Study Shows Direct Regulation of Dairy Sector Harms Economy and Climate Priorities

A new report titled Economic Analysis Of California Dairy Consolidation, Attrition, and Policy Leakage found that direct regulation of the California dairy sector would reverse the progress the industry has made in emission reduction efforts, negatively impacting the targeted 40% reduction in methane sought by 2016 Senate Bill 1383. The analysis is timely as the state considers changes to the Low Carbon Fuel Standard (LCFS) program. A separate analysis found that the state’s dairy sector is one of the only industries on track to achieving its goal 40% reduction by the 2030 deadline.   

The data driven economic analysis, conducted by ERA Economics, looks at California dairy sector trends, market conditions, consolidation, and attrition, as well as the potential impacts of direct regulation of dairy methane emissions in the state.  

This analysis found that direct regulation would likely expedite the loss of small dairy farms, leading to further consolidation to large dairies and attrition as dairies leave the state. Emissions leakage of up to 1.43 MMTCO2e annually is estimated to result as milk production shifts out of the state. The analysis also found that abandoned digester projects would cause an annual additional loss of 2.44-3.51 MMTCO2e emission reduction. 

California is the leading dairy producing state with more than 1.6 million cows producing almost 42 billion pounds of raw milk, accounting for nearly one-fifth of total U.S. supply. Operating in one of the most environmentally progressive states, the states’ farms are committed to greenhouse gas emission reductions that far exceed requirements in other states. Development of anaerobic digesters, incentivized by revenue generated through LCFS credits, has been the most effective method to reduce methane from California dairies. Without LCFS credits, digesters are not financially viable and could be abandoned, resulting in an estimated non-recoupable loss of $58.5 million in state grant dollars and $200 million in private equity.  

Specific findings of the analysis include:

  • Small dairy operations would be impacted disproportionately by any increased regulation. 

  • Statistical tests found no evidence that adoption of dairy digesters are causing consolidation to larger dairies. Consolidation is driven by other factors. 

  • Eliminating LCFS credits and directly regulating methane emissions would cause $675 million in direct annual net losses to California dairies; not including multiple impacts to local communities or other businesses. 

  • Significant emissions leakage of 1.43 MMTCO2e annually as milk production shifts to other states. 

  • Abandoned digester projects would result in loss of an additional 2.44 to 3.51 MMTCO2e annually.

“Leading scientists recognize global methane emissions are accelerating when they desperately need to be reduced. While more than 150 governments have pledged to reduce methane 30% by 2030, few are living up to their commitment. California and the dairy sector have been one of the few bright spots,” said Dr. McCullough, a lead author of the report. "A change in course would most likely undermine our climate and critical methane reduction goals in addition to harming our economy and makes zero sense."

This report was conducted by ERA Economics for the California Cattle Council.

About the California Cattle Council: Established in 2019, California Cattle Council is an instrumentality of the California Department of Food and Agriculture (CDFA). The Council supports the sustainability of the state’s farming and ranching operations through research and education. The Council board members are appointed by the Secretary of CDFA.

About ERA Economics: Founded in 2013, ERA Economics develops data-driven economic analysis to inform business and policy decisions. With specialized expertise in California environmental, resource, and agriculture-related issues, the Davis-based firm applies economic theory and econometrics to comprehensive data, enabling informed decisions that impact the future of food production.