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Journal of Environmental Planning and Management
ISSN: 0964-0568 (Print) 1360-0559 (Online) Journal homepage: http://www.tandfonline.com/loi/cjep20
Carbon emission reduction and cost–benefit of methane digester systems on hog farms in China
T. Chen, M. Liu, Y. Takahashi, J.D. Mullen & G.C.W. Ames
To cite this article: T. Chen, M. Liu, Y. Takahashi, J.D. Mullen & G.C.W. Ames (2015): Carbon emission reduction and cost–benefit of methane digester systems on hog farms in China, Journal of Environmental Planning and Management, DOI: 10.1080/09640568.2015.1050484 To link to this article: http://dx.doi.org/10.1080/09640568.2015.1050484
Published online: 20 Aug 2015.
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Carbon emission reduction and cost benefit of methane digester systems on hog farms in China
T. Chena,b*, M. Liua, Y. Takahashic, J.D. Mullenband G.C.W. Amesb
aDepartment of Agricultural Economics and Management, Shanghai Ocean University, Shanghai, P.R. China;bDepartment of Agricultural and Applied Economics, University of Georgia, Athens,
GA, USA;cLaboratory of Environmental Economics, Department of Agricultural and Resource Economics, Faculty of Agriculture, Kyushu University, Fukuoka, Japan
(Received 23 July 2014; final version received 7 May 2015)
Three different sizes of hog farms were selected to analyze the carbon emissions reduction and the costbenefit of three methane digester systems. The sizes of the digesters are 2,200, 2,200 and 800 m3, respectively. The sales of slaughter hogs from them are 50,000, 35,000 and 10,000 head, respectively. The carbon emissions reductions were 5,237, 4,017, and 1,334 tons, respectively. The results show that while the methane digester systems have a significant effect on carbon emissions reduction, it is difficult to operate the systems sustainably. If the carbon emissions reduction can be traded at high enough prices in the carbon offset markets, then the systems will be profitable and sustainable. Newly established China’s domestic carbon offset market could provide this possibility, but more government support is needed.
In addition, this study shows that scale economies make the digester adoption relatively more profitable for larger farms than smaller ones.
Keywords: methane digester; Clean Development Mechanism; net present value;
economy of scale
1. Introduction
1.1. Background
With China’s rapid economic development, energy supplies are increasingly tight and greenhouse gas emissions are rising rapidly. China has become the world’s leading energy consumer, and also leads the world in greenhouse gas emissions (IEA 2013;
Ji and Ma 2011). USAChina Joint Announcement on Climate Change released on 12 November 2014 announced China’s post-2020 actions on climate change. China intends to achieve peak CO2emissions around the year 2030 and to make best efforts to peak early and intends to increase the share of non-fossil fuels in primary energy consumption to around 20% by 2030.
China has also been expanding its livestock production facilities, some of which may be compatible with the installation of methane digesters. Methane digesters can provide a variety of benefits when used in livestock production. They can serve as a renewable source of electricity; reduce greenhouse gas emissions from electricity generation;
reduce odors associated with manure storage, handling and disposal; and help mitigate surface water contamination from chemical oxygen demand and pathogen reduction that
*Corresponding author. Email:[email protected]
Ó2015 University of Newcastle upon Tyne
http://dx.doi.org/10.1080/09640568.2015.1050484
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can be hazardous to animal and human health (Duan and Wang2003; Martin2005; Leuer, Hyde and Richard2008; Liet al.2009; Gloy and Dressler2010; Key and Sneeringer2011).
At the end of 2010, the stocks of pigs, cattle and poultry in China were approximately 460 million, 110 million, and 5.35 billion head, respectively. Meat production has ranked first in the world for 22 consecutive years. The scale of livestock farms has also been expanding. By 2010, 65%, 79% and 47% of hog, poultry and dairy cattle operations, respectively, were considered ‘large-scale’1, according to MEP and MA (2012).
With the rapid expansion of the animal industry has come a concomitant increase in manure. Nationally, the total manure production was 18.4£108tons in 2007, 60% of which came from large-scale operations; by 2020, manure production is expected to reach 25.4 £ 108 tons, with 75.7% coming from large-scale operations (Wang et al.
2010).
According to survey data dynamically updated in the census of pollution sources, chemical oxygen demand and ammonia emissions from the livestock industry reached 11.48 million tons and 650,000 tons in 2010, making up 45% and 25% of the country’s total emission, respectively. Livestock pollution has become an important source of environmental pollution (MEP and MA2012).
In 2007, a large bloom of bluegreen algae caused water quality to deteriorate severely in Taihu Lake, China’s third largest lake. While industrial pollution accounts for only 10%16% of Taihu Lake’s total external pollution, agricultural non-point source pollution accounts for 59%. A large proportion is from livestock breeding operations (MEP and MA2012). In response to the algae bloom, local authorities required livestock farms upstream from Taihu Lake to adopt methane digester systems as pollution control mechanisms. This was conceived as a winwin approachagricultural producers would save on private energy costs and sewerage costs while providing public benefits by reducing greenhouse gas emissions and improving water quality. The greenhouse gas emissions reductions actually come from two sources: (1) the methane that is captured during digestion and is no longer released, and (2) the fossil fuels that are no longer burned to generate the electricity displaced by the methane digesters.
