Winners and losers
Of the roughly 1,750 dairy farms in California, fewer than 20 have methane digesters, according to Neil Black, chief operating officer of California Bioenergy, which partners with dairy farms in renewable-energy projects.
He acknowledges that the number of dairies with methane digesters is small, but perhaps more dairies would build them if the right incentives were in place. Those incentives include (1) higher payments from utility companies and (2) higher carbon-trading credits on the Chicago Climate Exchange and over-the-counter markets.
The cap-and-trade bill would not require the utility companies to pay more for electricity — which is bad news for producers like DeRuyter — but it might help raise the value of carbon-trading credits.
The Congressional Budget Office estimates that carbon credits or allowances would rise to $19 per ton by 2015 and $26 per ton by 2019. The U.S. Environmental Protection Agency is a little more conservative, estimating the price would rise to $13 per ton by 2015 and $16 per ton by 2020. (Currently, carbon credits sell for about $3 per ton on the over-the-counter markets.)
Black says the cap-and-trade bill passed by the House in June would be “very beneficial” to dairies with methane digesters.
But, again, few dairies have methane digesters.
Paul Martin, director of environmental services at Western United Dairymen, says he is aware of 18 digesters in California, although not all of them are operating at the present time. And, of those 18 dairies, Martin says he is only aware of one that is participating in the Chicago Climate Exchange.
There will be winners and losers with cap-and-trade, Martin says. Potential winners include dairies with methane digesters. Losers will be just about everyone else who will have to pay higher energy costs without the chance to offset those costs with methane digesters, no-till farming or other certified methods of reducing greenhouse-gas emissions.
Most dairies would lose
That is the same conclusion reached by the Agricultural and Food Policy Center at Texas A&M University.
In a special study analyzing the House cap-and-trade bill, the Ag and Food Policy Center concluded that 18 of the 22 dairies it collected data on would lose money. That’s because the farms would experience higher energy costs with no way to offset those costs.
Of the remaining four, none of them showed a significant increase in net farm income — it was more a matter of staying even with current income levels.
Besides dairies, the study looked at crop farms and other types of livestock. The study concluded that the only farms that would likely benefit under cap-and-trade are feedgrain/oilseed farms located in or near the Corn Belt and wheat farms located in the Great Plains. These farms could potentially shift some of their marginal cropland to trees, which might have the benefit of raising grain prices (since there would be less cropland) and possibly providing those farms with carbon offsets.
None of the dairies in the study had methane digesters. But the study authors did look at what would make methane digesters potentially profitable under a cap-and-trade scenario. They concluded that for farms using ag carbon credits, several farms would need carbon prices of $80 per ton or more to make them as well off as they are now with no cap-and-trade.
Eighty dollars per ton is significantly higher than the Congressional Budget Office and EPA estimates.
“The carbon price is going to have to be higher than what people think,” says Joe Outlaw, agricultural economist at Texas A&M and one of the study’s principal authors.