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3 policies the US needs to boost renewable natural gas

Release date:
8 May 2024
A team member works at an Archaea Energy RNG plan

Biogas can be a powerful tool to help ensure energy security and reduce greenhouse gas emissions. Captured from sources such as landfills, farms and wastewater treatment plants, it can be used for electricity generation, heat, and transportation fuel.

 

When cleaned of impurities such as nitrogen and carbon dioxide, it becomes renewable natural gas (RNG), which has all the same applications as traditional natural gas and can feed into the same national network of pipelines. 

 

bp’s Archaea Energy business is the leading US producer of RNG, producing 11 trillion British thermal units of RNG last year from landfills and farms across 32 states. The business is aiming to significantly drive up its production, with plans to bring online more than a dozen additional plants in the next two years.

 

Archaea’s 2024 project schedule alone could help avoid approximately 1 million metric tons of carbon dioxide equivalent greenhouse gas emissions per year, equivalent to the carbon emissions of almost 226,000 cars, according to the Environmental Protection Agency's calculator.

 

Supportive government policies can incentivize projects such as these while unlocking the full potential of biogas and RNG in the US energy system. Federal lawmakers and regulators have taken important steps in that direction, but their work is not complete, and it requires fixes in some cases.

 

Below are three policy measures the US can take to help expand domestic production and use of RNG.

An overhead look at an Archaea modular design RNG plant

1. Fix the US Treasury Department’s proposed biogas ITC guidance

The Inflation Reduction Act of 2022 includes a biogas investment tax credit (ITC) that can incentivize growth in the RNG sector and help ensure the fuel is cost-competitive with traditional natural gas.

 

RNG plants convert waste from a variety of sources—including trash, food waste and manure—into pipeline-ready gas. They use specialized equipment to separate the methane from impurities such as carbon dioxide and nitrogen, essentially upgrading the biogas so it meets the standards for productive use. This process is called cleaning and conditioning.

 

Under the US Treasury Department’s proposed framework for claiming the 30% biogas ITC, RNG producers such as Archaea may not qualify for the credit as the owner of cleaning and conditioning equipment if a separate entity such as a landfill owns the gas-collection system. This type of ownership arrangement is prevalent in the landfill-to-RNG space, so the guidance in its current form could deprive many future projects of a tax incentive that helps make them worthy of investment.

 

For that reason, bp submitted a comment letter to Treasury asking the department to change the guidelines so they would recognize cleaning and conditioning equipment as critical to biogas projects. The guidelines should also ideally allow the owner of such equipment to qualify for the biogas ITC regardless of whether a separate entity owns the landfill gas-collection system.

 

bp has also asked Treasury to amend its proposed application of the so-called “80/20 rule,” which is meant to ensure that qualifying projects involve significant new investments in the biogas space.

 

Under the current version of the guidance, an RNG project will not qualify for the credit if it uses a landfill’s pre-existing gas-collection system to gather biogas, unless new components for that system account for more than 80 percent of its total value.

 

Using a landfill’s pre-existing gas-collection system is common practice in the RNG industry, so bp has proposed that Treasury amend the 80/20 rule so it applies to entire RNG projects, rather than individual elements such as a landfill’s gas-collection system.

 

As proposed, the regulations could have a significant negative effect on our plans to further develop biogas projects and ultimately hinder important efforts to reduce methane emissions and decarbonize the American economy.

Two team members work at an Archaea Energy plant

2. Open a new pathway for RNG to power electric vehicles

In 2023, the US Environmental Protection Agency proposed a new rule for the federal Renewable Fuel Standard (RFS) that would enable tradeable credits to be generated when biogas is used to make renewable power for electric vehicle charging. That policy never made it into the final standard.

 

bp and its coalition partners with the Partnership for Electric Pathways are advocating for the EPA to resurrect that proposal and include it in the next Renewable Fuel Standard update, expected to take place by early 2025.

 

The credits, which could be traded within the RFS compliance market, would be known as electric renewable identification numbers (eRINs).

 

The existing Renewable Fuel Standard already includes a system of credits to incentivize use of other renewable fuels in place of fossil fuel for transportation. By adding an eRIN rule, EPA would establish a way to provide credits when biogas is used to generate electricity for electric vehicles.

 

bp believes an eRINs program can expand the US market for biogas, RNG and electric vehicles. It could also benefit rural communities, by providing an additional income stream for farmers whose agricultural-waste gas is converted to RNG and used to generate electricity.

 

3. Incentivize the use of RNG for low-carbon hydrogen

The Inflation Reduction Act established tax credits aimed at spurring development of a domestic low-carbon hydrogen industry to help the US achieve its decarbonization goals.

 

Under that provision, producers can qualify for a tax credit of up to $3 per kilogram of low-carbon hydrogen if the carbon intensity of their hydrogen production falls below a certain threshold. Using RNG with or instead of traditional natural gas can help them reach the target.

 

But Treasury’s proposed guidance for the tax incentive requires the RNG molecules to flow directly from their source to the hydrogen production facility, which is impractical when most RNG goes into the nation’s existing network of comingled natural gas pipelines.

 

bp is asking Treasury to provide an accounting system that would allow hydrogen producers to get credit for purchasing RNG injected into existing natural gas pipelines. The EPA uses a similar approach with its Renewable Fuel Standard, which does not require a direct connection between the source and end use of a low-carbon fuel.

 

This type of flexibility with the tax credit could help increase RNG demand and use, while opening another promising pathway for lowering the carbon intensity of hydrogen.