However, except a few methane digester systems in large-scale livestock farms, which were certificated as Clean Development Mechanism (CDM) projects and could get the revenue from international carbon offset market, most of the methane digester systems in China were unprofitable (CRESP2011). The costs of constructing and maintaining these systems often exceed the value of the private savings provided to the farms. In other words, the private costs exceeded the private benefits. China’s carbon offset market has just started in 2013. Seven domestic pilot carbon emissions trading markets were running in 2014, and China’s government is planning to construct a national carbon emissions trading market in the future (World Bank Group 2014). Newly established China’s domestic carbon offset market could provide the possibility to improve the profitability of methane digester systems.
The objective of this paper is to incorporate the carbon emission reductions into a costbenefit analysis of three methane digester systems for three different sizes of hog farms located upstream of the Taihu Lake Basin.
1.2. Literature review
Since the Kyoto Protocol was signed in 1997 and entered into force in 2005, extensive research on CDM has been carried out. Some studies focused on the carbon emission reduction and the costbenefit of methane digester systems.
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In the United States, anaerobic manure management systems are more likely to be implemented in dairy cattle and swine farms, which are responsible for 43.1% and 43.6%
of the methane emissions from manure management, respectively. Beef cattle, sheep, poultry and horses were collectively the source of only 13.3% of total manure methane, mainly because manure from these animals is usually handled in aerobic conditions (Key and Sneeringer2011). The objectives of studies on the costbenefit of methane digester systems mainly concentrate on dairy cattle farms (Anderson, Hilborn and Weersink2013;
Bishop and Shumway 2009; Camarillo et al. 2012; DeVuyst et al. 2011; Lazarus and Rudstrom 2007; Leuer, Hyde and Richard 2008; Nan, Cheng and Ma 2008). Other studies focused on the analysis of hog farms (Duan and Wang 2003; Li et al. 2009;
Wang, Xiao and Dai 2009). However, Key and Sneeringer (2011) studied both dairy cattle farms and hog farms.
As for estimates of greenhouse gas emission reductions, according to different scales of operations, some research has adopted the methodologies by Approved Methodology for Small-Scale Projects (AMS) III.D and Approved Consolidated Methodology (ACM) 0010 of the CDM (Liet al.2009; Nan, Cheng and Ma2008; Wang, Xiao and Dai2009).
Others adopted the standard parameters supplied by Chicago Climate Exchange (CCX) or Intergovernmental Panel on Climate Change (IPCC) (Leuer, Hyde and Richard2008;
Bishop and Shumway2009; Key and Sneeringer2011; Klavonet al.2013; Zhanget al.
2008). When analyzing the profitability of methane digesters, all the studies adopted the costbenefit analysis to calculate the net present value (NPV). However, Leuer, Hyde and Richard (2008), Key and Sneeringer (2011) and Anderson, Hilborn and Weersink (2013) did not considered the role of government subsidies in their analysis.
The revenue from digester-generated electricity is the existing revenue to all the farms. It can include two parts. One is from farm electricity savings while the other is from the sale of surplus electricity. However, many farms cannot sell the surplus electricity to the national grid in China. Electricity prices for the agricultural sector are generally low. If only considering the revenue from generated electricity, many studies, such as Leuer, Hyde and Richard (2008), Bishop and Shumway (2009) and Klavonet al.
(2013), show that the NPV of methane digester profit will be negative, except Duan and Wang (2003) and Martin (2005). The results of Bishop and Shumway (2009) show that even with the electricity sale, the fiber used for bedding and grants that amount to 38% of the digester cost, the digestion system in a 500-cows dairy farm would not be economically viable. Based on the revenue from generated electricity, many studies show that the price of carbon in a carbon offset market could play a key role in methane digester profitability (Anderson, Hilborn and Weersink 2013; Camarillo et al. 2012;
Leuer, Hyde and Richard 2008; Key and Sneeringer2011). In addition, the size of the operation, the type of technology and the location of farms could also affect methane digester profitability (Key and Sneeringer2011).
The possible key revenue source of methane digesters is from the carbon offset market.
The price varies between different times and different carbon offset markets. In the United States, the average price for carbon allowances in the Regional Greenhouse Gas Initiative has ranged between $1 and $3 per ton of carbon dioxide equivalent emissions since its inception in 2008. The CCX carbon price has ranged between $1 and $7 per ton between 2004 and 2009, but has been trading under $1 per ton since 2009 (Key and Sneeringer 2011). In the major international compliance markets, carbon offset prices have been much higher. However, the uncertainty about the future price is much greater. The price of European Union Allowances (EUAs) rose to heights of above $40.5 (€30) per ton from 2005 to 2007, and then crashed to near zero for most of 2007 (Simon and
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Cameron2011). On 18 June 2013, Shenzhen carbon emissions trading market in China started and the first single quota trading price was $4.54 (28 Renminbi (RMB)) per ton.2 The peak price was $18.44 (113.76 RMB) per ton on 14 October 2013, and then decreased to $7.64 (47.15 RMB) on 20 October 2014 (http://www.tanpaifang.com, accessed on 25 April 2015).
