Regional economic aspects of carbon markets and anaerobic digesters in the USA: the case of swine production

Abstract

The USA has significant potential to produce energy from anaerobic digesters (AD) due to the size of its agricultural sector. The use of ADs reduces greenhouse gas (GHG) emissions from manure management. The financial benefits to farmers come from the on-farm use, or off-farm sales, of biogas and its end products, namely renewable natural gas (RNG) or electricity. Current energy prices and policies in the USA are insufficient to trigger large-scale construction of ADs; however, payments to avoid GHG emissions and sequester carbon could become sufficiently high to prompt investment. This analysis quantifies the economic incentives necessary for the construction of ADs for swine producers and can easily be expanded to include other feedstocks. Various end-use pathways to produce RNG and electricity are considered to account for location, herd size, and other parameters to deliver a comprehensive analysis for the USA. The analysis and results are composed of a generic part to illustrate the effects of carbon payment on profitability in general as well as a specific analysis for states representing 83.6% of the US hog inventory. Our results indicate that carbon payments would be a stronger determinant than energy prices in farm-level decisions to install ADs, but that energy prices would be influential in determining the optimal biogas end use. The potential need for long-term contracts – both for energy and carbon payments – to reduce investment uncertainty and increase investment in ADs is also discussed.