Carbon Credits in U.S. Dairy: Past, Present, and Future

Scope

This article reviews what peer-reviewed research and government and industry sources report on carbon credits and environmental impact in U.S. dairy. It covers how the topic emerged, where measurement, markets, policy, and participation stand, and what the evidence indicates ahead. It does not advocate a strategy or outcome. Values are presented as reported by their sources.

Part 1: The Past

For most of the twentieth century, U.S. dairy’s environmental performance was implicit rather than measured. Gains in genetics, nutrition, and management raised productivity, and explicit accounting of the sector’s greenhouse gas (GHG) footprint followed as life-cycle assessment matured in the 2000s. Thoma et al. (2013) place the U.S. dairy sector at 1.9% of national GHG emissions, and Dillon et al. (2021) place livestock as a whole at 4%, excluding feed production and fuel use. Capper, Cady, and Bauman (2009) compared 1944 and 2007 and report the carbon footprint per unit of milk in 2007 at 37% of its 1944 level, with more total milk from fewer cows and less feed, land, and water per unit. Rotz et al. (2024) report a 42% decrease in GHG emission intensity per unit of milk between 1971 and 2020. Emission intensity is the quantity of GHG emitted per unit of product, such as CO₂e per kilogram of milk. Absolute emissions are the sector total. Intensity can fall while absolute emissions rise if output grows faster than intensity declines.

The demand for farm-level emissions accounting came from beyond the farm gate. Most of a processor’s footprint lies in its supply chain, so food companies and retailers with climate targets requested supplier emissions data (Ming et al., 2026). In 2020 the Innovation Center for U.S. Dairy announced the Net Zero Initiative, a sector goal of GHG neutrality by 2050, alongside the U.S. Dairy Stewardship Commitment (Innovation Center for U.S. Dairy, 2023). In the early 2020s, voluntary carbon markets, renewable natural gas (RNG) credit programs, and insetting platforms were presented as ways to convert practices into income, and the Growing Climate Solutions Act, enacted in December 2022, authorized USDA to establish a voluntary program certifying technical-assistance providers and third-party verifiers for farmers entering carbon markets (Growing Climate Solutions Act, 2022). Participation did not become widespread, as Part Two shows.

Part 2: The Present

Emissions along the supply chain

Thoma et al. (2013) estimate 2.05 kg of carbon-dioxide equivalent (CO₂e) for each kilogram of U.S. milk consumed, and report that 72% of that total is accrued by the dairy farm gate, in milk production and feed production. The remainder occurs in processing, distribution, retail, and consumer use. The largest on-farm sources are methane from enteric fermentation and manure and nitrous oxide from soils; feed production adds nitrous oxide from fertilizer and carbon dioxide from fuel.

Corporate reporting organizes these emissions into three scopes defined by the Greenhouse Gas Protocol (WRI & WBCSD, 2011). Scope 1 covers direct emissions from sources a company owns or controls: fuel combustion, manure storage, enteric fermentation in its own herd, vehicles. Scope 2 covers purchased electricity, heat, steam, and cooling. Scope 3 covers all other emissions across the value chain, including purchased feed, transportation, packaging, and distribution. For a dairy processor, the emissions of its supplying farms fall under Scope 3. Scope 3 dominates a processor’s footprint and is the category the processor can least control, because those emissions occur on farms it does not own (Ming et al., 2026).

Measurement and the methane metric

Methane has an atmospheric lifetime of 12.4 years, against 121 years for nitrous oxide and centuries for carbon dioxide (Myhre et al., 2013). The standard metric, 100-year global warming potential (GWP₁₀₀), is defined by the IPCC (Myhre et al., 2013) and underlies national inventories and Paris Agreement reporting. Cain et al. (2019) and Lynch et al. (2020) proposed GWP*, which relates changes in short-lived gas emission rates to warming, and Thompson et al. (2025) apply it to U.S. beef and dairy. Its use in targets is contested. Rogelj and Schleussner (2019) show that applying GWP* at the country or sector level rewards those with high historical methane emissions and penalizes those expanding from a low base, and they argue for restricting it to global-level use. The metric chosen determines whether a herd appears to add to or hold steady on warming, and Thompson et al. (2025) conclude that the ability to achieve climate neutrality depends on that choice.

