Biodigester Development in Saskatchewan: an Institutional Analysis

Abstract

Biodigesters are a technology that has been applied in equatorial and temperate regions of the world for manure management and energy production. A positive externality is created from the use of biodigesters when volatile gasses that would otherwise enter the atmosphere as greenhouse gasses are captured. The capture of greenhouse gasses suggests that biodigesters are a potential technology for earning greenhouse gas credits given the existence of a carbon credit trading market involving the exchange of emission permits analogous to that of any other commodity. Complexity and expense of adapting biodigesters for the Saskatchewan climate makes financing or use of such developments problematic. This thesis uses new institutional economics to determine the least transaction cost governance form to encourage investment in biodigesters. What distinguishes this thesis from previous transaction cost economics analysis is that biodigesters involve more than one transaction occurring simultaneously. Despite a thorough review of the economics literature, no other examples involving multiple transactions was found. The research conducted in this thesis suggests that no one form of governance is superior in mitigating all possible incentives for opportunism in this case. Parties to an agreement must evaluate which potential costs are worth bearing to encourage investments in biodigesters in Saskatchewan. This research does however indicate that the organizational form offers the fewest incentives for opportunistic behavior is one in which the Hog Bam and a biodigester are owned as a joint venture between a hog bam management firm and the electricity generator.