Besides the above two revenue sources, methane digesters could have other revenue derived from the following sources: saving sewage charges because of methane digester adoption which are the costs of treating the effluent before it is discharged into the lake (Duan and Wang2003; CRESP 2011), using the collected solids on-farm for bedding material or selling them as a soil amendment (Leuer, Hyde and Richard2008; Klavon et al. 2013; Bishop and Shumway 2009), and accepting food waste from local food processors or manure from other local farms (Bishop and Shumway2009).
Gloy and Dressler (2010) pointed out there are many financial barriers such as income uncertainty and an uncertain policy environment regarding the adoption of anaerobic digestion. The results of Lazarus and Rudstrom (2007), Stokes, Rajagopalan, and Stefanou (2008) and DeVuystet al. (2011) have shown that even with a tax credit for biomass-fueled electricity generation, the investment of anaerobic digestion cannot be justified with electricity or biogas sales. Even with carbon credits and electric sales, the investment in an anaerobic digestion is financially feasible only for very large (1,000C cows) farms (Anderson, Hilborn and Weersink2013; Leuer, Hyde and Richard2008).
Overall, there are limited studies that have looked at the carbon emission reduction and the economic analysis of methane digester systems in China. China’s domestic research has mainly focused on the carbon emission reduction, and have lacked deep economic analysis (Duan and Wang 2003; Li et al. 2009 and Chen, Zhou and Ruan 2007). This study serves to address that research gap.
However, because the carbon prices used in these previous studies are quite different, we have not compared methane emission reductions found in the current study with values from these Chinese studies in Section 4.
This study calculates the carbon emission reduction by AMS III.D, and the NPV by costbenefit analysis with electric sales, carbon credits and sewage charge savings through several scenarios to give insights into the profitability of the methane digester systems in China.
2. Data and methodology 2.1. Data
Data were compiled for three farms (A, B and C). The data described inTable 1for farms A and B come from a field survey completed in July 2013. The data for farm C come from “The Economic Analysis Report of Farm Biogas Power Generation Project” issued by China Renewable Energy Scale-Up Program (CRESP2011).
Farm A is located in the city of Jintan, in Jiangsu Province. In 2012, the livestock inventory of farm A was 20,000 hogs; 50,000 hogs were sold that year. Farm A has two methane digesters: one established in 2008 and the other in 2011. The capacities of the digesters are 1,000 and 1,200 m3of manure, respectively. The electric generator capacity is 200 kW. In 2012, the biogas production was 657,000 m3and the generated electricity was 592,000 kWh.
Farm B is also located in the city of Jintan. In 2012, the livestock inventory of farm B was 15,000 hogs; 35,000 hogs were sold that year. Farm B also has two methane digesters established in 2007 and 2009. The capacities are 1,000 and 1,200 m3of manure,
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respectively. Farm B has two generators, the capacities of which are 80 and 200 kW. In 2012, biogas production was 321,200 m3and the generated electricity was 369,000 kWh.
Farm C is located in the city of Yixing, in Jiangsu Province. In 2010, the inventory of farm C was 5,000 hogs; 10,000 hogs were sold that year. The capacity of its methane digester is 800 m3. The capacity of its generator is 24 kW. In 2010, biogas production was 116,800 m3and the generated electricity was 105,120 kWh.
The anaerobic digesters in all three farms are continuously stirred tank reactors.
However, the modes of gas storage are different. Farms A and C adopted a low-pressure water-sealed gasholder which is separated from the methane digester. Farm B adopted a biogas production and storage ‘all-in-one’ system. Although capacities of the methane digesters and generators at farms A and B are almost the same, the production of biogas on the two farms is quite different due to the difference in animal inventory and pig sales.
2.2. Model of costbenefit analysis
The model used here is based on the model of Key and Sneeringer (2011), with parameters adjusted to the situations of the three farms. We use a discounted cash flow or NPV approach to assess the profitability of a digester project. The NPV is the sum of all future cash flows (e.g., revenues from electricity or carbon offsets minus capital and variable costs) discounted to its present value. We make the following set of assumptions: (1) the life span of the digester is 15 years, (2) the electricity price and the price of carbon offset are known and constant over 15 years, (3) the volume of methane production and the electricity generated are constant over 15 years, and (4) the discount rate is 5%. From 2004 to 2013, the average benchmark loan rate over five years published by People’s Bank of China was 6.93%, and the average inflation rate published by National Bureau Statistics of China was 3.11%. Considering the lifespan of digester is 15 years, a discount rate of 5% is reasonable.
As mentioned earlier, a methane digester may generate several sources of revenue. In China, a small amount of food waste is treated by anaerobic digesters (Huet al.2012), while little digested fiber is composted and used as bedding material for livestock.
Therefore, the digester systems in China have a few opportunities to gain additional revenue for treating food waste and bedding material. In this study, we focus on the Table 1. Operational capacity of three hog farms.
Unit A1 B1 C1
Location Jintan Jintan Yixing
Breeder pigs head/year 2,000 1,500 500
Inventory2 head/year 20,000 15,000 5,000
Sale of slaughter hogs head/year 50,000 35,000 10,000
Anaerobic fermentation capacity m3 2,200 2,200 800
Biogas product m3/year 657,000 321,200 116,800
Power generation capacity kWh 200 280 24
Power generation kWh/year 592,000 369,000 105,120
Electricity used in farm kWh/year 987,000 738,000 263,000
1The data of A and B are 2012 and the data of C is 2010.
2Inventory refers to the number of the pig that farms owned at any time of a year.
