Wednesday, June 13, 2012

Is there money in dairy manure methane destruction?

Dairy farmers are caught in a price war between the supermarkets on top of a long term decline in their terms of trade. The new methane destruction opportunity could give many of them a lifeline in the form of a new revenue stream from carbon markets. The economics of methane destruction will dictate its success. The cost to install a system has been variously quoted at anything between $80,000 and $300,000. Many dairy farmers won’t have the money lying around. But there are other questions that need answers: 1. Will the farmer qualify for offsets when they do install a system, and 2. How long into the future will these offsets be available? The uncertainty is caused by the notion of common practice. The Additionality Principle holds that if 5% of farmers in a location or market or environment adopt a practice, the practice is now likely to be taken up for its inherent benefits rather than the incentive of offsets. So the early adopters get offsets, but only until the practice reaches the 5%, after which it is declared common and offsets cease. Australia has around 7000 dairy farms. 75% of them currently use anaerobic ponds. Dairying is location specific. Farms tend to be clustered in districts where soils and rainfall are favourable. The principle of ‘common practice’ only works if the practice has inherent benefits for production or cost reduction. Now piggeries need energy to warm sow stalls, so they can save a lot of money on their electricity bills. Dairies are also big users of electricity. But will that be enough to encourage a farmer unlucky enough to be in the +5% cluster to stump up the cash? “They would have done it anyway” is at best a guess… and a most unscientific method on which to base a plan to save the planet.

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