Can Pennsylvania dairies profit from carbon markets?

This story by MIT Environmental Solutions Journalism Fellow Carolyn Beans was originally published in Lancaster Farming, where it appears with additional photos. It is part of a series of articles on climate-smart dairy.

 

At Ar-Joy Farms in Cochranville, Pennsylvania, Duane Hershey’s manure management plan generates many clear cost savings for his dairy.

Manure solids — extracted with a solid-liquid separator — provide bedding for his 900-plus cows.

Manure liquids feed into an anaerobic digester, along with food waste that retailers pay the dairy to accept.

Methane produced in the anaerobic digester powers a generator that provides all the electricity the farm needs — plus a surplus that flows into the local power grid for additional revenue.

But the digester also generates another less tangible good: carbon credits, more than 1,500 per year.

Hershey entered the carbon market in 2017 when his digester was constructed. Since then, meters have kept a constant tally of the amount of methane burned off in his generator, and any additional methane beyond the generator’s capacity that he flares off.

“I’m getting credit for not emitting that into the atmosphere,” Hershey says.

The global carbon market for agriculture, forestry and land use reached $6 billion in 2024 and is projected to grow to $21 billion in 2029, according to a January report by The Business Research Co.

But the dairy carbon market is still in its infancy, and many dairy farmers question whether the price for carbon credits is worth the time and money spent on documentation for their operations.

“It doesn’t seem like the payback is worth the effort at this point,” says Andy Bollinger of Meadow Spring Farm in Lancaster County, Pennsylvania.

So how can Pennsylvania dairy farmers determine whether reducing greenhouse gases will earn them a reasonable return in the carbon market?

Dairy Credits in Demand

Carbon credit buyers can select credits generated from any number of greenhouse gas-reducing projects, from reforestation efforts to no-till farming.

“They have the right to decide, ‘I want a carbon credit from this type of practice,’” says Scott Welsh, managing partner of Fieldstone Innovations, an agriculture and ag tech consulting company based in Chester County, Pennsylvania.

Credits generated by dairies are desirable for two main reasons: impact and traceability.

In fact, dairies are the best ag sector for generating carbon credits, according to John Bourne, senior director of agriculture and carbon markets at 3Degrees, a San Francisco-based climate solutions company.

“The amount of impact that you can have through these interventions is really high — thousands and thousands of tons of greenhouse gases per project,” Bourne says. “That equates to really big dollars.”

Through manure management projects and feed additives, dairies are especially well positioned to lessen emissions of methane, a highly potent greenhouse gas.

Unlike carbon dioxide, which can persist in the atmosphere for centuries, methane is relatively short lived, lasting only about a decade. So reducing methane emissions today can have a more immediate impact.

Cutting methane emissions is like an emergency brake for slowing climate change, says John Tauzel, senior director for global agriculture methane at Environmental Defense Fund, a global environmental nonprofit.

“U.S. dairy farmers have done an incredible job of optimizing productivity, so their intensity of methane per unit of milk is one of the lowest globally, from a standards perspective,” Tauzel says. “What we now need to see is, how can we actually mitigate more methane from those cows?”

Methane reductions on dairies are easier to track than many other agricultural strategies for reducing greenhouse gases. Methane digesters, for example, can be metered to show exactly how much methane is burned off.

Some farmers earn carbon credits for practices like cover cropping or no till farming.

“The challenge with those is we have absolutely no idea how much carbon is actually being sequestered in the soil,” says Carson Reeling, an agricultural economist at Purdue University. “We can simulate that, but it’s not nearly as reliable as a dairy farmer who said, ‘Hey, I’ve got this new methane digester.’”

How Carbon Markets Work

The path to dairy carbon credits begins with a farm adopting a technology or practice that reduces emissions, such as a methane digester, cap and flare manure storage, or feed additive.

“The buyers are paying to incentivize a new practice or a new reduction,” Welsh says. “Unfortunately, that means people that have already been doing it don’t qualify.”

The new project then gets listed with a carbon registry, which sets the guidelines for which types of projects can earn credits.

The dairy then measures the reduction in emissions through tools, such as gas meters or data entry into emissions models, depending on the project.

These measurements get reported to a third party company that verifies that the reported reduction is accurate.

This step is critical for developing credible, high-value carbon credits.

“There’s sometimes a hesitancy to do a rigorous verification. But almost always a rigorous verification pays more than the cost of the verification,” Bourne says.

After emissions savings are confirmed, the dairy receives one carbon credit for every metric ton of carbon dioxide reduced — or an equivalent reduction, in terms of warming potential, of another greenhouse gas.

Typically, dairy farmers don’t manage this process — known as measuring, reporting and verification — themselves.

Instead, they hire carbon project developers, such as ClimeCo or 3Degrees, to conduct the MRV, oversee the carbon credit sales, and manage the continued documentation, verification and sales year after year.

Hershey uses Native, a Vermont-based carbon project developer, to navigate his operation’s carbon market participation. He provides data the company requests, such as his average number of cows per month, and Native does the rest.

“It’s not a lot on our end,” he says. “They do all the calculations.”

Bringing Carbon Credits to Market

The carbon market is not a single marketplace but rather a collection of exchanges that fall into two main types: compliance markets and voluntary markets.

