Cooperative Approaches

for Implementation of

Dairy Manure Digesters

Research Report 217

i

Abstract Anaerobic digestion of dairy manure produces biogas that can be captured and used

for fuel while offering environmental benefits. Dairy farmer use of anaerobic digesters

is not widespread due to various challenges, including high costs and inadequate

return. A cooperative approach could address the challenges through improved negotiating strength; technical assistance for digester design, installation, and operation;

management and marketing services; and/or financial guidance and assistance.

Cooperative efforts may allow milk producers to remain focused on milk production

while lowering costs and/or increasing returns from energy and byproduct sales.

Keywords: Anaerobic digestion, biogas, cooperatives, carbon credits, dairy, methane,

renewable energy

Cooperative Approaches for Implementation of Dairy Manure Digesters

Carolyn Betts Liebrand and K. Charles Ling

Agricultural Economists

Rural Development

Rural Business-Cooperative Service

STOP 3252, 1400 Independence Ave., S.W

Washington, DC 20250-3252

Research Report 217

April 2009
ii
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Anaerobic Digestion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Manure collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Anaerobic digester . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2

Effluent storage and handling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Biogas production and handling . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Biogas use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Capital cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Benefits and costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6

Challenges to Adoption and Use of Digesters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Electricity rates and interconnection . . . . . . . . . . . . . . . . . . . . . . . 10

System design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Operator skill and time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Utilizing by products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10

Financing and funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Cooperative Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Negotiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11

Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Centralized systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Funding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Carbon Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Trading mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13

Cooperative roles for carbon credit trading . . . . . . . . . . . . . . . . . . .14

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

iii

Contents
Highlights Dairy operations routinely handle about 500 billion pounds of cow manure produced

each year by collecting it, storing it, and spreading it over the land. In the beginning of

the 21st century, the convergence of a number of factors, such as the changing structure of milk production, the shrinking local land base on which to spread dairy manure,

environmental issues, and rising energy costs accompanied by a focus on renewable

energy, have heightened interest in an alternative method for handling dairy manure:

anaerobic (in the absence of oxygen) digestion (decomposition) to produce biogas for

use in energy production. Anaerobic microbes naturally occurring in manure feed on

the manure and give off gas (containing methane) and biologically stabilized effluent

(odor mostly eliminated).

There were 95 known anaerobic digester projects on 85 dairy operations utilizing dairy

manure in 2007. They used four basic types of systems: plug flow (the majority), complete mix, covered lagoons, fixed film, and other types. Each type of system provides

an environment for anaerobic methane-producing bacteria to thrive and requires a

manure collection system, air-tight (or limiting) container, effluent storage and handling

system, and gas handling and utilization equipment.

The rate of conversion of organic matter to biogas depends upon the environment in

the digester, the characteristics of the manure feeding it and the consistency of

manure additions to the digester. A typical lactating dairy cow's manure could support

the production of 47.1 cubic feet of biogas per day, or 1.37 lbs of methane per cow per

day (assuming the biogas has 65 percent methane).

Biogas can be directly burned on the farm for various purposes, or it can be cleaned

and conditioned for sale to commercial gas systems. Of the 95 anaerobic digester projects utilizing dairy manure, 87 percent produced electricity. At least 45 percent of

those generating electricity also captured the heat energy from the engine-generator

(cogeneration). Just a few sent the biogas into a commercial pipeline, or flared the

biogas—not utilizing its energy.

The net economic impact of installing an anaerobic digester on a dairy operation

depends on the dairy's ability to utilize the biogas and digestate (manure solids

remaining after anaerobic digestion of the manure). Utilization of the end products of

manure digestion can lower the dairy operation's operating costs, add income from

sales, or provide a combination of avoided expenses and increased revenue. The

benefits of anaerobic digestion that have been observed or predicted include:

Energy ● Avoided electricity purchases

● Electricity sales

● Natural gas sales

● Heat for farm use from generator engine 

Byproducts ● On-farm use or sale of digested solids and effluent

Carbon Credits ● Sales of carbon credits for the reduction of methane

emissions

Environmental ● Reduced odor

● Reduced environmental risk, mitigation expense

iv
Capturing the benefits of anaerobic digestion will likely require additional expenses,

such as purchase, operation, and maintenance of equipment to use the biogas and to

prepare the byproducts for use or sale, as well as increased management time and skill.

The 85 dairy operations known to have installed anaerobic digesters represent less than

1 percent of the licensed dairy farms in the United States. The barriers to adoption are

often unique to each producer's situation. The decision to install a digester is dependent

upon the policies of the local utility, local regulations, local fuel and electricity rates,

access to grants and financing, and the operator's knowledge, skill, and level of risk

aversion. The challenges to adoption include: electricity rates and interconnection

issues; system design flaws; the limited number of digester providers and lack of information; additional time and skill required to manage the digester adequately; the lack of

ability to capture value from byproduct use or sale; and difficulties in obtaining financing

and/or funding.

A cooperative approach may be one way for dairy operators to overcome obstacles to

the successful use of anaerobic digesters. Dairy producers could take one of two basic

approaches: (1) an existing dairy cooperative could provide services related to the

adoption of anaerobic digester technology as a part of its member services, or (2) a

group of similarly-situated dairy farmers could form a separate entity to address their

specific needs. The group effort may be more effective and efficient than each farmer

facing the challenges of adopting anaerobic digester technology alone. Collective effort

may enhance the economic feasibility of anaerobic digesters by lowering their installation and operating costs, increasing returns from energy and byproduct sales, or both,

while allowing milk producers to remain focused on milk production.

A cooperative effort could focus narrowly on one obstacle or one opportunity, or it could

incorporate multiple functions. Alternatively, a cooperative could focus on one effort initially and gradually take on more functions as it builds on its successes. Cooperation

could be effective in several areas:

Energy ● Improved compensation for electricity produced

● Favorable terms for connecting to the electrical grid

● Natural gas marketing

Byproducts ● Technical guidance on utilizing digested solids and

effluent on the farm

● Marketing research and development for byproduct

sales

System design ● Technical guidance for design/installation

● Negotiated prices for digester

components/installation

● Provider screening

Management ● Technical guidance to boost biogas production

● Management assistance to reduce operating costs

Carbon Credits ● Negotiation of prices and terms of trade

● Facilitation of the aggregation of carbon credits for

trading

● Verification of greenhouse gas reduction claims

v
Furthermore, in the case of a centralized digester collecting manure from local dairy

farms, a cooperative could provide manure and effluent shipping coordination and services, relieving the members of the management burden. If the centralized digester is

itself cooperatively-owned, the risk, capital costs, digester operating and maintenance

responsibilities, byproduct marketing, and so forth would be shared by the producermembers.

One way a cooperative effort could be funded would be to charge a per cow fee based

on the number of milk cows on each member's operation. Alternatively, a cooperative

could mark up prices and fees for its products and services to cover the cost of its

overhead in providing them. The farmers using the service or benefit should be the

ones funding its availability.

