Grazing livestock—especially cattle—are responsible for about 5 percent of global greenhouse gas emissions, measured by their warming effect over 100 years. Methane may only linger in the atmosphere for 10 to 12 years, but its heat-trapping power is massive. The US Environmental Protection Agency estimated in 2023 that every metric ton of methane causes $1,600 in social damages—more than eight times the impact of a ton of CO₂. Each cow releases between 150 and 250 pounds of methane annually (roughly equal to 0.63-1.05 tons of CO₂), costing society about $120 to $210 per animal per year. These enteric methane emissions contribute twice as much to climate change as aviation—but get a fraction of the attention.
Advances in agricultural productivity have significantly reduced emissions per animal. Between 1924 and 2014, emissions per kilogram of milk dropped by 55 percent, thanks to better herd health (sick cows produce methane, not milk) and faster economic production. But as global demand for beef and dairy continues to rise, the gains in cattle productivity are being overshadowed. As a result, emissions are projected to increase between 2024 and 2033.
Livestock provide crucial income and nutrition for many smallholder farmers and poor people in low- and middle-income countries. Finding ways to incentivize ranchers, especially those operating on large scales, to decrease the emissions from their herds, can help lower global methane emissions without harming small-scale farmers and their families.
Market failures lead to a lack of innovation for reducing methane
Ranchers won’t invest in methane-reducing innovations without external incentives. Methane emissions are a classic negative externality: ranchers bear none of the climate change costs they cause. Conversely, methane reduction is a pure public good—ranchers pay for the technology but capture only a tiny share of the benefits. Without a market for innovative products, companies avoid developing them, and financiers stay on the sidelines.
Even when new technologies exist, incentives for widespread adoption fall short. Take feed additives: research shows they can cut methane intensity per cow by 4 to 70 percent; the US Food and Drug Administration approved these additives in May 2024. But demand from ranchers remains low: adding feed additives to cattle diets is logistically challenging and costly, as most cattle graze on pasture. Bovaer, the only FDA-approved methane-reducing feed additive, will likely cost between $70 and $105 per cow per year—an expensive burden for ranchers with thin margins. Without greater private benefits, feed additives are unlikely to see widespread use.
Another option is vaccination, which introduces antibodies to inhibit methane production in cows' digestive tracts—and comes at a fraction of the cost (vaccines cost just $1-4 to produce). Companies like ArkeaBio are pursuing vaccine development, backed by climate-focused venture capital. But despite these advantages, low demand will likely hinder adoption, even if a successful vaccine is developed.
Figure 1. Social value of vaccine far exceeds the costs
Why an AMC could help spur innovation
An Advance Market Commitment (AMC) could fix this market failure by rewarding the development and adoption of new technologies. The AMC provides a per-unit subsidy for every unit of an innovation that meets specific criteria. Instead of funding a single company, it rewards any firm that delivers a qualifying product (e.g., reducing methane per unit of milk/beef by 20 percent), based on the level of uptake. This model encourages firms to explore different technological solutions, as long as they meet the target. Unlike grants or other upfront investments, AMCs only pay firms for successful innovations. As a result, firms confident in their success will opt in, while those with lower confidence will drop out.
By linking payments to actual sales, AMCs avoid rewarding innovations that meet technical requirements but fail to attract ranchers. For example, a vaccine that reduces enteric methane emissions by 20 percent but is not purchased by ranchers, perhaps due to adverse side effects, would not receive compensation. In other words: no adoption, no payout. Tying payments to market sales ensures that the AMC only rewards products that both meet the funders’ goals and that ranchers are willing to buy.
Figure 2. Cost inputs to sizing the AMC
Our analysis shows that the benefits of an enteric methane vaccine far outweigh the costs. A $10.32 subsidy per dose for up to 92 million doses over 10 years would mean a more than two-thirds chance that a vaccine is successfully developed and would incentivize adequate uptake. These estimates factor in R&D costs, success rates for vaccine candidates, and market competition, with an expected total cost of $702 million and a benefit-cost ratio of over 12:1. However, if no vaccine succeeds, or if ranchers don’t adopt the product, the funders pay nothing. That’s the beauty of the AMC structure—it only rewards impact.
How we estimate the price tag
One of the largest determinants of this estimated cost is the time value of money: firms incur costs in the short-term for R&D but only receive the AMC subsidies years later after they have finished testing and have vaccinated real cows. As firms value money today far more than in the future, the AMC needs to compensate firms handsomely for that delay. The MSA analysis also considers the rate of subsidy passthrough (i.e., how much of the subsidy does the firm capture and how much do consumers capture) and the extent of correlation between different research efforts
What’s next?
The Market Shaping Accelerator—a collaboration among the Center for Global Development, the University of Chicago, and Dartmouth College—is partnering with a consortium led by Spark Climate Solutions, along with the Global Methane Hub and The Nature Conservancy, to make this AMC a reality. Tackling climate change requires addressing overlooked but high-impact sources of emissions. Enteric methane is one such source, and an AMC can help align incentives to accelerate innovation and adoption. With the right demand signals, we can shift enteric methane reduction from a persistent challenge to a scalable opportunity.
Thanks to Markus Goldstein, Janet Hodur, and Rachel Glennerster for their comments and contributions.
Disclaimer
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.
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