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revenue from electricity, carbon offset and saving sewage charges:
NPVD NPVDC NPVMC NPVS (1)
where NPVD is the net present value of electricity generation, NPVM is the net present value of carbon offsets and NPVSis the net present value of savings in sewage charges to hog farms attributable to the adoption of methane digester. The variables of the costbenefit model are as follows(Table 2):
NPVDDXT
tD0
Rt¡Ct
ð1CdÞt
(2)
whereTrepresents the service life of the digester,dis the discount rate,tis the time,Rtis the revenue of generated electricity (used on-farm and/or sold), andCtis the construction
Table 2. Costbenefit analysis variables.
Data
Variable Description Unit A B C Source
P1E
Retail price of electricity $/kWh 0.068 0.068 0.068 Field survey P2E
Electricity price of renewable energy
$/kWh 0.109 0.109 0.109 NDRC (2006)
P1M
Price of carbon offsets 1 $/ton 1.00 1.00 1.00 Assumption P2M
Price of carbon offsets 2 $/ton 10.00 10.00 10.00 Assumption P3M
Price of carbon offsets 3 $/ton 20.00 20.00 20.00 Assumption E Electricity generation kWh 592,000 369,000 105,120 Field survey Q Average carbon dioxide
equivalent emissions rate from power plants
ton/MWh 0.76125 0.76125 0.76125 NDRC (2006)
KF Capital construction costs
$ 925,592 944,571 268,152 Field survey KS Government subsidy $ 317,666 324,149 162,075 Field survey V Maintenance and
operating costs
$ 25,462 20,113 15,267 Field survey M Quantity of methane that
could be sold in the offset market
tons 5,190.95 3,994.46 1,325.75 Calculated
ZE Fixed start-up cost for entering the offset market
$ 10,000 10,000 10,000 Key and Sneeringer (2011) ZV Ongoing annual costs of
monitoring and verification
$ 3,000 3,000 3,000 Key and
Sneeringer (2011)
N Number of head1 head 22,000 16,500 5,500 Field survey
T Lifespan of the digester year 15 15 15 Assumption
D Discount rate 0.05 0.05 0.05 Assumption
1Breeder pigs plus hog inventory.
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and maintenance cost of the digester;
RtDPEREt (3)
wherePERrepresents the buying (retail) price per kWh andEtis the quantity of electricity generated in yeart measured in kWh. The quantity generated is less than what is used on-farm; therefore, the generated electricity is valued at the buying (retail) pricePER:
PERDPEC0:0001uPM (4)
Since climate change legislation likely affects the power generation sector, the retail electricity price is allowed to depend on the carbon intensity of the state energy sources and the price of carbon (PM). Specifically, the retail price of electricity is equal to the observed current retail price PE plus an increase which is proportional to the average carbon dioxide equivalent emissions rate from power plantsðuÞ. We multiply by 0.0001 to convert 10,000 kWh to kWh. According to the data issued by National Development and Reform Commission (NDRC 2006) in 2013, the average carbon dioxide equivalent emissions rate u from power plants in the area of the three hog farms is 0.76125 tons CO2/MWh which is the average of the operating margin (OM) and the build margin (BM) emission factors. There are two relevant electricity prices. The first price is the current real retail electricity price $0.068/kWh (0.42 RMB/kWh), the actual price the farm will pay to purchase electricity from the grid. The other is the electricity price of renewable energy, which is $0.109/kWh (0.67 RMB/kWh)3, this is the last price that the farm will receive when selling electricity to the grid. Although the opportunity to sell electricity onto the grid is not currently available to the farms in our analysis, we examined the impact this policy would have on our results through a separate scenario:
CtD KF¡KSiftD0 Vtif 1tT
(5)
whereKF represents capital construction costs,KSis the government subsidy andVtis the maintenance and operating costs;
NPVMDXT
tD0
PMMt¡Zt
ð1CdÞt
(6)
where PM represents the carbon offset price. Since the international market price for carbon has a lot of variation, and China’s domestic market price varies from approximately $4.5 to $21.2 per ton, we examine three carbon offset prices, $1, $10 and
$20 per ton.Mtis the the quantity of carbon that could be sold in the offset market, which is simply the reduction in carbon emissions due to the methane digester, calculated as in Equation (9).Ztare transaction costs associated with selling carbon offsets:
ZtD ZECZV iftD0 ZV if 1tT
(7)
whereZE represents the initial one-time fixed start-up cost for entering the offset market andZV is the ongoing annual costs of monitoring and verification. Transaction costs used were $10,000 and $3,000, in accordance to the values used by Key and Sneeringer
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(2011). Since all the projects of the three hog farms are small-scale CDM projects, we assume their transaction costs are the same.
The hog farms had to pay sewage charges of $0.146 (0.9 RMB)/head/month before adopting methane digesters, according to the local government regulations (CRESP 2011). The sewage charges are recorded as savings attributable to the adoption of the methane digester:
NPVSDXT
tD0
0:146£12£N ð1CdÞt
(8)
whereNrepresents the number of hogs.
2.3. Model of carbon emission reduction
In the three hog farms, which are the focus of this analysis, the livestock waste had been stored in anaerobic lagoons before the methane digester was adopted. The flare or combustion of methane captured by anaerobic digestion system reduces the amount of methane that is emitted from anaerobic livestock waste storage areas such as lagoons or slurry stores, reducing the greenhouse gas emissions of the livestock sector (Donget al.
