customers who choose it as a fuel, according to the American Gas Association. Renewable natural gas is currently between four and seven times more expensive to produce than fossil gas, a gap that its proponents hope will narrow as the fuel becomes more widely used.

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BUSES, STOVES

California's SoCalGas, the nation's largest natural gas distribution utility, is one of the industry’s top proponents of the alternative fuel. It has committed to making renewable natural gas 20% of its supply by 2030, said Sharon Tomkins, vice president of strategy and engagement.

She said California has enough biomethane potential “to make a significant dent in reducing the overall emissions from both the agricultural sector as well as reducing the carbon intensity of our gas stream."

Across the country, Vermont Gas hopes to one day supply only renewable natural gas, leveraging the state’s preponderance of dairy farms. The utility's renewable natural gas supply currently stands at less than 1% of overall volumes, according to spokeswoman Beth Parent. But the company is helping large energy buyers in the state, like cleaning products maker Seventh Generation, Middlebury College and Vermont Coffee Company transition to using biomethane.

CenterPoint Energy <CNP.N>, Southwest Gas <SWX.N>, DTE Energy <DTE.N> and NW Natural <NWN.N> are among the other gas utilities seeking to integrate more renewable natural gas into their systems.

Last year, Dominion Energy <D.N> partnered with meat producer Smithfield Foods on a venture to capture methane emissions from hog farms. On Wednesday, the companies said they would double that investment to $500 million through 2028. By 2029, Dominion and Smithfield said in a statement, they will produce enough renewable natural gas to fuel 70,000 homes.

"It's good for their business," said Marcus Gillette, spokesman for the Coalition for Renewable Natural Gas, an industry lobbying group. "Many are on missions to decrease emissions from their side of the energy sector as much as possible."

Until now, nearly all the market for biomethane has come from bus fleets and other vehicles that are able to use state and federal subsidies to make the fuel competitive with fossil gas. Production of the fuel doubled between 2015 and 2018 to 304 million ethanol gallons equivalent thanks to the incentives, according to a report from consulting firm Bates White.

Today, about three quarters of renewable natural gas production is still used for transportation, though Gillette said that is shifting as more utilities seek to provide it for heating, cooking and industrial uses.

Some states are more aggressive in bolstering the renewable natural gas industry than others.

Oregon, for example, passed a bill in August that sets a goal of making renewable natural gas account for 30% of what is carried in the state’s gas pipeline network by 2050.

California, meanwhile, has mandated a 40% reduction in methane emissions by 2030, something that will spell specific regulatory curbs on agriculture in the coming years. Methane accounts for about 9% of the state's greenhouse gas emissions, half of which comes from livestock.

For Airoso, that made tapping into the growing biomethane market an easy decision for the farmer. “We've got a $10 million investment here, so I had to figure out how I protect my investment," he said.





(Reporting by Nichola Groom; editing by Richard Valdmanis, Chizu Nomiyama and Marguerita Choy)