Environmental advocates argue that California’s Low Carbon Fuel Standard (LCFS) is expanding
U.S. dairy herds by paying farmers to capture manure methane, while regulators dismiss
these concerns as speculative. We exploit the historical placement of natural gas facilities relative
to dairy farms and historical LCFS credit prices to examine the impact of the policy on
county milk-cow inventories from 2012 to 2025. We find that a 10 percent increase in the
credit revenue per unit of biogas raises herd sizes by approximately 1.2 percent for complier
counties. The estimate is robust to excluding California. National herd inventories have held
steady between 9.3 and 9.5 million head since 2018, suggesting the policy reallocated dairy
cow locations rather than expanding aggregate herd sizes.