As with the anaerobic digester technology itself, dairy producers will have to evaluate if

the benefits of acting together to address their needs in utilizing a digester outweigh

the costs.

vi

Anaerobic Digester System

Illustration courtesy of U.S. Environmental Protection Agency (EPA)
Cooperative Approaches for

Implementation of Dairy Manure

Digesters

Carolyn Betts Liebrand and K. Charles Ling

USDA Rural Development

Introduction

In 2007, the United States had 9.158 million milk

cows on 71,510 operations. These cows produced 185.6

billion pounds of milk along with an estimated 500 billion pounds of manure. This byproduct of milk production is routinely handled by collecting it, storing it,

and spreading it over the land. In the beginning of the

21st century, the convergence of a number of factors,

including the changing structure of milk production,

the shrinking local land base on which to spread dairy

manure, environmental issues, and rising energy costs

accompanied by a focus on renewable energy, have

heightened interest in alternative methods for handling dairy manure.

In the past decade (1997-2007), the number of

operations with 500 or more milk cows increased by 38

percent to 3,215 operations in 2007. Almost one-half

(48.9 percent) of the Nation's dairy herd was housed

on an operation with more than 500 milk cowsÑ

almost double the number in 1997 (4.5 versus 2.3 million head). This concentration of cows has intensified

concern about the impact of large animal operations

on the environment.

In 2003, the U.S. Environmental Protection

Agency (EPA) strengthened and clarified rules contained in Clean Water Act regulations requiring concentrated animal feeding operations (CAFOÑoperations with 700 or more mature animals) to follow a

nutrient management plan when applying manure to

crop or pasture land to minimize threats to water quality. In addition, increasing non-agricultural use of land

in dairy areas challenges traditional manure handling

methods and makes compliance with CAFO rules

more complex. And, rural residents appear increasingly unwilling to tolerate odors and other emissions

(ammonia, nitrous oxide, methane, carbon dioxide,

hydrogen sulfide, and volatile organic compounds)

from large dairy operations (Eastern Research Group).

Finally, fuel, lube, and electricity expenses made

up 5.3 percent of the operating costs of producing milk

in the U.S. in 2006, amounting to $116 per cow on

average (Economic Research ServiceÑERS). These energy expenses were 21.1 percent higher than in 1997.

The runup in energy prices in the 1970s triggered

interest in anaerobic (in the absence of oxygen) digestion (decomposition) of animal manures on U.S. farms

to produce biogas for use in energy production.

Anaerobic microbes naturally occurring in manure

feed on the manure and give off gas containing

methane, carbon dioxide, and trace amounts of other

compounds (box 1).

Lessons learned from previous efforts in producing biogas from manure resulted in improved design,

operation, equipment, and cost-effectiveness of anaerobic digestion systems (EPA AgSTAR Handbook). Since

2001, concern over energy prices and availability has

intensified and focused governments local to worldwide on developing renewable energy sources. At the

same time, concern over the buildup of carbon dioxide, methane and other so-called Ògreenhouse gassesÓ

(gasses which are thought to cause an increase in the

Earth's temperature) have led Federal, State and local

governments to encourage farmer use of anaerobic

technology.

1
2

Anaerobic Digestion

Anaerobic digestion systems attempt to provide

an optimal environment for anaerobic methane-producing bacteria to thrive. The components of a digester

system for a dairy operation include: manure collection, anaerobic container, effluent storage and handling, and gas handling and utilization.

Manure collection

A flowing, uniform manure slurry collected daily

on a regular schedule is ideal. The common practices of

flushing or scraping manure from freestall or drylot

dairy cattle housing can provide manure suitable for

anaerobic digestion, but pre-treatment may be required

to adjust the amount of solids in the manure to meet

the requirements of the digester. Bedding from the cow

housing facilities can mix in with the manure, so bedding like sand may not be suitable.

Anaerobic digester

The anaerobic digester unit is a sealed (air tight)

container (such as a tank or lagoon) that provides a

suitable environment for anaerobic bacteria to thrive

and a means of capturing the biogas. Manure is added

daily to the digester and spends about 20 days flowing

through the digester before exiting to the effluent storage and handling system. The size of the digester is

determined by the number of cows whose manure will

be feeding into it and the rate of digestion. The more

conducive the environment is for growth of the

methane-producing bacteria (methanogens), the shorter the time required to digest the manure and the

greater the biogas production.

Growth of methanogens can be encouraged by

maintaining higher temperatures, providing a media

that the bacteria can cling to, and/or by concentrating

(ÒrecyclingÓ) the bacteria (Wright). To maintain optimal

bacterial growth, most digesters require a heating systemÑtypically hot water pipes running through the

digesterÑto keep digester contents around 100 oF

(mesophilic conditions). Thermophilic conditions (120-

140 oF) offer advantages but are more costly to support

due to the added cost of maintaining higher temperatures. The higher temperatures encourage a higher

level of biogas production per unit of time and also

offer greater sterilization of the effluent (ATTRA,

Wright).

Several basic types of anaerobic digesters are in

use today: plug flow, complete mix, covered lagoons

and fixed film (see box 2). The systems are typically

uniquely adapted to the individual dairy operation

where they are installed. By 2007, EPA had identified

95 anaerobic digester projects utilizing dairy manure in

the United States: 58 were plug flow systems, 18 were

complete mix digesters, and 13 were covered lagoons

(table 1). Most of the digesters were operated at

mesophilic temperatures, except for the lagoon systems

where psychrophilic (low temperature) conditions are

typical (Kramer).

Box 1—Composition of Biogas from the Anaerobic Digestion of Dairy Manure

"Typical" WI farm1 NY farm2

Percent by volume % %

Methane CH4 60-70 55.9 59.1

Carbon Dioxide CO2 30-40 43.8 39.2

Hydrogen Sulfide H2S 300-4,500 ppm .0310 .193

Ammonia NH3 Trace NA

Hydrogen (H2) Trace NA

Nitrogen gas (N2) Trace NA 1.5055

Carbon Monoxide (CO) Trace NA

Moisture (H2O) Trace NA

Other3

Trace NA

SOURCE: NCRS

1 Case study (Martin 2005)

2 Case study (Martin 2004)

3 Particles, halogenated hydrocarbons, nitrogen, oxygen, organic silicon compounds, etc.
3

Box 2—Types of Anaerobic Digesters

● Plug Flow - Long, rectangular concrete tank with an air-tight cover where manure flows in one end and out the other.

Sometimes the tank is U-shaped, with the entrance and exit at the same end. Influent manure first enters a mixing pit,

allowing solids to be adjusted by adding water. Then as manure is added the “plug” of manure slowly pushes the older

manure down the tank. The tank is typically heated to maintain a mesophilic or thermophilic environment, often using

recovered heat from the biogas burner. The tank volume commonly holds 15 to 30 days worth of manure and waste 

water, or in other words, a hydraulic retention time (HRT) of 15-30 days. Plug flow digesters require 11 to 13 percent

total solids in the manure and work well with scraped dairy manure.

●Complete Mix - A complete mix digester has a sealed, cylindrical concrete or steel tank where manure is mechanically 

kept in suspension or “mixed” by a motor-driven impeller, pump, or various other devices. It is also referred to as a 

“continually stirred tank reactor.” The manure is typically heated to maintain a mesophilic or thermophilic environment, 

often utilizing recovered heat from the biogas burner. The tank commonly holds 15 to 20 days worth of manure and waste 

water, or 15-20 day HRT. Slurry manure that is scraped or flushed with 3 to 10 percent total solids works best in this system.

