INVESTMENT VALUATION OF GREEN TECHNOLOGY ACCOUNTING FOR SCALE EFFECTS, SCOPE EFFECTS, AND EXTERNALITIES AN APPLICATION TO ANAEROBIC DIGESTER SYSTEMS

Abstract

As of 2015, anaerobic digesters (ADs) operate on nearly 250 farms in the US. There has been sustained interest from both environmental regulators and livestock associations to expand the use of AD technology. In the first chapter, we examine the economic feasibility of AD systems with nutrient recovery. The two technology groups interconnect through methane and nutrient utilization which we model structurally to examine economies of scope. We conclude that AD setups without codigestion are only economically feasible under a limited set of conditions, but codigestion may contribute to nutrient over-application. Nutrient separation leads to decreases in scenario net present value (NPV), but with the right policies, dairy owners may be willing to adopt AD with nutrient separation which would mitigate nutrient concerns. In the second chapter, we modify the real options approach (ROA) to investment valuation by introducing learning spillover effects. Investment values calculated using ROA include the value of waiting for more information, in contrast to NPV. When learning spillovers are present, the value of waiting increases because firms that wait learn from firms that invest. Using recent US AD survey data, we find there is substantial value in waiting to invest – on average $35 to$74 per head compared to a NPV of $287 per head. Because learning spillovers reduce the waiting value for later adopters, information sharing requirements for early adopters should be a requirement in programs with goals of widespread adoption. In the third chapter, we examine the economies of scope that derive from manure use as fertilizer for crops and their effects on marginal cost of milk production. We compare results for firms that use all manure on farm (non-exporters) and firms that send manure off farm (exporters). We find non-exporters to be smaller dairies compared to exporters, that non-exporters face higher marginal cost, and that the effects of prices for feed, fertilizer, energy, and labor drive marginal cost differences. If nutrient recovery technology adoption caused a shift towards the production characteristics of manure exporters, a 5.2 percent reduction in marginal cost would lead to an increase of 0.2 percent in milk demand