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Wood, Patrick J.

Community Development and Applied Economics

2011

MS

The purpose of this thesis is to evaluate the economic viability of carbon offsets as a financing option for dairy anaerobic digestion projects. Climate change presents the preeminent environmental, social and economic global challenge in the immediate term as well as the coming decades. In 2009, agriculture was responsible for 419.3 Tg CO₂eq or 6.3% of total VS greenhouse gases (GHG). Methane from manure management accounted for 49.5 Tg CO₂eq or 11.8% of agricultural GHG emissions. While this only represents about 1% of total US anthropogenic GHGs, methane emissions from manure management increased by 46 percent between 1990 and 2009 (U.S. EPA, 2011). Anaerobic digestion (AD) is a proven and commercially available technology that can reduce these manure management methane emissions while providing·a host of other social and environmental benefits including renewable energy, reduction in odor, improvements in air and water quality, and enhanced economic viability of rural economies. Despite these widespread benefits AD adoption has been limited. As of 2010 there were 162 farm-based AD systems operating in the U.S. (EPA, 2010d), 125 of which were located on diary farms.
Carbon offsets present an innovative mechanism with which to finance agricultural anaerobic digestion projects. Livestock methane offsets are in high demand and can yield high premiums, but difficulties remain for many dairy farmers interested in utilizing this financing mechanism. For some smaller AD projects, at current and projected carbon market prices, the costs of compliance with leading offset programs like the Climate Action Reserve make it economically infeasible to monitor, measure, and account for offsets, and bring them to market. This thesis estimates the number of offsets that would be produced by six dairy farms ranging in size from 825 to about 2,300 head. These estimates are integrated with financial projections to estimate the profitability of selling carbon offsets from these projects. A threshold at which the costs of compliance with the Climate Action Reserve prohibit profit generation for farms, and consequently, a viable business opportunity is identified. For farms that operate digesters with a herd of less than about 1,500 to 2,000 head, the economic viability of a carbon offset revenue stream is uncertain given current market prices, and costs of compliance. Methods to reduce costs of compliance are outlined along with other financing mechanisms like a feed-in tariff that may be able to provide a greater incentive for digester adoption in a more economically efficient manner.