2008, Gloy and Dressler2010).
The CDM is one of the three measures on carbon emission reduction issued by the Kyoto Protocol. CDM includes both large-scale and small-scale projects. There are three kinds of small-scale projects. The first one is renewable energy activities with a maximum output capacity equivalent of up to 15 MW (or an appropriate equivalent).
The second one is energy efficiency improvement project activities which reduce energy consumption, on the supply and/or demand side, by up to the equivalent of 15 GWh per year. The third project consists of activities that both reduce anthropogenic emissions by sources and directly emit less than 15 kilotons of carbon dioxide equivalent annually.
Methane recovery in animal manure management systems (AMSS. D. ver. 19) is a small-scale methodology approved by the CDM executive board in 2012. Farms A and B had lobbied for CDM project designation with the CDM project management office;
however, in the end, they did not succeed. Nevertheless, the methane digesters at all three hog farms meet AMSS. D. ver.19 applicable standards.
In this paper, we use this method to calculate the carbon emission reduction. We calculate the emission at the baseline without the methane digester and the emission with the methane digester. The difference between them is the project emission reductions.
ERyDMtDBEy¡PEy (9)
where ERy is the carbon reduction in y year (tCO2e=year), here ERy equals Mt in Equation (6); BEy is the carbon emission at the baseline iny year (tCO2e=year); and PEy is the carbon emission with the methane digester system inyyear (tCO2e=year).
Prior to adoption of the methane digester, livestock manure was stored in open lagoons (Figure 1). The manure was transported from the barns to the lagoons which were emitting methane to the atmosphere. The manure was then disposed of or allowed to flow into a nearby river through a ditch. The dashed line inFigure 1is the boundary of baseline and corresponding BEy in Equation (9). The calculation formula of BEy is
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shown in the following equation and the variables are defined in theTable 3:
BEyDGWPCH4£DCH4£UFb£X
MCFj£B0
£ðNbreed;y£VSbreed;yCNmarket;y£VSmarket;yÞ£MS%Bl;j
(10)
After adopting the methane digester systems, the manure is transported to the methane digester to generate biogas within the facility. After digestion, the biogas slurry is stored in lagoons and used for agricultural crop production. Farm A provides the biogas slurry at no charge to neighboring farmers to produce rice, wheat, flowers and other crops. Farm B applies the biogas slurry to its own vegetable and flower production. The biogas slurry in farm C is used in its own fish ponds. Figure 2shows the concept of the system. The methane is used to generate electricity which supplies power to the hog production.
The dashed line in Figure 2 is the boundary of project and corresponding PEy in Equation (9). PEyhas five parts as shown in the following equation, and the variables are defined inTable 4and calculation methods are shown in the Appendix:
PEyDPEPL;yCPEflare;yCPEpower;yCPEtransp;yCPEstorage;y (11)
3. Results
3.1. Carbon emissions reduction
Baseline emissions were obtained using Equation (10), using the coefficients inTable 3 and the inventory head inTable 1. The emission result is shown as the carbon dioxide equivalent. The baseline carbon emissions for farms A, B and C are 9,434, 7,076 and 2,359 tons, respectively. The carbon emissions with the methane digester systems are 4,197, 3,059 and 1,025 tons in farms A, B and C, respectively. The reduction in carbon emissions is 5,237, 4,017 and 1,334 tons, respectively. For all three farms, the reduction rate is above 55% (Table 4).
The main factors of emission reduction are the number of inventory heads, the type of methane digester and the air temperature. Since the location and type of digester are the same for the three hog farms, the emission reduction and the number of inventory heads have a positive correlation.
Figure 1. The boundary of baseline system.
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Table3.Baselinevariablesforcarbonemissioncalculations. VariableUnitDescriptionDatainputSource BEytCO2e/yearBaselineemissionsinyeary GWPCH4tCO2e/tCH4Globalwarmingpotential(GWP)ofCH4 applicabletothecreditingperiod212006IPCCguideline.Dongetal.(2013) DCH4ton/m3 CH4densityatroomtemperature(20C)and1 atmpressure0.000672006IPCCguideline.Dongetal.(2013) UFbModelcorrectionfactortoaccountformodel uncertainties0.942006IPCCguideline.Dongetal.(2013) MCFjAnnualmethaneconversionfactor(MCF)forthe baselineanimalmanuremanagementsystemj0.74Calculatedfromthe2006IPCCguidelinesof Dongetal.(2013)andtheaveragetemperature ofJintan B0m3 CH4/kgdmMaximummethaneproducingpotentialofthe volatilesolidgenerated0.29ReferencedtheAsiaregionof2006IPCC guideline.Dongetal.(2013) Nbreed,yheadAnnualaveragenumberofbreedingswineTable1 Nmarket,yheadAnnualaveragenumberofmarketswineTable1 VSbreed,ykgdm/head/yearVolatilesolidsproduction/excretionperbreeding swineinyeary(onadrymatterweightbasis)293.3Calculatedaccordingto2006IPCCguideline default. VSmarket,ykgdm/head/yearVolatilesolidsproduction/excretionpermarket swineinyeary(onadrymatterweightbasis)136.87Calculatedaccordingto2006IPCCguideline default. MS%Bl,j%Fractionofmanurehandledinbaselineanimal manuremanagementsystemj100Assuming100%processingasassumptionsofthe boundaryofthebaseline
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Figure 2. The system of methane digester.