●Covered Lagoon - An earthen lagoon fitted with a cover to contain and facilitate collection of biogas is the least expensive

type of digester to install and operate. A covered lagoon is the least controlled system with the lowest gas production and 

the longest retention time due to its psychrophilic environment. In northern climates, there may be no gas production in cold 

weather. Odor may not be totally eliminated due to incomplete digestion. Best suited for flush manure collection systems 

with total solids of 0.5 to 3 percent.

●Fixed Film - A concrete or steel tank that is filled with plastic media called “biofilm.” The biofilm supports a thin layer of

anaerobic bacteria and maintains a concentrated population of mesophilic or thermophilic methanogens, supporting a larger

volume of biogas production and shorter HRT (6 days or less) than the other digester types. Works best with flushed manure

with less than 5 percent total solids. Slowly degradable solids must be separated out before entering this type of digester.

Sources: EPA 2005; NRCS

Table 1—Operational anaerobic digesters on dairy farms, identified by the U.S. EPA, 2007

Number Percent

Status

Design 1 1.1

Startup 13 13.7

Steady state 79 83.2

Shutdown1 2 2.1

Total projects 2 95 100.0

Type

Plug flow3 58 61.1

Complete mix 18 18.9

Covered lagoon 13 13.7

Other4 6 6.3

Total projects 95 100.0

SOURCE: U.S. Environmental Protection Agency (EPA), 2007 http://www.epa.gov/agstar/pdf/digesters_dairy.xls

1 1 covered lagoon and 1 fixed film digester were shut down.

2 95 projects located on 85 dairy operations--where 5 operations each had 2 operating digesters. (Five of the 95 projects were centralized 

operations fueled with dairy cow manure but not located on a dairy operation.)

3 Includes 56 horizontal plug flow, 1 vertical plug flow and 1 flush system plug flow. 4 Includes: 2 fixed film; a manure activation system, an induced blanket reactor and 2 not identified.
Effluent storage and handling

Manure that has been anaerobically digested is

considered Òbiologically stabilized,Ó meaning the

effluent has few compounds remaining that could

continue decomposing and thus most of the compounds that contribute to odor are eliminated.

The digested effluent's fertilizer value is

enhanced over raw manure because the chemical

form of some of the nutrients in manure is changed

to a form more readily available to growing plants.

Anaerobic digestion is also reported to denature

weed seeds, reduce pathogens such as Johne's disease organisms and fecal coliform, and to be less

attractive to flies and rodents (Moser 1997). The volume of effluent leaving the digester is only minimally reduced in mass from raw manure, but

reportedly is easier to handle relative to raw

manure due to its increased homogeneity and somewhat lower solids content. Adequate storage for the

effluent must be provided until it can be disposed

of, typically by application to land and crops.

On many operations, the effluent is run

through a separator and the digested solids are collected and used for other purposesÑsuch as bedding for dairy cattle, organic fertilizer, soil amendment, compost, and/or potting soil (EPA AgSTAR

Handbook, Moser 2007, Mullins). The remaining liquid effluent is typically spread (sprayed) on fields.

Biogas production and handling

The rate of conversion of organic matter to biogas depends upon the environment in the digester,

the characteristics of the manure feeding it, and the

consistency of manure additions to the digester.

However, the volume of biogas generated from the

anaerobic digestion of manure can be theoretically

predicted. A typical lactating dairy cow's manure

could support the production of 47.1 cubic feet of

biogas per day (NRCS). If the biogas contains 65

percent methane, this would mean 1.37 lbs of

methane per cow per day (see box 3).

Compounds inadvertently entering the

digester (such as chemical spills, footbath compounds, and antibiotics) can hinder microbial

growth, reducing biogas output. Conversely,

digester performance can be enhanced by certain

operating practices that boost the organic matter in

4

Box 3—Characteristics of lactating dairy cow manure and biogas potential

Component Units Per cow

Weight Lbs/day 150.00

Volume Cubic feet/day 2.40

Moisture Percent 87.00

Total Solids Lbs/day 20.00

Total Volatile Solids Lbs/day 17.00

Chemical Oxygen Demand Lbs/day 18.00

Biological Oxygen Demand Lbs/day 2.90

Nitrogen Lbs/day 0.99

Phosphorous Lbs/day 0.17

Potassium Lbs/day 0.23

Biogas production1 Cubic feet//day 47.10

Methane production2 Cubic feet/day 30.60

Methane (CH4)2 Lbs/day 1.37

Btu3 1,000 Btu/day 30.90

kWh4 Per day 2.00

Annual kWh per cow 744.00

Source: ASABE 2005.

1 90% of the manure collected; 30% conversion rate of COD to methane; 6.3 Ft3 CH4 per lb COD; 65% CH4 in

biogas (NRCS)

2 Biogas with 65% CH4 weighing .717 kg/meter3 (NRCS).

3 Represents an average biogas with 65% CH4, where CH4 has a heating value of 1,010 Btu/ft3 CH4 (EPA 2005)

4 66.6 kWh per 1,000 ft3 CH4 ; assuming 25% thermal conversion efficiency and 90% run-time (EPA 2005)
5

the influent, such as the type of bedding (for example,

shredded newspaper) or whether the dairy is in a position to accept additional organic matter, such as food

processing waste. Manure with 25 percent added

organic material could boost biogas production 76 percent above that of dairy manure alone (Scott).

Data from 86 operating dairy manure digesters

indicated methane production rates from 0.28 to 1.59

lbs methane per cow per day (using reported methane

emissions reductions as a proxy for methane production, table 2). The simple average of methane production reported by these digesters was .81 pounds of

methane per cow per day, only 60 percent of the theoretical yield of 1.37 pounds. However, there were

digesters in Idaho, Washington, Oregon, California,

and Florida whose reported methane yields (1.59, 1.58,

1.56, 1.52, and 1.44 pounds per cow per day, respectively) exceeded the theoretic yield per cow.

Equipment to collect the gas includes: piping, gas

pump or blower, gas meter, pressure regulator, and

condensate drain (EPA AgSTAR Handbook). On some

operations, a gas ÒscrubberÓ is installed to remove

hydrogen sulfide from the biogas. When biogas is

burned, the hydrogen sulfide is converted to oxides of

sulfur (which are regulated as air pollutantsÑpotentially requiring an air emission permit). The hydrogen

sulfide can pose problems to equipment that burns the

biogas because as exhaust gasses cool, oxides of sulfur

combine with moisture to form highly corrosive sulfuric acid, which can shorten the equipment's useful life

(NRCS). If the engine can maintain running temperatures high enough to avoid acid formation, the corrosion problem can be minimized.