Credits sold in the compliance market are purchased by companies, such as power plants and oil refineries, that are required by federal, state or local law to limit emissions. These companies purchase credits to compensate for surpassing emissions caps.

For Pennsylvania dairy farmers, the most active compliance market is California’s Cap-and-Trade Program, which allows California companies to purchase carbon credits to offset a small percentage of their emissions — even from sellers as far away as Pennsylvania.

The compliance market is limited in terms of which types of projects qualify, but dairy strategies for capturing and destroying methane count.

Credits sold in the voluntary market, meanwhile, are purchased by companies choosing to offset emissions to meet their own greenhouse gas reduction goals, and can include many emissions-reducing dairy practices.

So unlike in many agricultural sectors, dairy farmers can choose to sell in either the voluntary or compliance markets, depending on which offers a better price.

“That means that the project is much more derisked for the farmer,” Bourne says.

In voluntary markets, many experts recommend dairies sell carbon credits to companies in their own supply chain, rather than to other industries like tech or aviation.

This approach — known as carbon insetting, as opposed to offsetting — allows a dairy processor to lower the greenhouse gas production of its total supply chain.

“Right now, the momentum, marketwise, has been more around food companies that are looking for carbon offsets as part of their supply chains,” Welsh says.

In January 2024, Dairy Farmers of America became the first dairy cooperative to purchase carbon credits through this insetting market. The cooperative purchased credits from a Texas dairy farmer through Athian, a technology startup that facilitates carbon credit exchanges for the livestock insetting market.

“What we’re really solving for here is allowing those companies at the end of the supply chain that have made public claims about reducing their emissions to be able to source those emission claims directly within their supply chain,” says Kendra Tolley, chief product officer at Athian.

Is It Worth the Cost?

For smaller Pennsylvania dairies, the cost of the measuring, reporting and verification process can make entry into the carbon market challenging, Welsh says.

He estimates that an MRV can run $10,000 to $20,000 for an individual farm, regardless of whether that farm earns 100 carbon credits each year or 1,000.

Typically, a carbon project developer working with the farm would cover the cost of the MRV and then take a cut of the profits once the credits are sold. But some developers may choose to only work with farms of a certain size.

3Degrees tends to manage carbon projects for farms with 500 cows or more, Bourne says, though it may work with smaller farms through co-ops.

“We’re relatively small compared to the larger dairies that do this, so it takes a lot of administrative work to generate these credits, and it eats up some of the money,” Hershey says. “We actually get paid every other year to make (the payoff) big enough to go through all the paperwork.”

But feed additives that reduce methane emitted through cow burps might soon “democratize” the process.

“If it comes down to just feeding your animal something, anybody can do that, regardless of your size,” Reeling says.

Athian designed its emissions reporting technology so that farms of all sizes can participate, Tolley says.

Dairy farmers who enter the carbon market can expect a range of returns, depending on the project and size of the operation.

Welsh estimates that Pennsylvania dairy farmers can sell credits for manure management and enteric methane reduction in the insetting market for around $30 to $50 per credit. A cap and flare project, for example, might produce three to five credits per cow over a year, he says, “so you’d be looking at $150 per cow.”

But the farmer only gets a portion of that money. “(Carbon project developers) usually will take anywhere from 20 to 50% of that, depending on the size of the farm,” Welsh says.

Dairy farms that sell carbon credits also lose the ability to describe their milk as a low-emissions commodity. Any claim to lowered emissions gets transferred to whichever company purchased the credits.

If a dairy sells carbon credits to its own co-op, it can still say that it is part of a supply chain that is reducing greenhouse gas production, but it can’t make specific claims about its own emissions reductions.

“If you sell your carbon credits in any form through any market, you can’t also claim those reductions yourself as a farm,” Welsh says.

Proceed With Caution

Jayne Sebright, the executive director of the Center for Dairy Excellence, believes carbon credits will offer opportunities, but profitability will depend both on shifts in government policy and how much companies are willing to pay.

“The jury’s still out on the carbon market and how lucrative it’ll be for farmers,” Sebright says.

Reeling predicts demand for carbon credits to shift even more toward “quality,” with buyers only wanting credits that represent well-documented reductions, such as those earned through feed enteric methane reducers and methane digesters.

“I think those types of carbon offsets are going to be in much higher demand,” he says.

But some climate economists worry that carbon markets simply allow the buyers of carbon credits to keep on polluting.

“I’m perfectly willing to accept that there are buyers in this market who are doing this as extra climate action,” says Danny Cullenward, a climate economist at the University of Pennsylvania. “The problem is, we also have people who are doing the permission to pollute thing.”

Allowing companies to continue polluting is especially problematic when the credits they purchase were generated through practices that a farmer would have adopted even without the incentive of carbon credits, Reeling says.

But Welsh sees the carbon market as an important mechanism for not only encouraging new projects that draw down emissions, but also ensuring those projects are well maintained.

A farm needs to go through a verification process every time it sells, ensuring that caps on manure storages stay secure, for example, and flares keep running.

“(The carbon market) provides some revenue to incentivize the farmer to continue to maintain that practice years into the future,” Welsh says.

When Duane Hershey first considered entering the carbon market, he reached out to other dairy farmers who were already earning credits.

“Talk to other farmers that are doing it,” Hershey says. “You get the straight scoop.”