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Investing in Methane Digesters on Pennsylvania Dairy Farms: Implication of Scale Economies and Environmental Programs

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  • Leuer, Elizabeth R.
  • Hyde, Jeffrey
  • Richard, Tom L.

Abstract

A stochastic capital budget was used to analyze the effect of net metering policies and carbon credits on profitability of anaerobic digesters on dairy farms in Pennsylvania. We analyzed three different farm sizes—500, 1,000, and 2,000 cows—and considered the addition of a solids separator to the project. Results indicate that net metering policies and carbon credits increase the expected net present value (NPV) of digesters. Moreover, the addition of a solids separator further increases the mean NPV of the venture. In general, the technology is profitable only for very large farms (1,000+ cows) that use the separated solids as bedding material.

Suggested Citation

  • Leuer, Elizabeth R. & Hyde, Jeffrey & Richard, Tom L., 2008. "Investing in Methane Digesters on Pennsylvania Dairy Farms: Implication of Scale Economies and Environmental Programs," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 37(2), pages 1-16.
    • Handle: RePEc:ags:arerjl:45662
    DOI: 10.22004/ag.econ.45662
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    References listed on IDEAS

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    1. Jeffrey R. Stokes & Rekha M. Rajagopalan & Spiro E. Stefanou, 2008. "Investment in a Methane Digester: An Application of Capital Budgeting and Real Options," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 30(4), pages 664-676.
    2. Burtraw, Dallas & Palmer, Karen & Shih, Jhih-Shyang & Siikamäki, Juha, 2006. "Air Emissions of Ammonia and Methane from Livestock Operations: Valuation and Policy Options," RFF Working Paper Series dp-06-11, Resources for the Future.
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    Cited by:

    1. Binkley, David & Harsh, Stephen & Wolf, Christopher A. & Safferman, Steven & Kirk, Dana, 2013. "Electricity purchase agreements and distributed energy policies for anaerobic digesters," Energy Policy, Elsevier, vol. 53(C), pages 341-352.
    2. Gloy, Brent A., 2010. "Carbon Dioxide Offsets from Anaerobic Digestion of Dairy Waste," Working Papers 126750, Cornell University, Department of Applied Economics and Management.
    3. Li, Xue & Mupondwa, Edmund, 2018. "Commercial feasibility of an integrated closed-loop ethanol-feedlot-biodigester system based on triticale feedstock in Canadian Prairies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 97(C), pages 401-413.
    4. Key, Nigel D. & Sneeringer, Stacy E., 2011. "Climate Change Policy and the Adoption of Methane Digesters on Livestock Operations," Economic Research Report 102758, United States Department of Agriculture, Economic Research Service.
    5. Benavidez, Justin R. & Thayer, Anastasia W. & Anderson, David P., 2019. "Poo Power: Revisiting Biogas Generation Potential on Dairy Farms in Texas," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 51(4), pages 682-700, November.
    6. Cowley, Cortney & Brorsen, B. Wade, 2018. "Anaerobic Digester Production and Cost Functions," Ecological Economics, Elsevier, vol. 152(C), pages 347-357.
    7. Key, Nigel & Sneeringer, Stacy, 2012. "Carbon Emissions, Renewable Electricity, and Profits: Comparing Policies to Promote Anaerobic Digesters on Dairies," Agricultural and Resource Economics Review, Cambridge University Press, vol. 41(2), pages 139-157, August.
    8. Lauer, Markus & Hansen, Jason K. & Lamers, Patrick & Thrän, Daniela, 2018. "Making money from waste: The economic viability of producing biogas and biomethane in the Idaho dairy industry," Applied Energy, Elsevier, vol. 222(C), pages 621-636.
    9. Yakubu Abdul-Salam & Melf-Hinrich Ehlers & Jelte Harnmeijer, 2017. "Anaerobic Digestion of Feedstock Grown on Marginal Land: Break-Even Electricity Prices," Energies, MDPI, vol. 10(9), pages 1-21, September.
    10. Borchers, Allison M. & Xiarchos, Irene & Beckman, Jayson, 2014. "Determinants of wind and solar energy system adoption by U.S. farms: A multilevel modeling approach," Energy Policy, Elsevier, vol. 69(C), pages 106-115.

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