Table 2—Operational anaerobic digesters on dairy farms identified by the U.S. EPA, by State, 2007

-———————Methane emissions reductions——————

Average

population

feeding

Projects digester Average Total Range lbs/cow/day

number cows lbs/cow/day MT/year min max

California 16 2,510 1.18 7,691 0.72 1.52

Connecticut 2 400 0.85 85 0.44 1.26

Florida 1 250 1.44 60 na na

Georgia 1 1,135 na na na na

Idaho 2 2,900 1.59 1,531 na na

Illinois 4 725 1.32 449 na na

Indiana 3 3,517 0.48 840 na na

Iowa 1 700 1.29 149 na na

Maryland 1 150 0.50 13 na na

Michigan 3 2,750 0.68 871 0.41 1.23

Minnesota 2 1,975 0.84 407 0.42 1.25

New York 16 945 0.42 955 0.28 1.21

Oregon 5 1,135 1.30 1,208 0.53 1.56

Pennsylvania 10 838 0.60 936 0.35 1.28

Texas 1 10,000 0.81 1,339 na na

Utah 1 1,200 na na na na

Vermont 4 1,110 0.37 271 na na

Washington 2 2,250 1.06 579 0.54 1.58

Wisconsin 20 1,474 0.74 3,510 0.41 1.25

U.S. total1 95 1,624 0.81 20,892 0.28 1.59 

Totals may not add due to rounding.

SOURCE: U.S. Environmental Protection Agency (EPA), 2007

http://www.epa.gov/agstar/pdf/digesters_dairy.xls

1 9 projects did not report methane emissions reductions (2 of which were shut down.)
Biogas use

Biogas can be used on the farm as fuel in various

applications, or it can be cleaned and conditioned for

sale to commercial gas systems (box 4). Biogas can be

used for fuel in any equipment that normally uses

propane or natural gas, including boilers, heaters,

chillers, or mobile engines. In addition, biogas can be

used for generating electricity via an internal combustion engine or gas turbine. Importantly, waste heat

from the stationary engines can provide heating

and/or hot water for farm use and/or heating the

digester. This combined heat and power is known as

cogenerationÑthe simultaneous production of two

forms of energy (electrical and thermal) from one fuel

source (biogas). Alternatively, the biogas can simply

be ÒflaredÓ or burned off (this destroys the methane

through combustion but does not convert the energy

in methane to useful purposes).

Of 95 anaerobic digester projects on U.S. dairy

operations, 83 produced electricity (29 did not specify

the biogas end use, but did report installed kWh

capacity). At least 37 captured the heat energy from

their engine-generator (cogeneration). Just four projects sent the biogas into a commercial pipeline, while

only two projects flared the biogas, and three did not

specify end use of the gas (table 3).

Capital cost

The capital cost of plug flow digesters on 10 U.S.

dairy operations averaged $285,404 for the digester

alone (table 4). These 10 farms had manure from 120 to

2,285 cows feeding the digesters. The per cow capital

cost ranged from $194 to $1,557 and averaged $536 per

cow. While the smallest farm did have the highest cost

per cow for the digester, the largest farm did not have

the lowest cost per cow. And, the farms with the second and third smallest number of cows had relatively

low costs per cow for their digester. The digester capital costs averaged 60.8 percent of the total system costs

(digester plus electric generation equipment), but

ranged widely from 44.3 to nearly 80 percent of the

total system costs.

Benefits and Costs

The net economic impact of installing an anaerobic digester on a dairy operation depends on the

dairy's ability to utilize the biogas and manure effluent. Utilization of the end products of manure digestion can lower the dairy operation's operating costs,

add income from sales, or provide a combination of

avoided expenses and increased revenue. Capturing

the benefits of anaerobic digestion will likely require

additional expenses, such as purchase, operation, and

maintenance of equipment to use the biogas and to

prepare the byproducts for use or sale, as well as

increased management time and skill. Furthermore,

the intangible benefits of anaerobic digestion should

not be overlooked, even if difficult to quantify in terms

of dollars and cents. The various benefits and costs of

digester outputs that have been observed or predicted

are (see box 5 for a summary):

● ElectricityÑVarious arrangements have been used to

capture the value of electricity generated by the

combustion of biogas from anaerobic digestion of

manure (see box 6). The annual value of avoided

electricity purchases or electricity sales may amount

to $69 per cow, based on an electricity rate of 9.46

cents per kWh (2006 U.S. commercial average) and

assuming the digester supports the generation of 2

kWh per cow per day. However, electricity prices

vary widely from State to State, making the biogasgenerated electricity more or less valuable to a dairy

operation depending upon its location (15.51

cents/kWh in New York to 5.16 cents/kWh in Idaho).

Furthermore, if the utility pays for electricity at a

rate representative of its avoided generation cost, the

value of electricity from biogas will be much lower

(for example, operating expenses for generation

averaged 3 cents per kWh in 2006 for fossil/steam

6

Box 4—Biogas Use Options

● Direct Combustion:

Boilers Biogas can fuel boilers for hot

water for farm use.

Engine generators Biogas can fuel engine generators

to produce electricity for on-farm

use, sale to a utility, or both. Heat

from the stationary engine can be

captured and used on-farm.

Flare Methane is destroyed, but heat and

energy are not captured.

Mobile engines Biogas must first be cleaned of

hydrogen sulfide and compressed.

Space heaters Biogas can power space heaters

for farm buildings.

● Pipeline Biogas can be trucked or piped to a

nearby pipeline and sold

commercially. Biogas must be

cleaned and compressed.

Source: NRCS, Krich
7

Table 3—Biogas end use, operational anaerobic digesters on dairy farms, identified by the U.S. EPA, 2007

Number Percent

Biogas end use

Flared full time 2 2.1

Pipeline gas 4 4.2

Boiler/furnace fuel 3 3.2

Electricity: 83 87.4

Number Percent

Electricity alone 15 15.8

Cogeneration 30 31.6

Electricity and fuel 2 2.1

Cogeneration and fuel 7 7.4

Installed kWh

capacity, but no

end use reported 29 30.5

83 87.4

No end use or kWh capacity

reported 3 3.2

Total 95 100.0

Installed capacity of electricity generating equipment

100 kwh or less 19 22.9

101-150 kWh 23 27.7

141-300 kWh 22 26.5

More than 300 kWh 18 21.7

Not reported 1 1.2

83 100.0

SOURCE: U.S. Environmental Protection Agency (EPA), 2007

http://www.epa.gov/agstar/pdf/digesters_dairy.xls

Table 4—Capital costs for plug flow anaerobic digesters on dairy farms with electricity generating

equipment1

Average Min Max

Digester capital cost $ 285,404 $ 68,641 $ 472,479

Digester cost per cow $ 536 $ 194 $ 1,557

Total system cost per cow2 $ 848 $ 299 $ 1,959

Digester portion of total capital costs 60.8% 44.3% 79.5%

SOURCE: NRCS

1 Data from 10 projects on dairy farms that identified their capital cost for the plug flow anaerobic digester and for their electricity generation

system. Two of these farms each had 2 digesters.

2 Includes capital cost of electric generation equipment along with digester capital costs.
powered plants).The cost of electricity production on dairy operations using a plug flow

digester may amount to $66 to $95 per cow

(based on reported biogas production costs for

dairy plug flow digesters of 9 to 13 cents per

kWh and assuming the digester output supports 2 kWh per cow per day, NRCS).

Operating and maintenance costs could be $4 to

$7 per cow (based on reported biogas production costs for dairy plug flow digesters of 0.6 to

1 cent per kWh, NRCS). Additional costs may

be necessary to upgrade the farm's existing

electrical system to 3-phase power, purchase

switching gear, and so forth, if the dairy plans

to sell electricity to the grid. Furthermore, there

may be expenses for legal assistance to negotiate contract rate, length, and interconnection

requirements with the utility.

