Carbon Prices Required to Make Digesters Profitable on U.S. Dairy Farms of Different Sizes

• Main Authors: Lazarus, William F, Goodkind, Andrew, Gallagher, Paul W, Conway, Roger K
• Format: Publication
• Language: English
• Published: 01.01.2011
• Subjects: anaerobic digester; biogas plant; carbon offset value; electricity; Environmental Economics and Policy; livestock manure; Livestock Production/Industries; methane

The objective of this analysis is to evaluate the impacts of three factors: 1) methane emission differencesrelated to climate and manure storage type, 2) digester economies of size, and 3) electricity values on theminimum breakeven carbon dioxide (CO2) -equivalent methane (CH4) destruction prices that different-sizeddairy farms in different U.S. states would require to make anaerobic digester installation profitable. Thenumber of digesters that would be installed at different prices, and the resulting emission reductions andelectrical generation are also estimated. Dairy cows are a significant source of the greenhouse gas methane,so anaerobic digesters are receiving policy attention as a climate change mitigation strategy. Dairy farmmethane emissions by state are calculated in this study using the methods used in the U.S. EnvironmentalProtection Agency’s annual greenhouse gas inventories. While all of the farms with 2,500-plus cows wouldinstall digesters at prices of less than $6 per metric tonne, prices of $39-55 would be required to justifydigesters on the 100-199-cow farms. Supply curves are generated empirically for number of digesters, CH4emission reductions, and digester-generated electricity as a function of a carbon dioxide (CO2)-equivalent CH4destruction prices ranging from zero to $100/metric tonne. Modeled electricity generation and CH4destruction are complementary goods in that higher values on the destroyed CH4 encourage generation ofmore electricity. For example, a price of $40 would encourage as many as 4,138 digester installations with 24teragrams of CO2-equivalent methane reductions and 468 megawatts of electrical generation. Digester CH4destruction revenues may exacerbate consolidation in the dairy industry somewhat because digesters arenot financially feasible below around 200 cows in most states. Methane destruction revenues under a $40CO2 price will reduce the milk production cost by between $2.19 and $2.83 per 100 kilograms ($0.99 and$1.28 per 100) pounds on farms of 2,500 cows or more. On farms of 200 to 499 cows, CH4 destructionrevenues would have less impact on milk production costs, from 70 cents to $1.32 per 100 kilograms (32 to60 cents per 100 pounds).The above results assume that digester-displaced electricity has a REC value equal to the CH4-destructionprice per CO2-equivalent tonne. Without that REC value, 5-8 percent fewer digesters would be installed.Many of the digesters that are installed would flare the biogas rather than generating electricity, so thatelectrical generation capacity would be 33-42 percent less than with a REC value. Replaced with revised version of paper 02/15/11.