A Kansas dairy and Shell turn manure methane into California fuel credits

NPR reported in February 2022 that California's push to cut transport emissions was putting cash in the pockets of dairies across the country. At High Plains Ponderosa Dairy in southwest Kansas, manure from cows kept in barns goes into lagoons that release methane, which traps about 80 times more heat than carbon dioxide. Later that year it would flow into digesters, with the captured methane going into a pipeline a few miles away, connected to California's pipelines, which is essential for the deal.

The Low Carbon Fuel Standard limits emissions from fuels sold in California; oil and gas companies can sell less gasoline or pay for cuts elsewhere. The dairy is building the equipment with Shell and will be awarded credits for cutting methane and supplying cleaner fuel, plus federal renewable fuel credits. General manager Greg Bethard says they could be worth tens of millions of dollars a year, though prices vary, and milk remains the main business.

UC Davis economist Aaron Smith calculated the credits could boost revenue by 50% over selling milk alone, and warned that the subsidy could push dairies to add cows. Environmental justice groups petitioned California regulators to stop it, arguing credits mainly benefit the biggest, most polluting farms; the regulator denied the petition, saying the system is working as designed, but said it would take a fresh look at the criticisms.

Methane is a potent greenhouse gas, so a lagoon dairy has a lot of pollution that can be eliminated.

The dairy sits near a pipeline connected to California's, which is what makes it eligible.

Oil and gas companies must meet caps and will buy credits rather than only cut sales.

Credits can stack with a separate federal fuel program, making the revenue larger.

Wherever a rule makes someone pay to cut emissions, the cheapest cut may be in another industry, and the seller earns a new revenue line.

California regulators denied the petition to stop the credits but said they would review criticisms; Oregon and Washington were moving toward their own emissions-trading systems, which could raise demand for manure-derived methane. A dairy consultant noted farms need about 3,000 cows to justify a digester, which may disadvantage small dairies.