Dependence on policy revenue poses risks for investments in dairy digesters

Abstract

Manure-sourced methane emissions from livestock operations in California will soon be subject to new regulation, as required by Senate Bill 1383, which was signed into law in 2016. Regulations, beginning in 2024, will require reductions in methane emissions from livestock manure, with a 40% reduction target by 2030. The California dairy industry accounts for most of the manure-sourced methane emissions in the state and, in order to reduce these emissions, government experts and authorities have encouraged expansion of anaerobic digestion of dairy waste — especially to produce transportation fuel. Renewable natural gas for vehicle fuel, produced from manure at digesters, is eligible for substantial federal and California environmental credits, which are now projected to contribute the bulk of the revenue for qualifying digesters. This article shows that investments in digesters, because they depend heavily on revenue created by government policy, rather than on market-based sales of natural gas, are highly vulnerable to the risk of policy change or even minor technical adjustments in environmental regulations. Without secure projections of revenue that will cover costs, regulations may cause increases in the shift of milk production out of California.