While anaerobic digestion is commonly practiced in the municipal sector, it has not gained popularity in the pulp and paper industry mainly because of its long sludge residence time requirement of 20-30 days. The construction of large digesters to provide such extended residence times is capital-intensive and thus the implementation of anaerobic digestion has remained economically prohibitive. A review of the literature suggests that recent developments in sludge preconditioning technologies have substantially reduced the sludge residence time requirement to the order of 7 days. Also, the preconditioned sludges have been reported to hold potential for higher methane recovery with reduced excess sludge production requiring disposal. Such advantages, coupled with escalating fuel prices and the introduction of carbon credits under the Kyoto Accord, have significantly improved the economics of anaerobic digestion. As the cost of sludge management varies from one mill to another, mill-specific economic assessment of anaerobic digestion could identify cost-saving opportunities.