Table 4. Carbon emissions reduction.
Result
Variable Description A B C Source
Unit tCO2e/year tCO2e/year tCO2e/year
PEPL,y Emissions due to physical leakage of biogas in yeary
1,356.29 1,017.22 339.07 Appendix 1 Table A1 PEflare,y Emissions from flaring or
combustion of the biogas stream in the yeary
0 0 0 See Table Footnote 1
PEpower,y Emissions from the use of fossil fuel or electricity for the operation of the installed facilities in the yeary
341.80 167.10 60.76 Appendix 2 Table A2
PEtransp,y Emissions from incremental transportation in the yeary
0 0 0 See Table Footnote 2
PEstorage,yEmissions from the storage of manure in the yeary
2,499.33 1,874.5 624.83 Appendix 3 Table A3 PEཙ Project emissions in year y 4,197.42 3,058.82 1,024.66 Calculated
BEy Baseline emissions in year y 9,434.37 7,075.77 2,358.59 Result of Table 3 ERy Emission reduction in yeary 5,236.95 4,016.95 1,333.93 Calculated
% change Reduction rate 55.51% 56.77% 56.56% Calculated
1According to AMS-III. D.ver.19, “If the recovered biogas is combusted for electrical/thermal energy production or for other gainful use, the methane destruction efficiency can be considered as 100%.”
2The barns are quite near to methane digesters in the all three hog farms. The manure is piped into the digesters without transportation.
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3.2. Costbenefit of methane digester systems
First, we calculated the NPVD and NPVDCNPVS in the case of the two different electricity prices inTable 5.
(1) With government subsidy for the methane digester systems and the renewable energy electricity price, the NPVDof the three hog farms are negative. As shown inTable 1, farm B has the same anaerobic fermentation capacity as farm A, and its power generation capacity is even bigger than farm A. However, the numbers of inventory hogs and slaughter hogs in farm B are much smaller than those of farm A. That makes the NPVDof farm B much lower than that of farm A. If the digester does not work at full capacity, then the larger the size of the digester, the more losses occur in the system.
(2) With government subsidy for the methane digester systems and the renewable energy electricity price, the NPVDCNPVS is positive only in farm A. Since the sewage charges were levied according to the number of hogs, the larger the hog farm, the greater the reduction in sewage charges. That means NPVS of farm A is much more than that of farms B and C. As a result, the NPVDCNPVSof farm A could be positive with a government subsidy and the renewable energy electricity price.
To calculate NPVM, we multiply the emission reduction by different carbon prices, and then subtract the transaction cost (Table 6).
(1) When the price of carbon offset is $1 per ton, the NPVMfor farm C, the smallest farm, is negative; the NPVM of farms A and B are positive, but returns to the digester are low.
Table 5. Net Present Value of Electricity Generation (NPVD) and Sewage charges Savings (NPVS).
Price of electricity NPVD($10,000) NPVDCNPVS($10,000)
Subsidy (per kWh) A B C A B C
No $0.068 ¡72.28 ¡84.47 ¡33.87 ¡32.31 ¡54.49 ¡23.88
No $0.109 ¡47.39 ¡68.95 ¡29.45 ¡7.42 ¡38.98 ¡19.46
Yes1 $0.068 ¡42.03 ¡53.60 ¡18.44 ¡2.06 ¡23.62 ¡8.45
Yes $0.109 ¡17.13 ¡38.08 ¡14.02 22.84 ¡8.10 ¡4.03
1Bold refers to the real situations of three hog farms.
Table 6. Net Present Value of Carbon Offset (NPVM) in different carbon offset price.
Price of carbon offset (per ton) A ($10,000) B ($10,000) C ($10,000)
$1 1.32 0.08 ¡2.69
$10 49.81 37.39 9.69
$20 103.69 78.86 23.46
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(2) When the price of carbon offset is over $10 per ton, the NPVM of all three hog farms are positive. This could encourage the adoption of the methane digester systems.
(3) Since the emission reduction and the number of inventory head have been positively correlated, there is scale economy in the revenue of carbon offset. We assume the transaction of the three hog farms is the same, so there is scale economy in NPVMas well.
Based on the result of NPVD; NPVM and NPVS; 16 scenarios are analyzed (Table 7).
(1) If the electricity price is $0.068 per kWh and without government subsidy for the methane digester systems, the NPVs of the three farms are negative in the case of no carbon offset market or the carbon price of $1 per ton.
(2) If the electricity price is $0.068 per kWh and without government subsidy for the methane digester systems, only the NPV of farm A is positive when the carbon price is $10 per ton; furthermore, the NPVs of farms A and B are positive when the carbon price is $20 per ton.
(3) If the electricity price is $0.109 per kWh and without government subsidy for the methane digester systems, all the NPVs of the three farms are negative in the case of no carbon offset market or the carbon price of $1 per ton.
(4) If the electricity price is $0.109 per kWh and without government subsidy for the methane digester systems, only the NPV of farm A is positive when the carbon price is $10 per ton and the NPVs of farms A, B and C are positive when the carbon price is $20 per ton.
