At higher carbon prices, the distribution of profits from digesters reflects the location of large-scale operations and the prevalence of lagoons. Among States with the greatest number of dairies, the study finds that California, New York, Wisconsin, and Texas each have at least 100 such operations that would find it profitable to adopt a digester at a carbon price of $13 per metric ton of CO2 equivalent emissions. At the same price, North Carolina, Illinois, Indiana, Missouri and Oklahoma each have at least 100 hog farm operators who would find a methane digester profitable.
How Was the Study Conducted?
We used a model of digester profitability to estimate how farm size, manure management methods, electricity prices, and carbon prices affect producers’ decisions to adopt biogas recovery systems. Hog and dairy producers are assumed to adopt a digester if the present value of the discounted stream of profits (the net present value) is positive. Profits derive from electricity generation and carbon emission reductions sales less the digester construction and maintenance costs. Using case study information, we parameterized the model. Electricity price data are drawn from the U.S. Department of Energy, and methane emissions are estimated using State-level Intergovernmental Panel on Climate Change emission coefficients.
By computing the present value of digester profits for every farm in nationally representative samples of dairy and hog operations (USDA’s Agricultural Resource Management Survey or ARMS), we used the model to provide an estimate of the number, size, and location of farms that would fi nd it profi table to adopt a digester at any given carbon price. ARMS is conducted by USDA’s National Agricultural Statistics Service (NASS) in conjunction with the Economic Research Service. By predicting which operations would earn profi ts from digester adoption and then summing the reduction in tons of carbon dioxide equivalent emissions, it is possible to estimate the relationship between the price of carbon and the amount of emissions reduced by methane digesters on dairy and hog operations. We used the model to estimate how the present value of farm revenues changes with the carbon price and to simulate the effect of surplus electricity prices and Government cost-share policies on the potential supply of carbon emissions reductions.
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Source: Economic Research Service