Several tools estimate farm-level footprints. The Cool Farm Tool aligns with the International Dairy Federation’s dairy methodology (Cool Farm Alliance, n.d.). The National Dairy FARM Environmental Stewardship program is built on the Ruminant Farm Systems model (National Dairy FARM Program, 2024). The Professional Dairy Producers (PDP) Your Farm, Your Footprint initiative, a Wisconsin-based, producer-led program, combines recognized tools to generate confidential baseline footprints, credits existing practices, and returns results to the producer without public disclosure; PDP treats the baseline as the starting point for decisions about practices, premiums, or market participation (Professional Dairy Producers, 2025). Results across tools are not directly comparable, because system boundaries, allocation between milk and meat, and emission factors differ (McClelland et al., 2018).

Carbon markets and credit quality

Carbon markets divide into compliance markets, created by government mandate, and voluntary markets, driven by corporate goals. U.S. compliance examples include California’s cap-and-trade program and Low Carbon Fuel Standard (LCFS). U.S. agriculture is not a capped sector. Farms enter compliance markets only as suppliers of credits, for example RNG sold into the LCFS; otherwise farm participation runs through voluntary markets. Offsetting funds reductions outside a buyer’s supply chain; insetting funds them within it. When a farm sells an offset, the environmental claim transfers to the buyer, so the milk cannot also be marketed as low-emission. Insetting avoids that transfer but raises double-counting questions (Bipartisan Policy Center, 2025). Credit credibility rests on five tests:

• Additionality: the reduction would not have occurred without the credit; hard to establish for practices that raise profit.
• Permanence: stored carbon remains stored; contested for soil carbon (Dynarski et al., 2020).
• Leakage: a reduction in one place does not cause an increase elsewhere.
• MMRV: measurement, monitoring, reporting, and verification; its cost weighs against payments, and low compensation is the most-cited reason producers decline participation (Farm Journal, 2026).
• Metric: the warming-potential convention applied, per the methane discussion above.

Federal policy support

• USDA conservation cost-share. The Environmental Quality Incentives Program (EQIP) and Conservation Stewardship Program (CSP) pay up to 75% of the cost of eligible practices, and up to 90% for beginning and historically underserved producers (7 C.F.R. § 1466.23).
• Section 45Z Clean Fuel Production Credit. Enacted in the Inflation Reduction Act, 45Z is paid to fuel producers, ties credit value to a fuel’s carbon-intensity score, and was extended through 2029 by Public Law 119-21 in July 2025 (Congressional Research Service, 2025).
• Program stacking. USDA climate-smart pilot guidance has prohibited selling carbon credits on the same acres while not restricting EQIP or CSP participation; combinations follow specific rules (Center for Agricultural Law and Taxation, 2024).

The USDA Regenerative Feedstock Rule

On June 25, 2026, USDA announced the final Regenerative Feedstock Rule, published in the Federal Register on June 29, 2026, and effective July 29, 2026, after review of 114 comments on the January 2025 interim rule (USDA, 2026; Federal Register, 2026). The rule connects regenerative practices to biofuel-feedstock markets for corn, soybeans, sorghum, and spring canola. It bears on dairy because feed grains are a component of dairy feed and therefore of Scope 3 feed-production emissions, and because it is a federal mechanism that converts on-farm practices into market value. The USDA Feedstock Carbon Intensity Calculator (FD-CIC) quantifies carbon intensity (CI) in grams of CO₂e per bushel; its soil carbon and nitrous oxide estimates rest on the DAYCENT ecosystem model (USDA, n.d.).

The final rule changed nutrient management from optional practice checkboxes to required quantitative inputs: every participant enters nitrogen applied, actual yield, and expected yield, so nitrogen-use efficiency contributes to each CI score. It added nitrification inhibitors and manure as recognized practices; manure entries require type, rate, and tested nitrogen content. It retains no-till, reduced tillage, and cover crops, and replaces the Soil Tillage Intensity Rating with the Tillage Disturbance Index for Soil Carbon (T-DISC) (Federal Register, 2026). USDA reports that feedstock production accounts for more than half of the direct GHG emissions of corn ethanol and nearly half for soybean biodiesel, that 68% of corn farmers and 70% of soybean farmers use at least one regenerative practice, and that its Regenerative Pilot Program, which delivers $700 million through EQIP and CSP rather than as a separate program, completed more than 67,000 whole-farm conservation plans on more than 49 million acres (USDA, 2026).