Table 7. NPV of methane digester system of three hog farms in different scenarios.
Scenario Subsidy
Price of electricity (per kWh)
Price of carbon offset
(per ton) A ($10,000) B ($10,000) C ($10,000)
1 No $0.068 01 ¡32.31 ¡54.49 ¡23.88
2 No $0.068 $1 ¡30.99 ¡54.41 ¡26.57
3 No $0.068 $10 17.50 ¡17.10 ¡14.19
4 No $0.068 $20 71.38 24.36 ¡0.43
5 No $0.109 01 ¡7.42 ¡38.98 ¡19.46
6 No $0.109 $1 ¡6.09 ¡38.90 ¡22.15
7 No $0.109 $10 42.40 ¡1.58 ¡9.77
8 No $0.109 $20 96.28 39.88 3.99
9 Yes2 $0.068 01 ¡2.06 ¡23.62 ¡8.45
10 Yes $0.068 $1 ¡0.74 ¡23.54 ¡11.14
11 Yes $0.068 $10 47.75 13.77 1.25
12 Yes $0.068 $20 101.63 55.23 15.01
13 Yes $0.109 01 22.84 ¡8.10 ¡4.03
14 Yes $0.109 $1 24.16 ¡8.02 ¡6.72
15 Yes $0.109 $10 72.65 29.29 5.67
16 Yes $0.109 $20 126.53 70.75 19.43
1Zero price of carbon offset means that farms do not take part in carbon offset market.
2Bold refers to the real situations of three hog farms.
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(5) If the electricity price is $0.068 per kWh and with government subsidy for the methane digester systems, all the NPVs of three farms are negative in the case of no carbon offset market or the carbon price of $1 per ton.
(6) If the electricity price is $0.068 per kWh and with government subsidy for the methane digester systems, all the NPVs of farms A, B and C are positive when the carbon price is $10 per ton, and they are more profitable when the carbon price is $20 per ton.
(7) If the electricity price is $0.109 per kWh and with government subsidy for the methane digester systems, only the NPV of farm A is positive in the case of no carbon offset market or the carbon price of $1 per ton.
(8) If the electricity price is $0.109 per kWh and with government subsidy for the methane digester systems, all the NPVs of farms A, B and C are positive when the carbon price is $10 per ton, and are more profitable when the carbon price is
$20 per ton.
4. Discussion and conclusion
Three different sizes of hog farms were selected to analyze the carbon emission reduction and the costbenefit of three methane digester systems in this paper. The results show that the methane digester systems have a significant effect on carbon emission reduction.
However, due to their limited profitability, it is difficult to operate the system sustainably.
Although the current subsidy from the government is about one-third of the total investment in fixed assets, the motivation for hog farms to adopt the system is still low.
Since the revenue from the electricity generated is the current realistic revenue, the effect of electricity price on the project profitability is particularly evident. However, even with the government subsidy and the renewable energy price, the methane digester of hog farms is still difficult to be profitable. Although methane production generated by hogs are approximately 20% more per unit of manure than dairy (Anderson, Hilborn and Weersink2013), this result is similar to the conclusions of Lazarus and Rudstrom (2007), Stokes, Rajagopalan, and Stefanou (2008), Bishop and Shumway (2009) and DeVuystet al. (2011), which focused on dairy farms.
If the carbon emission reduction can be traded in the carbon offset markets at a high enough price, for instance, at $20 per ton, then the system will be profitable, and thus can be sustainable. Key and Sneeringer (2011) and Bishop and Shumway (2009) have reported similar results at $13 and $20.48 per ton, respectively. So far, with the exception of quite a few large-scale hog farms which have made contracts with foreign companies or organizations as CDM programs, most of the hog farms with methane digesters could not access the international carbon offset markets. However, China’s newly established domestic carbon offset market can provide that possibility. More government support is needed for market development.
There are obvious scale economies in the methane digesters. The larger hog farms are more profitable methane digesters due to their larger output of methane. Even at the renewable electricity price of $0.109 per kWh and with government subsidy for the methane digester systems, only the NPV of farm A, which is the largest one of the three farms, is positive in the case of the carbon price of $1 per ton. This is similar to the results of Leuer, Hyde and Richard (2008), which concluded that the methane digester is profitable only for very large farms (1,000C cows) that use the separated solids as bedding material.
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For small-scale farms, the construction of centralized digesters (collectively or by a contractor) will be a good option (Key and Sneeringer 2011). Farms B and C are comparatively small-scale operations and their methane slurry is used in their own agricultural crop production. However, as National Livestock Pollution Prevention
“Twelfth Five Year Plan” (MEP and MA2012) and Yeet al. (2012) pointed out, if the methane slurry is used in agricultural crop production, there are many technical problems, such as pathogens, antibiotics and heavy metals, which need to be resolved in the long term.
With the need for environmental pollution control in Taihu Lake, the adoption of methane digesters in many livestock farms located near the Taihu Lake Basin was requested by local authorities. This is a non-market behavior driven by regulatory response. If the profitability of methane digesters cannot be fundamentally improved, it will be difficult to eliminate the illegal discharge of wastewater and other environmental violations from some livestock farms in the region.
Acknowledgements
The authors thank the anonymous reviewers for their constructive comments and suggestions. Any remaining errors are the authors.
