California dairies are the most highly regulated in the country, and those regulations just became even more onerous. In 2016, SB 1383 will require the dairy industry to reduce manure methane emissions by 40 percent by January 1, 2030, from a 2013 baseline. The good news is that the regulations can’t be implemented until 2024, giving farms time to complete the task.
Some dairies will need to make substantial capital investments to meet these new standards. However, with other costs of production set to increase, including increased minimum wage and mandatory overtime, these capital investments will likely push more California dairies to retire, consolidate or move.
For those dairies that stay in California, and take on the new challenges, the next years will see substantial change . . . and potential gains.
James Williamson is a research analyst for Rabobank. One of the sectors he follows is California dairies. He recently authored a paper entitled, Digesting Environmental Policy. The purpose of his investigation was twofold – to help industry members stay up-to-date on current industry challenges, and to also help Rabobank understand what challenges the dairies are facing and how it can help finance and manage its relationship with those dairies.
Williamson says the first thing he wants to communicate to farmers is not to get too stressed.
“Dairies are looking at theses regulations, and they look overwhelming. But we’ve still got 10 to 15 years before a lot of these regulations are fully enacted. That gives them some time.”
Dairies will be using that time to reduce the primary source of methane on their farms – methane released into the atmosphere from uncovered lagoons. The California Air Resources Board (CARB) suggests lagoons could account for nearly 55 percent of dairies’ methane emissions.
One of the most common ways to capture that methane is through digesters, where the methane is then scrubbed, used as natural gas or used to fuel generators to produce electricity.
Williamson says currently there are three general digester options out there, each with their own pros and cons.
Covered Lagoon: This digester is generally the least expensive to install and, because of its simplicity, is the easiest and least expensive to repair. Dairies can also make modifications to mix the waste for increased methane production. The down side, however, is that covered lagoons aren’t as productive as other digesters, are impossible to heat, and typically develop sludge at the bottom that may need to be cleaned about every 10 years.
Williamson says he knows of one dairy already using a covered lagoon.
“Open Sky Diary in Riverdale, California, has a covered lagoon digester, that produces enough energy [548,00 kilowatt per month, enough to power 600 homes a month] to offset the milking parlor costs and more. The farm is considering putting in a second engine.”
Complete Mix: These digesters are solid structures that agitate and can also be heated to create greater methane production. The down side is that they are more expensive, and because there are more moving parts are more prone to breakdowns.
Plug Flow: These digesters, although the most expensive, are the more efficient in producing marketable energy, says Williams.
“What goes in on day one comes out on day 30. This allows the influent to be completely digested – free from pathogens and bacteria that can be introduced by manure, which is added and mixed into the systems that same day, as can happen with covered lagoons and complete mix digesters.”
Rabobank estimates that, depending on the style of digester, they could cost anywhere from $1,000 to $2,000 per cow.
“And the profitability of the digester depends on the style and efficiency of the digester,” says Williamson. “They can be profitable – $75 to $500 per cow per year.”
This is compounded by the fact that California dairy producers typically receive anywhere from 50 cents to a couple dollars less per hundredweight than their counterparts in the U.S. for milk.
“It makes it that much more challenging when California dairies have these regulations requiring capital expenditures of a digester that you are going to have to install, pay for and manage. And it’s going to cost an extra $3 million dollars,” says Williamson.
It’s an enormous capital expense that Rabobank, as an agriculture lending institution, would like to help find a way for the industry to finance. “Because there’s not a lot of collateral that a dairy can put up, and because most digesters are solid set, we’re working on financing options for dairies as we speak,” says Williamson. “It’s something that’s important to us as an institution, to help the industry.”
The large expenditures are going to be exceptionally difficult for smaller dairies – under 1,000 cows. One option for smaller dairies will be to pool their resources. By combining their methane at one cleaning facility, and also hooking into a centralized natural gas line, they avoid each dairy purchasing its own methane cleaner and gas line.
“The CDFA (California Department of Food and Agriculture) is working on a project in Bakersfield where they are looking at the feasibility of that,” says Williamson. “Another example is Calgren Renewables Fuels, an ethanol plant near Tulare, Calif. They currently have a long-term contract with a local dairy. They invested in a digester for the natural gas and carbon credits. As part of their deal with the dairy, they built the infrastructure to pipe the dairy’s manure over a mile to the facility.
“[The] Western United Dairymen (WUD) has been largely responsible for working to get a significant portion of grant funds to be made available to dairies so they can look at alternative methane reduction technologies, such as digesters and scrape or separator technology,” says Anja Raudabaugh, CEO of WUD. “The CDFA has been a good partner. We’re trying to make sure that not just the digesters receive funding but other forms of methane reduction are considered too. It’s really important to our dairy as we represent the small and the large.
“For 2017, there will be $50 million dollars available for methane reduction technology and possibly that same amount until 2024,” she adds. “But our preliminary estimates of what is needed is about 200 digesters, plus some other reduction technologies. And for 1,300 dairies, that doesn’t sound like a lot, but definitely, each of these digesters is between $4 and $6 million dollars.”
Farmers should definitely do their research before going out and investing in new technology.
“Farmers should be very cautious about anyone who approaches them with these solutions,” says Raudabaugh. “There are a wide variety of people coming out of the woodwork saying their solution is the answer to methane reduction. And there is just no data to back those claims up. And it’s very important farmers vet these digester development companies. There are some reputable ones and there are some not reputable ones.”
She invites farmers to visit the CDFA website where there is a lot of good information.
Williamson agrees. Digesters vary in quality, but it also depends on the contractor the dairy hires to do the work.
“There are a few in the California who are working on building a reputation for having a quality product. But the same goes for any project that anybody is going to spend a lot of money on. You’ve got to do your research and determine who is offering the best product at the best price.”
But digesters are not the only answer. New technologies are being tested and will be coming onboard. Williamson says the CDFA is currently working with industry members to find alternatives that will be more economical, especially for those smaller dairies that can’t afford a digester.
If things weren’t challenging enough, there are air quality districts in California that add another, even more expensive, layer to the emission reduction challenge. There are some air districts in California that may not allow many more combustion engines. For farms in these areas they will have to look to far more expensive options.
“These [non-combustion] options are have not been implemented on many dairies,” says Raudabaugh. “It can turn a $4 million digester into a $6, $7 or $8 million really quickly.”
Raudabaugh adds, dairymen are practical people and this change will be difficult. “If the purchase of an extremely expensive digester is not for the health and safety of the animal and or for the viability of the farm, this is going to be a big adjustment for them. We just want to make sure that this is a process that not only will the farmers get credit for their investment and credit for their emissions reductions, but that they don’t end up with a massive headache.”
WUD will continue to help dairies through this transition, making sure there are other methane reduction technologies available, but also working with authorities to determine the methane baseline. And Rabobank will continue to look at financing options for farmers.
It will be a big hurdle for dairies, but Raudabaugh doesn’t see methane putting an end to the dairy industry in California any time soon.
“It’s going to be very challenging times. You have to have a passion. And it’s not a business of pushing buttons.”