An Analysis of the Tradeoffs between Policy Instruments to Induce Dairy Producers in California to Participate in a Centralized Digester

Tradeoff between different utility rates and policy intervention to induce dairy producer to join a regional digester are studied. Results demonstrate that a regional digester for the dairy industry in California is feasible given the digester receives $0.05 per kWh and government intervention or $0.0925 per kWh with no intervention. Copyright 2007 by Sean Hurley, and James Ahern, and Douglas Williams. All rights reserved. Readers may make verbatim copies of this document for non-commercial purposes by any means, provided that this copyright notice appears on all such copies. 1 Sean Hurley is an Assistant Professor, James Ahern is a Professor in the Department of Agribusiness at the California Polytechnic State University—San Luis Obispo, and Douglas Williams is a retired Professor from the Bio-Resource and Agricultural Engineering Department at the California Polytechnic State University—San Luis Obispo. Funding for this project has been made available by the Governor’s Buy California Initiative, the California Department of Food and Agriculture (“CDFA”) and the U.S. Department of Agriculture (“USDA”). The content of this publication does not necessarily reflect the views or policies of CDFA or USDA, nor does any mention of trade names, commercial products and organizations imply endorsement of them by CDFA or USDA. Please send all correspondences to [email protected]. California’s Dairy Industry Over the years dairymen have strived to increase operational size to reduce cost in order to maintain competitiveness in the industry. This search for economies of scale has been in juxtaposition to the increasing suburban pressures that are growing around the dairies in many states. This alternative use of land to accommodate development has forced dairy producers in many areas to increase intensity of production to gain these economies of scale, resulting in more manure concentrated in a smaller area. One of the states that have to cope with manure concentrated in a small area is California. California had almost 1.7 million dairy cows in 2003 (CASS, 2003). These cows were utilized by California producers to generate approximately four billion dollars in revenue and 35.4 billion pounds of milk production. These dairies have generated a large amount of manure approximated at thirty million metric tons in 2003. Eighty-seven percent of the dairy cows in California are located on farms of five hundred or more cows with a heavy concentration in eight counties of California—Fresno, Kings, Merced, Riverside, San Bernardino, San Joaquin, Stanislaus, and Tulare (USDA Census, 2002). These counties account for approximately eightyfour percent of the dairy cows in the state. Technology exists for dairy producers to capture methane from the manure of their cows and turn it into energy. There are many issues producers must contend with when they want to turn manure into an energy resource. An operation may be too small to generate enough manure to make it profitable to utilize manure to produce energy or biogas. A dairy may not want to take on the extra management responsibility of adopting a technology that will produce energy from their manure. A producer may generate more power from their technology than her farm 2 This estimate was derived using a conversion factor developed by Nennich et al. (2003). They believe that the amount of manure produced is related to milk production rather than the size of the cow. They propose that one kilogram of milk equates to 1.89 kilograms of manure generated.