Biogas Tax Credit Market Stays Strong in 2025
Upon becoming law in 2022, the Inflation Reduction Act (“IRA”) extended the opportunity to generate investment tax credits (“ITCs”) to renewable natural gas (“RNG”) projects, incentivizing the development of new projects and enabling some projects already in the development pipeline to capture material new value. Specifically, the IRA provided for the generation of ITCs pursuant to Section 48 of the amended Internal Revenue Code of 1986 based on a percentage of eligible project costs.
Initial excitement cooled after the Treasury Department released guidance in November 2023 suggesting that the Section 48 ITC would exclude certain portions of biogas upgrading equipment from being ITC-eligible, making ITC modeling difficult for RNG developers. The Coalition for Renewable Natural Gas and the American Biogas Council led developers and other RNG industry stakeholders in seeking clarification of that guidance, resulting in finalized language specifying that equipment used to convert raw biogas into pipeline-quality RNG, including gas upgrading equipment, is ITC-eligible.