8

By Product Benefits Costs

Electricity ● Avoided electricity purchases ● Electricity production 

equipment

● Electricity sales ● Operation and

maintenance

● Required upgrades to

electrical system

● Sales negotiation, legal

fees 

Biomethane ● Natural gas sales ● Biogas collection

● Gas cleaning

● Storage/ transportation

Heat ● Heat/hot water ● Equipment, operation, and

maintenance

Digested solids ● Avoided bedding purchases ● Equipment, operation, and 

maintenance

● Sales of separated solids ● Sales negotiation and/or

marketing

Carbon Credits ● Sales ● Aggregation fee

● Trading fee

● Verification costs

Fertilizer ● Lower energy use in handling effluent

● Avoided purchases

● Flexibility in timing for land application

● Improved nutrient quality

● Lower herbicide use

● Sales ● Sales negotiation and/or 

marketing

Environment ● Reduced odor

● Reduced water contamination risk

● Avoided lawsuits

● Pathogen reduction

● Methane destruction/capture 

● Tipping fees ● Substrate management

and negotiation

Box 5—Possible benefits and associated costs from byproducts of anaerobic digestion of 

dairy manure
● BiomethaneÑA few projects have upgraded the

biogas to pipeline quality and provided methane

to a nearby commercial natural gas pipeline. The

value of biogas sold as pipeline quality gas could

be around $71 per cow (based on the U.S. natural

gas wellhead price of $6.39 per 1000 cubic feet for

2007 and assuming the digester produces 30.6

cubic feet of methane per cow per day). Similar to

electricity, the price for natural gas varies according to location, from $5.69/1000 cubic feet in

Arizona to $7.12/1000 cubic feet in New York in

2007.

The cost for biogas production reported by 12

dairies for their plug flow digesters averaged

$4.33/1000 cubic feet of biogas (NRCS). That would

amount to $74 per cow per year (assuming

digester output of 47.1/cubic feet biogas/cow/day).

The cost of upgrading the biogas to pipeline quality may be as much as $3.88/1000 cubic feet of biogas, or $67 per cow per year (NRCS). In addition,

there may be costs for storage and transportation

to the pipeline that could add as much as

$3.70/1000 cubic feet of methane, or $41 per cow,

assuming digester output of 30.6 cubic feet

methane/cow/day (Krich).

● HeatÑNearly half of the engine fuel energy can be

recovered by capturing waste heat from the engine

jacket and exhaust gas and used for maintaining

the temperature in the digester, heating farm

buildings, water, and/or alley floors. Avoided fuel

purchases for heating will depend on the price of

fuel and the ability of the operation to utilize the

heat. Case-study farm reports on the value of this

heat ranged from $3 to $10 per cow (Kramer,

Lazarus, Moser 2007). The equipment required to

capture and utilize this heat would require additional expenditures.

● Digested solidsÑOne case farm saved an estimated

$19 per cow by using the separated solids in lieu

of purchased bedding for the cows (Lazarus). Some

case farms have reported sales of separated solids

amounting to $27 and $40 cow (Moser 2007). Using

digested solids as cow bedding also may improve

cow health (lower veterinary expense) and

improved milk production (increased revenue).

However, additional equipment and operating

costs for separating the digested solids from the

effluent would be requiredÑpossibly amounting

to $30 per cow (Lazarus). In addition, use of digested solids as bedding requires careful attention

(operator time) to avoid potential for increased

health problems (for example, mastitis leading to

higher veterinary expenses and lower milk production and sales).

● Carbon-creditsÑMethane captured from anaerobic

digestion of dairy cow manure may be qualified to

receive carbon credit if it is collected and prevented from emitting into the atmosphere. The sale of

9

Box 6—Arrangements for selling on-farm generated electricity

● Biogas Sales—Dairy operation sells biogas to a utility that operates the on-farm generator. Thus, all electricity produced is 

owned by the utility, and the dairy operation purchases all electricity used by the dairy operation from the utility at retail

rates. The capital and operating costs of the energy generation system are borne by the utility. One version of this

arrangement is a 3-way partnership between a dairy operation, a utility, and a third party digester management firm.

The management firm installs, operates, and finances the digester. The utility installs, operates, and owns the

generation equipment and buys the biogas. The dairy supplies the biogas and site for the digester and electricity

generation equipment, and eventually owns the digester.

● All electricity sold—Dairy operation sells all its biogas-generated electricity to a utility (typically at the utility's avoided cost 

rate) and purchases all the farm's electricity needs from the utility at retail rates.

● Surplus electricity sales—Dairy operation produces electricity for use on the farm. Any excess electricity generated is sold 

to the utility (typically at the utility's avoided cost rate), and any excess power consumption by the dairy is purchased at

the going retail rate. Some utilities will also charge such dairies a standby charge to cover the utility's expense in 

having electricity available in case the farm needs it.

● Net metering—If the utility offers it, the dairy operation is charged only for the net difference between the amount of 

electricity consumed and the amount the dairy generates with its biogas. The requirements and terms vary between

States.

Source: U.S. Environmental Protection Agency (EPA) AgSTAR Handbook
carbon credits based on capturing this methane

could amount to $25 per cow, depending upon the

going price of carbon credits. See the Carbon

Credits section below for further explanation.

● FertilizerÑImproved fertilizer value (over raw

manure) allows less fertilizer purchases or even

some sales of effluent, and less viable weed seeds

potentially lower herbicide costs. The minimal

odor of the effluent may allow more flexibility in

the timing of land application than for raw

manure. This flexibility may afford economic benefits to the dairy operation, but it is hard to quantify the value of such factors as less downtime, convenience, and reduced need to hire custom

applicators. Case-study farms have also reported

savings from lower energy requirements for handling the effluent due to its increased homogeneity

and lower solids content. These benefits of the

digested effluent were reported by one case farm

to total $39 per cow per year (Lazarus). While a

dairy operation may not need any additional

equipment to handle the effluent for fertilizer, if

the effluent were to be sold there may be additional costs associated with negotiation and marketing.

● EnvironmentÑOdor reduction increases the quality

of life or farm residents and neighbors, may

reduce the likelihood of lawsuits or complaints,

and/or may facilitate the ability to continue or

begin dairy operations at the site (Kramer). Thus,

the digester may be valued as ÒinsuranceÓ against

disgruntled neighbors and possible nuisance lawsuits, and regulatory compliance issues (Lazarus,

2003). 

Furthermore, some firms may be willing to

pay the dairy a tipping fee for disposal of their

organic waste. One report estimated the fee to be

as high as $300 per cow (Scott). However, this

additional substrate will require increased management and negotiation.

