ERS researchers used data from USDA’s Agricultural Resource Management Survey (ARMS) and a model of digester profitability to estimate the number, size, and location of dairy and hog operations that might adopt a methane digester at different carbon offset prices. ARMS is conducted by ERS and USDA’s National Agricultural Statistics Service (NASS). The researchers also estimated the distribution of the discounted stream of revenues over the life of the digester from emission reductions, the value of electricity generated, and total profits.

Research results indicate that even with moderate carbon offset prices, offset sales could substantially increase revenues for farms with digesters. At $13 per ton for carbon, the revenues from offset sales for dairies would exceed the value of digester-generated electricity by almost 30 percent. The revenues from digesters would accrue mainly to large-scale operations. Over 15 years, digesters would be worth $419 million to dairy operations with at least 2,500 head, or about 46 percent of the total value of dairy digesters.

Profits per farm and per head increase with farm size, which could give larger operations a substantial competitive advantage. At $13 per ton, it would not be profitable for operations with fewer than 250 head to adopt a digester. Regionally, dairies in the West would receive almost 60 percent of total digester profits, reflecting the prevalence of large-scale dairies in the region.

As carbon offset prices increase, more small-scale operations would find it profitable to adopt a digester. When there is no offset market (a price of zero), only operations with at least 1,000 head earn profits from operating a digester. However, if the offset price increases to $13 per ton, 15 percent of farms with 250-499 head and 45 percent of farms with 500-999 head would earn profits. If the price increases to $26 per ton, 3 percent of farms with fewer than 250 head and 39 percent of farms with 250-499 head would find it profitable to adopt a digester.

The substantial share of dairy operations without anaerobic manure management systems likely could not sell carbon offsets even if they were to install digesters. Farms that replace an aerobic manure management system (such as depositing manure on fields) with a pit or lagoon system would actually increase methane emissions. Even if the same farms then added digesters and reduced emissions to prior levels, these reductions likely would not qualify as carbon offsets. To be eligible as carbon offsets, emissions reductions usually must be “additional” to “business as usual”; as the level of emissions with aerobic manure management would be about the same as with anaerobic manure management plus a digester, there would be no additional reductions in methane emissions.

Higher offset prices would increase the profits that the livestock sector could earn from digesters. Over 15 years, the value of digesters to dairies is about $11 million with no offset market, about $908 million with a carbon price of $13 per ton, and $2.6 billion with a price of $26 per ton. Digester profits accrue mostly to large farms regardless of the carbon price. However, higher prices increase the number of smaller farms that could benefit from an offset program, which causes the distribution of benefits to become somewhat less skewed toward the largest operations. Dairies with at least 2,500 head earn 94 percent of digester profits with no offset market, compared with 48 percent at a price of $13 and 37 percent at a price of $26.