The back end of a cow generates 80 pounds each day of what Dennis Haubenschild, who owns 750 of them near Princeton, refers to as a "non-depletable renewable resource."

Now, technology and policy are aligning for farmers to take advantage of all that manure in a surprising way — by turning it into gas that can fuel vehicles.

Haubenschild was among the first dairy farmers in the state to experiment with biogas production, and he uses manure-turned-gas to generate heat on his farm. But climate change policies in California and Oregon have created a different, national market for the gas that comes from livestock manure.

Farmers who capture the methane, a greenhouse gas more immediately potent than carbon dioxide, can earn lucrative low-carbon credits. Dairies across the country, especially large ones, are investigating the prospect. "It's the new gold rush," Haubenschild said.

Two large dairies in northwest Indiana are already certified for credits in California. Three Wisconsin dairies are producing biogas for transportation fuel and three more projects there are under construction, according to the Coalition for Renewable Natural Gas.

In Minnesota, Riverview LLP, the company with an archipelago of massive dairies near Morris, aims to become the state's first dairy to produce gas from cow manure for transportation fuel and low-carbon credits.

Environmentalists and climate activists are watching the development with caution. While they are eager to see any industry reduce greenhouse gas emissions, some worry that government incentives prodding farmers to produce biomethane will reward only very large operations.

At the moment, methane emissions from large dairies are under heightened scrutiny in Minnesota.

Plans for a 3,000-cow expansion at Daley Farms, near Lewiston, Minn., were halted by the Minnesota Court of Appeals in October when judges ordered the Minnesota Pollution Control Agency to publish a greenhouse gas emissions estimate for the expansion and opened the dairy's plans for more public comment.

How it works

Dairies that want to turn some of those emissions into fuel, and revenue, must pump their manure into an airtight chamber called an anaerobic digester.

In the digester, a mixture of methane and carbon dioxide bubbles up in gaseous form in a matter of weeks.

"I look at it as a great big stomach, a living thing," said Haubenschild, who built a digester in the late 1990s.

Haubenschild carefully regulates the temperature of the digester and "feeds" it at the same times every day, in the same quantities.

Once the raw gas is collected from the digester, carbon dioxide and other impurities can be filtered out in what's called an upgrade plant. That makes the gas close to the quality of conventional natural gas so it can be injected into an interstate gas pipeline and purchased in other parts of the country.

Given the global warming potency of methane, and the California Air Resources Board's 2017 estimate that open lagoons at dairies accounted for 25% of the state's methane emissions, regulators there decided to incentivize livestock farmers to capture the gas by crediting them for methane that doesn't escape into the atmosphere.

As a result, gas produced from manure receives a better carbon intensity score from the state of California than any other renewable fuel.

How credits make money

Biomethane from cow manure can be used to generate electricity, but it's not cost-effective.

Instead, the carbon credit systems in California and Oregon reward methane that's captured and directed at the niche market of natural gas-fueled vehicles.

Fuel producers in those states, such as refiners, must meet annual targets for greenhouse gas emission reduction. If they don't, they can purchase low-carbon credits to help them meet the target.

Once gas from a certified dairy digester enters the national pipeline system, buyers in California and Oregon can compress the gas for transportation fuel. When the gas is purchased as fuel for a vehicle, the dairy that produced the gas qualifies for credits it can sell to fuel producers, like refiners, who need them.

Credits for gas from dairy cow manure that is used to fuel a vehicle in California are trading for about $68 per dekatherm in that state, according to data compiled by Peter Weisberg, the Portland, Ore.-based director of product development at 3Degrees, a consultancy that helps businesses use renewable energy.

Every operation is different, but the Fair Oaks dairy in northwest Indiana can produce 221,000 dekatherms of pipeline-ready gas each year from the manure of 10,500 cows, according to a 2017 study from Argonne National Laboratory. That would yield $15 million in revenue at current credit prices in California.

Production costs for dairy digester biogas range roughly from $15 to $30 per dekatherm, Weisberg said.

That's well above the spot market price for natural gas that comes from the ground, which has fluctuated between $2 and $4 per dekatherm this winter. But, Weisberg said, as long as the credit market for biogas in California doesn't collapse from a shift in policy, biogas offers "a lot of additional return that you can get by investing in those projects."

The opportunity, for now, makes the most sense for large dairies.

Tarah Heinzen, an attorney at Food & Water Watch, said her group and others signed a letter last year to Oregon regulators opposing a permit for a large dairy to sell biomethane in part because the process doesn't scale downward. "We're not only entrenching the factory farm model, which we think is inherently unsustainable, but we could also incentivize expansion of the industry," Heinzen said.

Scale matters

The biogas operation Riverview is planning in western Minnesota will be larger than the Fair Oaks project.

AMP Americas, the firm that helped develop the projects in Indiana, will build pipelines connecting three Riverview dairies and an upgrade plant to clean the gas of impurities and carbon dioxide before it's injected into an interstate pipeline.

Martin Gilkes, the company's chief operating officer, said the project should go online in the third quarter of 2020. It's projected to produce 365,000 dekatherms of gas per year.

"Riverview will be our largest project to date and will be a material increase in the size of our portfolio," Gilkes said. "This is a big deal, and we're pretty excited about partnering with this farmer."

Brad Fehr, one of Riverview's founders, said he doesn't want to say much until it is up and running.

"We're cautiously optimistic, but today there's nothing to see," he said. "We are excited about the industry and we're curious about where it's going to lead."

There's reason for caution. Riverview has digesters that were used to produce electricity to sell into the grid, but they sit idle now and will stay that way until the AMP Americas project is complete. And several digesters have been built in Minnesota over the past 20 years that don't generate much, if any, financial return.

But the end market for Riverview's project — low-carbon credits in states with low-carbon fuel standards — is new, and farmers are taking notice.

Haubenschild, who runs the 750-cow dairy near Princeton, said for now he can produce only enough biomethane to heat his digester through the year.

Figuring out how to keep the digester warm while producing enough gas to sell as renewable fuel will be a challenge, he said, as will purifying the gas to qualify for carbon credits. "We're just investigating all that right now," he said.

Adam Belz • 612-673-4405 Twitter: @adambelz