Challenges to Adoption and Use of

Digesters

Drawing from a survey of U.S. farmers who had

received Federal funding in 2003 and 2004 for anaerobic digester systems (Mullins), EPA (and other

researchers') observations of existing digester projects

(EPA AgSTAR Handbook), and USDA analysis of anaerobic digester technology (NRCS), several issues faced

by users of the technology have been noted. These

challenges include:

Electricity rates and interconnection

Connecting distributed generation from an onfarm, biogas-fired generator to the electrical power

grid raises safety, power quality, technical, legal, and

procedural issues (Haynes). The expertise necessary to

connect to the power grid and to negotiate a power

purchase agreement (transmission access) is likely to 

be expensive as well as time consuming (Booz Allen

Hamilton). In fact, EPA recommends that farm owners

consult an expert for information and guidance in

negotiating an inter-connection contract when the utility does not have standard procedures and policies in

place. Negotiation of rates sufficient to offset a significant portion of the cost of producing the biogas is

essential to the economic feasibility of an anaerobic

digester. However, some utilities only offer rates

reflective of their avoided generation cost, which are

well below retail rates. And, new regulations governing air emissions from the engine generator sets are

expected to hinder future projects in California

(Western United DairymenÑWUD).

System design

Some anaerobic digester projects were hindered

by system design flaws, such as incorrect sizing, incorrect system for the dairy's method of manure handling, incompatibility between the digester and related

equipment, a limited number of digester providers,

lack of information provided by the digester companies, poor serviceability, and a suspected conflict of

interest when the design engineers also sold digester

components.

Operator skill and time

Thoughtful management of the anaerobic

digester to maximize biogas output is essential to success and requires about 1 hour per day of a trained

operator's time, year round. Some anaerobic digester

projects suffered when managed by personnel lacking

motivation and incentive to manage the digester adequately. Additional skills supporting the economic feasibility of a digester include marketing and negotiation

(for energy and other byproduct sales), engine maintenance and repair (to keep operating expenses low

when utilizing the biogas for heat and/or energy), and

innovation (finding uses for the byproducts and effectively implementing them).

10
Utilizing byproducts

Economic feasibility would not have been supported by just the value of energy produced from

anaerobic digestion alone (at 2006 energy prices,

NRCS). Some successful adopters approached the

anaerobic digester as a potential profit center, capturing value by utilizing both biogas and byproducts (liquid effluent, digested solids) on-farm, selling them offfarm, or both.

Financing and Funding

In places where local bankers are unfamiliar with

anaerobic digester technology obtaining financing can

be difficult. Also, the grant process to obtain financial

assistance to offset the cost of installing an anaerobic

digester can be cumbersome. In some cases the rules

limited how the biogas could be used.

Cooperative Approaches

The 85 dairy operations known to have installed

anaerobic digesters represent a tiny fraction of the

59,135 licensed dairy herds in the United States in

2007. That few dairy operations have taken advantage

of this technology indicates that there are barriers to

adoption.

A cooperative approach may be one way for

dairy operators to overcome obstacles to the successful

use of anaerobic digesters. Dairy producers could take

one of two basic approaches: (1) an existing dairy

cooperative could provide services related to the adoption of anaerobic digester technology as a part of its

member services, or (2) a group of similarly situated

dairy farmers could form a separate entity to address

their specific needs. In the first case, care would need

to be taken to treat equitably members of the existing

cooperative who do not adopt the technology. The second approach may be more risky to start up than operating under the umbrella of an existing cooperative. In

either case, a cooperative organization would operate

under the principles of user-owned, user-controlled,

and user-benefitted.

A cooperative effort may be more effective than

each farmer would be if facing the challenges of adopting anaerobic digester technology alone. A cooperative

could play a role in negotiation, providing services,

and/or marketing, or by operating a centralized system.

Negotiation

A cooperative may engage (either by employment or by contract) experts to negotiate rates and

terms of trade with utilities, digester suppliers, food

processing firms, and so forth. A group of dairy producers would have more market power to command

favorable terms or gain higher quality expertise to

address their specific needs than producers acting as

individuals would have.

● UtilitiesÑA group of dairy producers may provide more incentive for a common utility to agree

to compensate them for their electric generation

at adequate rates and/or to develop standard procedures and contracts for interconnection agreements. Where pipeline access is feasible, a cooperative could negotiate gas purchase agreements

with the pipeline transmission company and

assist in acquiring the rights of way necessary to

get to the pipeline.

● Digester suppliersÑA cooperative could employ or

contract with technical experts to develop and/or

review contract terms and design standards for

anaerobic digesters and identify qualified

providers. Offering a digester design and installation company a critical mass of potential adopters

could make it more economical for the company

to better meet the needs of dairy operations wishing to install anaerobic digesters.

● Food processing wastesÑA few dairy farms have

successfully mixed food wastes from food processing and food service firms with the cow

manure. This added organic matter increases biogas output (Scott). A cooperative could negotiate

contract terms and charges (Òtipping feesÓ) for

substrate with the food processing firms. The

cooperative could also coordinate shipments, perhaps among several local farms with digesters.

● Community digestersÑIn a few places (California's

Inland Empire Utilities Agency and Oregon's Port

of Tillamook Bay, for example), communities

operate anaerobic digesters to treat dairy cow

manure and other organic waste for the environmental benefits the process offers. A cooperative

of dairy producers delivering manure to the project could negotiate tipping fees charged for

manure deliveries and other terms. Cooperative

coordination or operation of manure delivery

could enhance efficiencies in transportation and

system performance and ensure biosecurity

(transporting manure to a central location introduces the potential for pathogens to be transferred between farms).

11
Services

A cooperative could hire or contract with technical experts to provide information, leads, analysis, and

expertise. This would allow members to avoid the full

cost of finding and vetting such expertise. Services

might include:

● Technical assistance could be carried out in a similar fashion to the way milk production field services are currently provided by many dairy

maketing cooperatives. The cooperative could

furnish expert guidance in one or more of the

specifics of utilizing an anaerobic digesterÑinterconnection requirements, digester operations,

preparation and utilization of digestate, troubleshooting, advice on equipment selection, and so

forth.

● Digester management services could be provided

by the cooperative to manage anaerobic digester

operations for member farms. The cooperative's

trained professionals would focus on maximizing

the potential of biogas production so the dairy

producer-member can remain focused on dairying. The producer member would pay fees to the

cooperative to set up, operate, and manage the

digester. This may be especially helpful when the

dairy is importing additional organic matter (such

as food processing wastes) for addition to the

digester.

● Back-up equipment could be jointly owned by

cooperative members and rented to members

when their biogas-utilization equipment is down

for repairs or maintenance. When an engine generator is taken out of service for repairs or maintenance, the biogas cannot be utilized nor is there

any heat available for useful purposes, resulting

in lost efficiency (NRCS). Cooperative ownership

would ensure that this back-up equipment could

be operated on biogas and that it would be available on a timely and least-cost basis. Furthermore,

the cooperative might also schedule tune-ups and

maintenance for members' engines and boilers,

perhaps employing its own expert mechanic.

Alternatively, dairy producers delivering

manure to a centralized digester may benefit by

cooperatively operating a manure hauling service. The cooperative would own the manureand effluent-hauling equipment, coordinate delivery schedules, and provide labor and management.

● Financing information and/or grant management

could be provided by a cooperative on behalf of

members. Financial assistance to offset at least a

portion of a digester's capital costs appears to be

necessary for some digester systems to cash flow

(NRCS). A cooperative could build a clearinghouse of information, identifying funding sources

relevant to digester projects; provide members

with assistance in grant writing and management;

develop educational materials for loan officers

unfamiliar with anaerobic digester projects; and

arrange access to financing.