Feature	As stated in the final rule
Covered crops	Corn, soybeans, sorghum, spring canola
Metric	Carbon intensity, in grams of CO₂e per bushel
Recognized practices	No-till and reduced tillage; cover crops; nitrogen-use efficiency; nitrification inhibitors; manure; individually or in combination
Chain of custody	Mass balance; the physical crop moves into the biofuel supply chain, not a book-and-claim system
Verification	Third-party auditing; Biofuel Feedstock Report with Farm Producer Attestation; five years of records
Relationship to 45Z	Documents practices for the CI score; fuel producers claim the credit; Department of Energy and Treasury steps pending as of mid-2026
Offset status	USDA states the guidelines are not a carbon-offset protocol and do not apply to credit or offset programs

USDA received comments favoring a book-and-claim approach but retained mass balance, so a producer must deliver the physical crop into the biofuel supply chain to participate (Federal Register, 2026). Treasury has stated that additional 45Z credit for climate-smart feedstocks becomes available once it proposes regulations and the 45ZCF-GREET model incorporates the practices (Center for Agricultural Law and Taxation, 2025). Per-acre value estimates in trade coverage are analyst calculations, not figures established by the rule, and are not reported here.

Mitigation options

Enteric methane

The feed additive 3-nitrooxypropanol (3-NOP, Bovaer) reduces enteric methane by 25 to 30% in confined lactating cows; the U.S. Food and Drug Administration completed its review in 2024 (Hristov, 2024; Hristov et al., 2022). Efficacy varies with diet and falls as dietary fiber rises. Over a full lactation and dry period, van Gastelen et al. (2024) report reductions of 21% in methane production and 20% in methane yield, an efficacy that declined over time but not continuously, and a 6.5% increase in energy-corrected milk. Long-term effects require further study (Hristov, 2024).

Manure and anaerobic digestion

Digesters capture manure methane for energy or RNG. EPA AgSTAR counted 400 operating livestock digesters as of June 2024, 343 of them on dairy farms, with 73 more under construction or being modified to produce RNG; June 2024 is the most recent count EPA has published (U.S. EPA, 2024a). Cap-and-trade and LCFS credits have aided digester economics in California, and 92% of state-funded projects there upgrade biogas to RNG, driven by LCFS and Renewable Fuel Standard credits (El Mashad et al., 2023). Digestion does not reduce manure nitrogen or phosphorus; it changes nitrogen’s form, with consequences for water quality (Public Service Commission of Wisconsin, 2022).

Soil carbon

Cover crops, reduced tillage, and manure application raise soil organic carbon, but gains saturate, reverse if practices stop, vary by site, and are costly to measure (Dynarski et al., 2020).

Plant and beyond

Energy-efficiency upgrades, renewable energy, lower-impact refrigerants, and logistics and packaging changes address the emissions that occur after milk leaves the farm (Milani et al., 2011; Ming et al., 2026).

Production efficiency

Higher output per cow and per unit of input lowers emissions per unit of milk, because maintenance requirements spread across more product (Capper et al., 2009; NASEM, 2021). This is one consideration among the above; it does not determine absolute emissions, which depend on total production.

Adoption and commitments

Farm Journal’s 2026 State of the Dairy Industry report, a survey of 242 producers with herds above 100 head, found 19% participating in a carbon-credit program, with low compensation the most-cited reason for staying out, surpassing low awareness. It reports 55% of operators practicing sustainability measures, weighted toward measures that drive efficiency rather than credits. Among the practices it lists, water recycling systems are in use on 29% of operations, feed additives for efficiency or methane on 21%, renewable energy on 14%, and anaerobic digesters on 12%. Carbon-program participation fell one point from the 2025 survey and feed-additive use fell seven points (Farm Journal, 2026). Among the top 100 U.S. dairy processors, 42 have pledged net zero by 2050, 25 have intermediate targets covering all three scopes, and 22 of those hold Science Based Targets initiative validation; variation in baseline years, target years, and metrics complicates comparison (Ming et al., 2026).

