As states seek to decarbonize their transportation sectors, renewable natural gas (RNG) has emerged as a versatile low carbon substitute for conventional natural gas in heating, power generation and heavy duty transport. Washington’s Clean Fuel Standard (CFS), effective January 1, 2023, mandates a 20 percent reduction in the average carbon intensity of transportation fuels below 2017 levels by 2034. By rewarding the lowest carbon pathways with the greatest credit values, the CFS has positioned RNG - particularly pipeline injected biomethane - as one of the highest value compliance options for fuel suppliers.

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Policy Drivers and Incentives

Under the CFS, obligated parties that deliver regulated fuels into Washington must meet annual carbon intensity benchmarks. If a supplier’s average fuel exceeds the set benchmark, it generates a deficit and must purchase credits. Conversely, producers of lower carbon fuels accrue credits they may sell to obligated parties. RNG projects benefit from two critical incentive mechanisms. First, avoided methane pathways - for example, capturing biogas from dairy digesters or landfill gas - yield creditable reductions over 15 years of project operation, although Ecology’s proposed update would cap avoided methane crediting at 15 years per project to prevent perpetual credit issuance ICCT. Second, the CFS recognizes RNG delivered into the pipeline under a dedicated fuel pathway with carbon intensity values determined by the WA GREET life cycle model. These values can fall below zero in the case of dairy derived biomethane, creating significant credit generation when benchmarked against conventional natural gas Washington State Department of Ecology.

Adding further momentum, Washington legislators have introduced Senate Bill 1409 to elevate the CFS target from a 20 percent carbon intensity reduction by 2034 to a 45 percent reduction by 2038. If adopted, this more ambitious trajectory will tighten annual benchmarks and elevate demand for the cleanest pathways, reinforcing RNG’s strategic role in compliance portfolios .

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Lifecycle Carbon Intensity Pathways

Each fuel pathway in the CFS undergoes a rigorous life cycle analysis, commonly referred to as well to wheels, to quantify greenhouse gas emissions from production through end use. Washington relies on the WA GREET model - an adaptation of Argonne National Laboratory’s GREET - to assign carbon intensity scores. Typical fossil natural gas scores range around 100 grams of CO₂ equivalent per megajoule, whereas landfill gas pathways often register between 45 and 50 grams of CO₂ equivalent per megajoule due to waste diversion benefits remi.com. Dairy and swine waste digesters can deliver even lower, and sometimes negative, carbon intensity scores because they permanently avoid methane emissions from agricultural operations. Lower scores translate directly into more credits per unit of energy produced, making RNG projects among the most lucrative generators in the CFS market.

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Project Development Hurdles

Despite its attractive credit profile, RNG development in Washington faces several hurdles. Securing feedstock agreements for waste streams such as manure or organic landfill material demands complex negotiations with agricultural operators or municipal waste managers. Project siting often confronts permitting delays, especially where digester facilities require environmental impact assessments. Interconnection to existing natural gas pipeline infrastructure can involve lengthy engineering and regulatory reviews, adding months or years to project timelines. In addition, project sponsors must navigate Ecology’s Alternative Fuel Portal to register fuel pathways, submit data on feedstock sourcing and lifecycle calculations, and pay annual participation fees. These administrative requirements, while essential for program integrity, create upfront costs that developers must underwrite before credit revenues materialize.

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Financing Models and Revenue Stacks

Investors frequently structure RNG project financing based on a stacked revenue model that combines sales of CFS credits, federal Renewable Identification Numbers under the Renewable Fuel Standard (RFS), and voluntary market carbon offsets where applicable. Under the RFS, biogas converted to compressed natural gas qualifies for D3 or D5 RIN credits, which command premiums in a well functioning RIN market. In parallel, Washington CFS credits have traded between forty and one hundred dollars per credit, reflecting early volatility as market participants adjust to supply and demand dynamics. Long term offtake agreements with fuel suppliers or utilities provide revenue certainty, attracting tax equity investors and lenders. The expiration of 45V clean fuel production tax credits under the Inflation Reduction Act may also affect RNG project economics in the near term, reinforcing the importance of diversified revenue streams.

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Market Outlook and Credit Pricing

By mid 2025, Washington’s CFS has supported more than twenty operational RNG facilities, with a pipeline of projects totaling over 100 million DGE (diesel gallon equivalent) in annual production capacity. As the CFS benchmarks tighten under both the existing rule and potential SB 1409 enhancements, credit supply is expected to lag demand, placing upward pressure on prices. Early trading in August 2023 saw credits at roughly one hundred dollars, but average transaction prices eased toward forty dollars by June 2024 as initial supply from legacy projects entered the market. Looking ahead, the confluence of a shrinking deficit pool, rising compliance obligations and expanded feedstock pathways suggests a balanced market with sustained price support in the sixty to eighty dollar range through 2030.

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Best Practices for Securing Offtake Agreements

To capitalize on these market conditions, project developers should prioritize negotiating long term offtake contracts with obligated parties and utilities before commencement of construction. Credit buyers often seek fixed price collars that share upside above a price ceiling while cushioning downside risk below a floor. Early registry registration and pathway certification can shorten the time to first credit issuance, enhancing project bankability. Developers should also diversify feedstocks where possible to hedge against seasonal or operational interruptions in single source supply streams. Finally, maintaining robust measurement, reporting and verification protocols - aligned with WA GREET and federal RFS requirements - ensures credit integrity and fosters buyer confidence.

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Washington’s Clean Fuel Standard offers one of the most attractive compliance environments for renewable natural gas, driven by aggressive carbon intensity targets, high credit values and an expanding policy framework. While project development requires careful management of feedstock, permitting and financing complexities, the revenue potential from CFS credits, RINs and voluntary offsets underwrites strong investor interest. As legislators consider heightening the CFS target to a 45 percent reduction by 2038, the strategic value of RNG will only grow. AFS Commodities leverages deep expertise in CFS pathway registration, credit structuring and market intelligence to guide clients through project development and trading. Contact our team to learn how we can help you harness the full potential of RNG under Washington’s Clean Fuel Standard.