Marketing

A cooperative could assist members in marketing

products derived from anaerobic digestion by

researching potential uses for digested solids, developing standardized marketing materials and product

guidelines, or even by assisting utilities in developing

and marketing Ògreen energyÓ produced on member

farms. A group marketing effort would represent a

larger volume than an individual dairy, which could

increase marketing efficiencies and effectiveness or

even open up new marketing channels. Possibly, a

cooperative could operate a common byproduct packaging and distribution venture for members located in

close proximity.

Centralized systems

It may be more cost-efficient for a group of closely located, small- and medium-sized dairy producers

to operate a common digester fed by member farms'

manure than if each of the producers installed a

digester on their own operations. The advantages to a

centralized digester are that risk, capital costs, digester

operating and maintenance responsibilities, and

byproduct marketing would be borne by the cooperative. The cooperating farms would have to be located

such that hauling or piping manure from farm to

digester and effluent to fields is economically and logically feasible. And, protocol to mitigate the biosecurity

risk of potential pathogen exchange between participating farms would be necessary.

The cooperative digester would need to capture

value from the biogas-selling electricity to a utility or

natural gas to a pipelineÑand meet regulations that

may be more stringent than for on-farm digesters

(Bothi). The cooperative could also partner with other

entities for mutual benefit. For example, a cooperative

digester could partner with firms that produce organic

wastes or with factories that can utilize the energy produced by anaerobic digestion. The costs and responsibilities of anaerobic digestion would be further

12
reduced for the producer-members while the factory

or firm potentially lowers its cost of production and/or

waste disposal (Bowman).

Another cooperative effort would be for strategically located farms with on-farm digesters to transport

biogas (by truck or pipeline) to a cooperatively owned,

centralized gas conditioning and compressing plant

for input into a commercial pipeline. The cooperative

effort could include management of biogas transportation logistics and marketing of the gas.

Funding

One way that a cooperative effort could be funded would be to charge a per cow fee based on the

number of milk cows on each member's operation. A

basic membership fee could serve to set up the framework for offering digester-related services. Further

fees could be charged over and above the basic membership fee when a member directly utilizes a particular service. This would ensure that the members who

benefit from a service are the ones supporting it financially. This fee-for-service plan may be the most equitable in the case where an existing dairy cooperative

provides support to the subset of its members who

elect to utilize the anaerobic digester technology.

Alternative to per cow or per farm fees, a cooperative could charge on a pay-as-you-go basis for its

products and services. This also ensures that the farmers using the service or benefit are the ones funding its

availability.

A larger membership fee may be required to set

up a separate entity to address digester issues specific

to the group of dairy producers. Start-up and overhead costs would be borne solely by the cooperating

members.

As with the anaerobic digester technology itself,

dairy producers will have to evaluate if the benefits of

acting together to address their needs in utilizing a

digester outweigh the costs. The value of a cooperative

effort depends upon its effectiveness in enabling members to increase net returns to anaerobic digestion (see

box 7 for a summary of possible benefits of cooperative efforts).

Carbon Credits

Methane captured from anaerobic digestion of

dairy cow manure may be qualified to receive carbon

credit if it is collected and prevented from discharging

into the atmosphere. According to the Second

Assessment Report (1996) of the Intergovernmental

Panel on Climate Change (IPCC), the Global Warming

Potential of methane is equivalent to 21 times that of

carbon dioxide1. This means that in terms of globalwarming potential, reducing one metric ton of

methane gas emissions has the same impact as reducing 21 metric tons of carbon dioxide emissions.

A business or organization may strive to reduce

its contribution to global warming potential by taking

steps to mitigate the firm's direct or indirect greenhouse gas emissions. In case its effort is short of its

own mitigation goal (or cap), the firm may want to offset its shortfall by purchasing greenhouse gas reduction credits (Òcarbon creditsÓ) from others who could

provide credible net reduction claims. In this way, the

firm disciplines itself by paying a financial penalty for

not meeting its own emissions reduction goal, while

offering incentives to offset providers such as dairy

farmers who capture methane from anaerobic digestion of cow manure for use as fuel. This so-called cap13

Box 7—Possible benefits of a cooperative effort to 

support the adoption of anaerobic digesters by 

dairy producers

Energy ● Improved compensation for

electricity produced

● Favorable terms for connecting to

the electrical grid

● Natural gas marketing

Byproducts ● Technical guidance on utilizing

digested solids and effluent on farm

● Marketing research and

development for byproduct sales

System design ● Technical guidance for

design/installation

● Negotiated prices for digester

components/installation

● Provider screening

Management ● Technical guidance to boost biogas

production

● Management assistance to reduce

operating costs

Carbon Credits ● Aggregation and trading

● Reduced fees

l Although IPCC has updated the Global Warming Potential of

methane to 23 carbon dioxide equivalents in its Third Assessment

Report (2001) and to 25 in the Fourth Assessment Report (2007), 21

carbon dioxide equivalents continues to be used for consistency in

greenhouse gas inventory reporting (EPA 2008).
and-trade scheme works to cut overall greenhouse gas

emissions, which are usually measured in carbon dioxide equivalents.

Trading mechanisms

In the United States, various schemes for buying

and selling carbon credits are in varying stages of

evolvement. The transaction could be by private negotiations. Or, the trading could be through formal

exchange mechanisms, for example:

● Cash market: The Chicago Climate Exchange

claims to be ÒNorth America's only and the

world's first global marketplace for integrating

voluntary legally binding emissions reductions

with emissions trading and offsets for all six

greenhouse gases.Ó It was launched in 2003

(Chicago Climate Exchange). Trading on this

exchange may be characterized as similar to a

commodity cash market.

● Futures market: The Chicago Climate Futures

Exchange, a wholly-owned subsidiary of the

Chicago Climate Exchange, Òis a CFTC designated contract market which offers standardized and

cleared futures contracts on emission allowances

and other environmental products.Ó (Chicago

Climate Futures Exchange).

The Green Exchange contracts began trading

in March 2008. However, the Commodity Futures

Trading Commission (CFTC)-regulated Green

Exchange is expected to launch during the first

quarter of 2009. A partnership between New York

Mercantile Exchange and Evolution Markets, the

Green Exchange claims that it Òwill be the most

globally integrated marketplace for the trading of

environmental products. It will enable market

participants to gain exposure to environmental

trading markets and manage their risk via a

diversified product slate; from Europe's carbon

allowances and Kyoto-based carbon credits to

U.S. voluntary carbon credits, renewable energy

credits, and emissions allowances.Ó (Green

Exchange).

● Auction: The World Green Exchange, launched by

the World Energy Exchange in February 2008,

brings together buyers and sellers of carbon credits (among other green commodities) by holding

auctions. The Exchange claims the auction

process provides Òa superior price discovery

mechanism by enabling buyers and sellers to see

what the market will command in real time, thus

allowing the true forces of market competition to

deliver the efficient pricing result.Ó (World Green

Exchange). Occasionally the Chicago Climate

Exchange also conducts auctions for members to

fulfill specific needs.

Just like all traded commodities, certain standards and specifications are required of carbon credits

to facilitate the transaction. Possible basic requirements of the underlying offset projects include:

● The capture of methane gas from anaerobic

digesters must actually result in net reduction of

carbon emissions as compared with a certain base

period.

