The Inflation Reduction Act (IRA), lauded for its expansive tax incentives driving investments in renewable energy, has spurred over $110 billion in clean energy manufacturing investment, as revealed in an August 16, 2023, White House Press Release. However, the optimism surrounding this financial influx faces a potential setback for biogas developers due to Proposed Regulations issued on November 17, 2023, by the Treasury Department and the IRS.
If the proposed regulations are adopted as written, they could exclude biogas upgrading equipment, crucial for refining renewable natural gas to pipeline-quality conditions, from qualifying for expected investment tax credits (ITCs) worth billions of dollars. This equipment, with costs reaching several million dollars per component, plays a pivotal role in refining biogas into renewable natural gas, enabling its transportation through pipelines for sale in lucrative markets like California or Oregon’s transportation fuel markets.
The IRA introduced eligible property, including “qualified biogas property,” to Section 48 ITCs available to developers of renewable energy projects. Qualified biogas property is defined as a system converting biomass into a gas comprising not less than 52 percent methane or concentrated to meet this methane content, with the captured gas intended for sale or productive use rather than combustion.
The definition further includes any property within the system that cleans or conditions the gas. Despite this seemingly encompassing language, the Treasury Department and IRS have taken a different stance, raising concerns for biogas developers.
The Proposed Regulations, issued to clarify the definition, present examples of qualified biogas property, encompassing waste feedstock collection systems, landfill gas collection systems, mixing or pumping equipment, and anaerobic digesters. However, the regulations explicitly exclude “gas upgrading equipment necessary to concentrate the gas into the appropriate mixture for injection into a pipeline through removal of other gases such as carbon dioxide, nitrogen, or oxygen.”
The federal agencies argue that the exclusion of gas upgrading equipment is based on its determination of what is “necessary to satisfy the statutory requirements” for biogas conversion from biomass. They contend that gas upgrading equipment is not essential for converting biomass into biogas containing at least 52 percent methane, a requirement measured as the gas exits the biogas production system, prior to entering the gas upgrading equipment.
Biogas developers and stakeholders have a 60-day window from November 22, 2023, to submit comments on these Proposed Regulations, published in the Federal Register. The outcome of this regulatory debate will significantly impact the trajectory of biogas development in the broader context of the surging clean energy sector.