State variation

In 2025, California, Wisconsin, Idaho, Texas, and New York produced 126.6 billion of the 232 billion pounds of U.S. milk, 55% of the total (USDA NASS, 2026). Policy environments differ. California pairs a mandate with a market: Senate Bill 1383 requires a 40% reduction in dairy and livestock methane below 2013 levels by 2030, and the LCFS creates RNG revenue (California Air Resources Board, 2022; El Mashad et al., 2023). Wisconsin follows a voluntary, producer-led pattern, with Department of Agriculture, Trade and Consumer Protection programs supporting producer-led watershed groups and on-farm nitrogen research (DATCP, 2024); the state’s first centralized digester, in Dane County, was built primarily to remove phosphorus from the watershed rather than for energy revenue (U.S. EPA, 2024b). The PDP Your Farm, Your Footprint program reflects this voluntary pattern at the farm level. Idaho, without an in-state compliance market, reaches carbon revenue through RNG and credits sold into California’s LCFS and through corporate inset programs (Hand et al., 2024).

Part 3: The Future

Beauchemin et al. (2025) conclude that net zero in dairy production would require a reduction in enteric methane above 50%, near-elimination of feed-production emissions, added carbon sequestration, reduced manure emissions, anaerobic digestion, and lower fossil-fuel use. Some non-CO₂ agricultural emissions can be reduced only in part by mid-century, which leaves a role for offsets or removals. Whether climate neutrality is achievable depends on the metric chosen (Thompson et al., 2025).

The durability of current incentives is uncertain. Realized 45Z value depends on Department of Energy and Treasury action, and survey evidence ties future participation to whether compensation covers measurement and implementation costs; 34% of surveyed producers plan to join a program within three to five years and 31% have no plan to join (Farm Journal, 2026). A liquid market requires carbon outcomes to be measured, verified, and traded on standardized terms within a reliable framework. Dairy carbon instruments do not yet meet that condition, which limits their value and comparability against established commodities. The CME Class III and Class IV futures and options contracts described in Dairy Price Risk Management Tools: An Overview for Wisconsin Producers are the standard those instruments are measured against.

Open questions:

• Methane accounting: which metric best represents dairy methane in targets (Lynch et al., 2020; Rogelj & Schleussner, 2019).
• Additive efficacy: persistence of 3-NOP across lactations, diets, and systems (Hristov, 2024; van Gastelen et al., 2024).
• Soil carbon: durability, measurability, and additionality of gains (Dynarski et al., 2020).
• Value versus cost: whether payments cover measurement and implementation (Farm Journal, 2026).
• Policy durability: stability of 45Z and the LCFS; pending federal steps; mass balance versus book-and-claim (Congressional Research Service, 2025; Federal Register, 2026).
• Absolute versus intensity: intensity gains do not determine absolute emissions (Rotz et al., 2024).

These uncertainties make quantitative claims sensitive to assumptions. Figures from any source should be read with their stated methods, boundaries, and dates.

Glossary

Additionality. A credited reduction that would not have occurred without the credit.

Carbon intensity (CI). CO₂e emissions per unit of product, such as per bushel.

CO₂e. Carbon-dioxide equivalent; converts gases to a common warming basis under a chosen metric.

Emission intensity. GHG emissions per unit of product, such as CO₂e per kilogram of milk; distinct from absolute emissions, the total regardless of output.

GWP₁₀₀. 100-year global warming potential; the standard IPCC metric.

GWP*. A metric relating changes in short-lived gas emission rates to warming; its use in targets is debated.

Insetting. Funding or claiming reductions within one’s own supply chain.

LCFS. Low Carbon Fuel Standard; California’s program creating revenue for low-carbon transportation fuels, including dairy RNG.

Mass balance. Chain of custody in which the physical crop moves with its practice data; book-and-claim separates the two.

MMRV. Measurement, monitoring, reporting, and verification.

Offsetting. Funding reductions outside one’s own supply chain and claiming the credit.

RNG. Renewable natural gas; upgraded biogas suitable for pipeline use.

Scope 1. Direct emissions from sources a company owns or controls.

Scope 2. Indirect emissions from purchased electricity, heat, steam, or cooling.

Scope 3. All other value-chain emissions. A processor’s supplying farms fall here.

Section 45Z. Clean Fuel Production Credit; a federal tax credit to low-carbon-intensity fuel producers, 2025 through 2029.

T-DISC. Tillage Disturbance Index for Soil Carbon; the tillage input to USDA FD-CIC.

USDA FD-CIC. USDA Feedstock Carbon Intensity Calculator; per-bushel CI reflecting practices applied.

3-NOP (Bovaer). A feed additive inhibiting enteric methane; FDA review completed 2024.