Disclosure statement
No potential conflict of interest was reported by the authors.
Funding
This work was supported by Shanghai Pujiang Program.
Notes
1. For the large-scale farms, the scale of hog farm must be over 500 head, dairy cattle over 100 head, beef cattle over 100 head, layer over 10,000 head and broiler over 50,000 head.
2. The exchange rates are $1.35/€issued by Federal Reserve System on 1 November 2013, and 6.17 RMB/$ issued by China Bank on 3 September 2013.
3. According to ‘Pilot scheme of renewable energy prices and cost sharing management’ (NDRC 2006), the renewable energy is the current retail price plus $0.041 per kWh.
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Appendix 1. The model of physical leakage of biogas in the project
PEPL;yD0:10£GWPCH4£DCH4£X B0
£ðNbreed;y£VSbreed;yCNmarket;y£VSmarket;yÞ£MS%j;y
Donget al. (2013) specify a default value of 10% of the maximum methane-producing potential for the physical leakages from anaerobic digesters.
Table A1 The value of physical leakage of biogas in the project.
Variable Unit Description Data input Source
PEPL,y tCO2e/year Emissions due to physical leakage of biogas in year y GWPCH4 tCO2e/tCH4 Global warming potential
(GWP) of CH4 applicable to the crediting period
21 2006 IPCC guideline. Dong et al. (2013)
DCH4 ton/m3 CH4 density at room temperature (20C) and 1 atm pressure
0.00067 2006 IPCC guideline. Dong et al. (2013)
B0 m3CH4/kg dm Maximum methane- producing potential of the volatile solid generated
0.29 Referenced the Asia region of 2006 IPCC guideline.
Donget al. (2013)
Nbreed,y head Annual average number of
breeding swine
SeeTable 1
Nmarket,y head Annual average number of
market swine
SeeTable 1 VSbreed,y kg dm/head/year Volatile solids production/
excretion per breeding swine in yeary(on a dry matter weight basis)
293.3 Calculated according to 2006 IPCC guideline default.
VSmarket,y kg dm/head/year Volatile solids production/
excretion per market swine in yeary(on a dry matter weight basis)
136.87 Calculated according to 2006 IPCC guideline default.
MS%Bl,j % Fraction of manure handled
in baseline animal manure management systemj
100 Assuming 100% processing as assumptions of the boundary of the base line
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Appendix 2. The model of project emissions from electricity consumption PEpower;yDQCH4;y£FEC;default£EFEL;default
Table A2 The value of project emissions from electricity consumption.
Variable Data input
farm Unit Description A B C Source
PEpower,y tCO2e/year Project emissions from electricity consumption associated with the anaerobic digester
QCH4,y tCH4 Quantity of methane
produced in the anaerobic digester in yeary
440.19 215.20 78.26 Field survey
FEC,default MWh/tCH4 Default factor for the electricity consumption associated with the anaerobic digester per ton of methane generated
1.02 1.02 1.02 AMS III.D.
Ver.19
EFEL,default tCO2/MWh Default emission factor for the electricity consumed in yeary
0.76125 0.76125 0.76125 NDRC (2006)
Appendix 3. The model of project emissions on account of manure storage Equation (8) of CDM, AMS-III.D.ver 19.0 was modified to yield the following equation:
PEstorage;yD
(
0ðif AI24 hoursÞ GWPCH4£DCH4£365AIl£XAI
dD1
ðNbreed;y£VSbreed;dCNmarket;y£VSmarket;dÞ£MS%l
£ð1¡e¡kðAIlÞÞ£MCF£B0
ðif 24 hours<AIl45 daysÞ 2
66 4
3 77 5
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Table A3 The value of project emissions due to manure storage.
Variable Unit Description Data input Source
PEstorage,y tCO2e/year Project emissions on account of manure storage in yeary AIl days Annual average interval
between manure collection and delivery for treatment at a given storage devicel
20 According to the assumption of AMS- III. D.ver.19
GWPCH4 tCO2e/tCH4 Global warming potential (GWP) of CH4
applicable to the crediting period
21 2006 IPCC guideline.
Donget al. (2013)
DCH4 ton/m3 CH4density at room temperature (20C) and 1 atm pressure
0.00067 2006 IPCC guideline.
Donget al. (2013)
Nbreed,y Head Annual average number of
breeding swine
Table 1 VSbreed,d kg dm/head/day Volatile solids production/
excretion per breeding swine in dayy(on a dry matter weight basis)
0.804 Calculated according to 2006 IPCC guideline default.
Nmarket,y head Annual average number of
market swine
Table 1 VSmarket,d kg dm/head/day Volatile solids production/
excretion per market swine in day y (on a dry matter weight basis)
0.375 Calculated according to 2006 IPCC guideline default.
MS%Bl,j % Fraction of manure
handled in baseline animal manure management systemj
100 Assuming 100%
processing as assumptions of the boundary of the base line
K Degradation rate constant 0.069 Accourding to the
assumption of AMS- III. D.ver.19
MCFl Annual methane
conversion factor for the project manure storage devicel
0.27 Calculated from the 2006 IPCC guidelines of Donget al. (2013) and the average
temperature of Jintan B0 m3CH4/kg dm Maximum methane-
producing potential of the volatile solid generated
0.29 Referenced the Asia region of IPCC guideline. Donget al.
(2013)
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