This study evaluated the economic feasibility and environmental impact of using a bio-digester to produce methane for energy production from a New Zealand conventional dairy farm. Parameters effecting the bio-methanation process are examined. Analytical procedures have been carried out to determine favorable conditions for enhanced biogas production. These were: 1) pH, 2) Temperature, 3) Total solids and Total Volatile solids, 4) Gas volume and 5) Gas analysis. Using locally supplied dairy shed effluent, it was found that 1 L reactors had peak gas production over 15 days, after which pH dropped and gas production dropped. Optimal pH was 7 and maximum gas production was 1.25 L/L reactor. A three stage digester was set up and run for 62 days with a maximum cumulative gas production of 21.3 L, 11.7 L and 6.6 L in the three reactors. Total volumetric methane production was 0.09 m3/kgVS/day 0.06 m3/kgVS/day and 0.07 m3/kgVS/day respectively from reactors 7, 8 and 9. The reactors produced biogas with an average composition of 74 % methane (CH4) and 25% carbon-dioxide (CO2). A typical digester would produce 65-70% CH4. 1 kg of methane produces 4.66 kWh electricity and 5.72 kWh of heat, a typical farm of 250 cows would produce 548 kWh/day electricity and 665 kWh/day heat from using methane captured in the anaerobic digesters using dairy shed effluent. A typical 250 cow farm consumes 1285 kWh/day total energy 40% is from heat and rest is electricity. So by having installed plug-flow anaerobic digesters it could potentially meet 130% of total energy needs and 113% of total energy needs by using a three stage mesophilic digester. A life cycle assessment was carried out for a typical New Zealand farm. Methane emissions from enteric fermentation, excreta, manure and farm dairy effluent irrigation and storage ponds contribute to 60% of the total greenhouse gas (GHG) emissions of a farm. Management of dairy shed effluent will only reduce GHG emissions by 1.8%. In addition, spray irrigation will impact on GHG emissions due increased moisture, C and N content, increasing N2O emissions. Hence from an environmental sustainability point of view, collecting and digesting diary shed effluent will have little significant impact on overall GHG emissions. Therefore, collecting and digesting dairy effluent is only of value if it results in economic benefits for the farm. An economic analysis was conducted on installing a digester system. The anaerobic digester systems for 250 cow farm would have a capital cost of $107,745 per year, an operating cost of $134,828 per year, and generate revenue of $132,819 per year, but would not be able to pay back the capital cost. For a 250 cow farm a plug flow digester would have a capital cost of $95,658 per year, operating cost $127,018 per year, generate revenue $194,722 per year, and the resulting payback period is 2 years. A three stage digester for a 250 cow farm would have a capital cost of $259,608 an operating cost of $215,920 per year, generate revenue of $296,389 per year, a payback period of 3 years. But for a large farm size of 600-1000 cows therefore a multi stage digester would be worthwhile. For large dairy farms, CH4 capture with energy recovery can already be cost effective based on the energy value alone.