● The claim of carbon credits (i.e., net reduction of

carbon emissions) must be measurable and verifiable.

● The ownership of the claim of carbon credits

must be clearly established.

On the Chicago Climate Exchange, the closing

price of Carbon Financial Instrument Vintage 2008

started the year at $1.90 per metric ton of carbon dioxide equivalent. It rose to peak at $7.40 at the end of

May and the beginning of June, and then declined to

$4.00 on July 15. The simple average for the first 137

trading days of 2008 was $4.98, which amounts to an

extra income of about $25 per lactating cow per year

for dairy farmers who have carbon credits to sell. This

potential revenue will not fully cover the cost of

installing anaerobic digesters. But at least the sale of

carbon credits might partially offset the cost of animal

waste treatment. (Under certain conditions, further

credit also may be available if the captured methane

gas is used as fuel for electricity generation.)

There are costs involved in selling carbon credits

to cover administrative and trading expenses. If the

credits are sold through an aggregator, the costs may

include one or all of the following: (See for example,

Michigan Conservation and Climate Initiative; National

Farmers Union; Iowa Farm Bureau.)

● An aggregation fee charged by the aggregator,

the going rate of which is around 10 percent of

the value of the carbon credits, amounting to

around $2.50 per cow at the carbon credit value

cited above. (More about aggregation is

explained below.)

● A trading fee, such as fees for registration and

sales through the Chicago Climate Exchange. For

example, one aggregator quoted a trading fee of

$.20 per metric ton of carbon dioxide equivalent,

amounting to $1 per cow per year.

● A project verification fee(s), if the anaerobic

digester system and the claim to the carbon credits need to be verified. (Initial and annual verifications may be required.)

14
Cooperative roles for carbon credit trading

The current number of digesters may not constitute a critical mass for cooperatives in any region to

play a significant role in marketing carbon credits at

this time. However, as a membership service, a dairy

cooperative may want to inform members about the

opportunity of generating some returns from marketing carbon credits, as some cooperatives have already

done.

If installations of anaerobic digester systems for

treating animal waste become more common, a critical

mass of members may ask their cooperative to pool

and help market their carbon credits. Pooling is most

likely necessary to assemble (aggregate) a large

enough volume for efficient marketing. The reason is

that a lactating cow weighing 1,376 pounds generates

methane that is equivalent to about 5 metric tons of

carbon dioxide annually (ASABE; NRCS). That amount

is only about one 20th (5 percent) of the size of a

Chicago Climate Exchange's Carbon Financial

Instrument contract (i.e., a contract represents 100 metric tons of carbon dioxide equivalent). In other words,

it would take 20 to 25 cows a year to satisfy one single

contract.

The Chicago Climate Exchange defines aggregators as ÒEntities that serve as the administrative representative, on behalf of (greenhouse gas) offset project

owners, of multiple offset-generating projectsÓ (parenthesis added). The Exchange further stipulates that

ÒOffset projects involving less than 10,000 metric tons

of CO2-equivalent per year should be registered and

sold through an Offset Aggregator.Ó Offsetting 10,000

metric tons of carbon dioxide-equivalent by flaring

methane produced from anaerobic digestion of dairy

manure would require the waste of more than 2,000

lactating cows. However, only 595 dairy operations

had that many cows in 2007, just 3.5 percent of all U.S.

farms with more than 100 milk cows (USDA National

Agricultural Statistics Service). Therefore, most dairy

farms would need to register and trade through an

aggregator.

Through joint actions by members, a cooperative

may be able to bargain for lower marketing fees and/or

higher returns. Depending on the needs of the members, a cooperative may have some roles to play in the

marketplace for carbon credits:

● A cooperative may engage a broker(s) to negotiate with carbon credit purchasers on prices and

terms of trade.

● A cooperative may act as a broker to negotiate

with carbon credit purchasers on prices and

terms of trade.

● A cooperative may engage an aggregator(s) to

trade carbon credits for members.

● A cooperative may act as an aggregator if there is

enough volume of carbon credits generated by

members. In essence, the function of an offset

aggregator is similar to that of a milk-pool

administrator, and dairy cooperatives are well

experienced in pooling operations.

● A cooperative may form a joint venture with

other cooperative(s) to provide aggregator services to members. The joint venture would have a

broader membership base to operate.

● As verification of the anaerobic digester system

and the claim of greenhouse gas reduction is usually required, a cooperative may engage verifiers

or have verifiers on its field service staff to carry

out the function.

Thus, a cooperative could help its members maximize the benefit available from the sale of carbon credits by negotiating the highest prices possible for the

credits and minimizing the costs associated with their

sale.

Summary

There are many dairy operations that meet basic

criteria for successful use of an anaerobic digester.

However, use of anaerobic digesters on U.S. dairy

farms is not wide-spread to date. The set of barriers to

adoption is often unique to each producer's situation.

The decision to install a digester is dependent upon

the policies of the local utility; local regulations; local

fuel and electricity rates; access to grants and financing; and the operator's knowledge, skill, and level of

risk aversion.

A cooperative effort may be one way to overcome

the obstacles to adoption more efficiently and effectively than each dairy producer acting alone. It may

enable milk producers to remain focused on milk production while obtaining the benefits of anaerobic

digestion of their cattle's manure. Collective effort may

enhance the economic feasibility of anaerobic digesters

by lowering their installation and operating costs,

increasing returns from energy, byproduct, and/or carbon credit sales.

A cooperative effort could focus narrowly on one

obstacle or one opportunity, or incorporate multiple

functions. Alternatively, a cooperative could focus on

one effort initially and gradually take on more functions as it builds on its successes. This cooperative

15
effort could be conducted under the umbrella of an

existing dairy marketing cooperative or organized as a

separate entity.

References

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default.cfm.

18
19
U.S. Department of Agriculture

Rural Business–Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business–Cooperative Service (RBS) provides research,

management, and educational assistance to cooperatives to

strengthen the economic position of farmers and other rural

residents. It works directly with cooperative leaders and Federal

and State agencies to improve organization, leadership, and

operation of cooperatives and to give guidance to further

development.

The cooperative segment of RBS (1) helps farmers and other

rural residents develop cooperatives to obtain supplies and

services at lower cost and to get better prices for products they

sell; (2) advises rural residents on developing existing resources

through cooperative action to enhance rural living; (3) helps

cooperatives improve services and operating efficiency; (4)

informs members, directors, employees, and the public on how

cooperatives work and benefit their members and their

communities; and (5) encourages international cooperative

programs. RBS also publishes research and educational

materials and issues Rural Cooperatives magazine.

The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on the basis of

race, color, national origin, gender, religion, age, disability,

political beliefs, sexual orientation, and marital or family status.

(Not all prohibited bases apply to all programs.) Persons with

disabilities who require alternative means for communication of

program information (braille, large print, audiotape, etc.) should

contact USDA’s TARGET Center at (202) 720-2600 (voice and

TDD).

To file a complaint of discrimination, write USDA, Director,

Office of Civil Rights, Room 326-W, Whitten Building, 14th and

Independence Avenue, SW, Washington, D.C. 20250-9410 or call

(202) 720-5964 (voice or TDD). USDA is an equal opportunity

provider and employer.