What Is the Renewable Natural Gas Incentive Act?
Understand the federal tax credit established by the Renewable Natural Gas Incentive Act, a legislative effort to promote cleaner transportation fuels.
The Renewable Natural Gas Incentive Act is a legislative proposal designed to foster the production and use of renewable natural gas (RNG) in the transportation sector. While this act has been introduced in Congress but not passed into law, the primary federal incentive for clean fuel production is the Clean Fuel Production Credit. Established under Section 45Z of the Internal Revenue Code and effective from the start of 2025, this credit aims to make fuels like RNG more economically competitive with conventional fossil fuels. The goal is to encourage investment in clean fuel production and support a lower-carbon transportation sector.
Federal Incentives for Renewable Natural Gas
The main federal incentive for renewable natural gas is the Clean Fuel Production Credit. Unlike past incentives focused on the final sale or use of alternative fuels, this is a credit for the production of clean transportation fuels. It rewards the producer for creating fuels with lower lifecycle greenhouse gas emissions compared to traditional gasoline or diesel.
The credit has a base amount of $1.00 per gallon for non-aviation fuels, but this is only available if the production facility meets specific prevailing wage and apprenticeship requirements. The base credit is then multiplied by an emissions factor calculated from the fuel’s lifecycle greenhouse gas emissions. This means fuels with lower emissions receive a higher credit.
Eligibility Requirements for Credits
Eligible Taxpayers
The Clean Fuel Production Credit is claimed by the business that produces the RNG and then sells it to an unrelated person for use in a vehicle.
Qualified Renewable Natural Gas
To be eligible, RNG must be a “clean fuel” derived from biomass, such as agricultural waste, landfill gas, or wastewater. The producer must provide proper certification of the fuel’s lifecycle greenhouse gas emissions rate. This data is used to determine the emissions factor and the final value of the tax credit.
Facility and Production Requirements
The Investment Tax Credit (ITC) under Section 48 is available for qualified biogas properties, such as anaerobic digesters, that began construction before 2025. This credit helps offset the initial capital costs of building production facilities. For facilities placed in service after December 31, 2024, the incentive shifts to the Clean Fuel Production Credit.
Calculating the Credit Amount
The credit calculation is based on the volume of RNG produced, often measured in gasoline gallon equivalents (GGE). For compressed natural gas, one GGE is equivalent to 5.66 pounds. The final credit amount is determined by multiplying the volume of fuel produced by the applicable credit rate. This rate, as previously mentioned, starts with a base amount and is adjusted by the emissions factor tied to the fuel’s carbon intensity.
How to Claim the Credit
IRS Registration
Before any credit can be claimed, a producer must be registered with the Internal Revenue Service as a clean fuel producer. This registration is a mandatory prerequisite for eligibility.
Filing for the Credit
Once registered, the producer claims the credit after the qualified clean fuel has been produced and sold to an unrelated party. The process and specific forms for filing are determined by the IRS.