The U.S. renewable energy landscape is constantly evolving, with policy and market dynamics shaping the trajectory of various clean energy commodities. Renewable Natural Gas (RNG) is emerging as a particularly promising sector, driven by its unique environmental benefits and growing policy support. A significant recent development, the introduction of the bipartisan Renewable Natural Gas Incentive Act of 2025, signals a new era for RNG, moving beyond traditional mandates to embrace direct financial incentives. This article explores the fundamentals of RNG, the specifics of this proposed federal tax credit, and its potential impact on the burgeoning RNG market.

‍

Renewable Natural Gas (RNG) Fundamentals

Renewable Natural Gas, also known as biomethane, is a pipeline-quality gas produced by upgrading raw biogas derived from organic materials. Key sources include municipal solid waste landfills, anaerobic digesters at wastewater treatment plants, livestock farms, and food production facilities.  

The raw biogas, typically 45% to 65% methane, undergoes purification to remove moisture, carbon dioxide, and trace contaminants, resulting in RNG with 90% or greater methane content, making it a direct substitute for fossil natural gas.

RNG offers diverse applications, including thermal uses, electricity generation, vehicle fuel, and as a bio-product feedstock. Its benefits are substantial: enhanced fuel security, potential revenue generation, improved local air quality through reduced emissions, and significant greenhouse gas (GHG) reductions by capturing methane that would otherwise be released.

The RNG market's growth has been significantly spurred by federal and state policies. The Federal Renewable Fuel Standard (RFS) and state programs like California's and Oregon's Low Carbon Fuel Standards (LCFS) have created crucial financial incentives, especially for RNG used in transportation. State Renewable Portfolio Standards (RPS) also encourage RNG use in power generation. The U.S. has over 800 RNG facilities online, under construction, or planned, highlighting its robust growth trajectory.  

‍

The Renewable Natural Gas Incentive Act of 2025

Proposed Tax Credit

A pivotal development is the introduction of the bipartisan Renewable Natural Gas Incentive Act of 2025 (S. 1252/H.R. 2596) in April 2025. This proposed legislation aims to provide a $1.00 per gasoline gallon equivalent tax credit for RNG used or sold as transportation fuel. The credit would also apply to certified blended RNG and is designed to remain in effect through 2035, offering long-term support and encouraging substantial investment. The credit would benefit the seller in retail transactions and the fuel user in private fueling situations. Taxpayers would need certification from the RNG producer, similar to existing biodiesel systems.

Shift from Mandates to Incentives

This proposed legislation marks a notable shift in federal policy for RNG, moving away from the mandate-based system of the RFS towards a direct financial incentive model. While the RFS requires refiners and importers to meet renewable fuel volume obligations or purchase Renewable Identification Numbers (RINs), the Renewable Natural Gas Incentive Act introduces a more straightforward tax credit. This approach is perceived as less complex, aiming to drive adoption through a direct financial incentive rather than a regulatory requirement, funded directly through the federal budget.  

This Act is particularly relevant given the EPA's proposed RFS rule for 2026-2027, where cellulosic biofuel RVOs were set "far below industry expectations". The direct tax credit proposed by the Renewable Natural Gas Incentive Act of 2025 could therefore offer a more favorable and stable mechanism for RNG growth compared to the fluctuating cellulosic mandate under the RFS.  

Alignment with Broader Goals

The Renewable Natural Gas Incentive Act of 2025 aligns with broader legislative efforts to reduce greenhouse gas emissions, enhance U.S. energy security, foster clean energy job creation, and expand access to affordable, low-carbon fuel alternatives. Proponents argue that RNG, by capturing harmful greenhouse gases at their source (e.g., dairies) and at the vehicle, is among the cleanest fuels available.  

Market Impact and Outlook for RNG

The proposed $1.00 per gasoline gallon equivalent tax credit, if enacted, is expected to significantly lower fuel costs for fleets using natural gas-powered trucks, making RNG more competitive with diesel and accelerating its development and utilization, especially in the transportation sector.

The North American RNG market is already experiencing rapid expansion, with total RNG capacity growing by 35% since 2023, and continued growth anticipated through 2025. This momentum is driven by supportive policy frameworks, increasing feedstock diversification, and a robust pipeline of new project developments. While over half of current RNG output is directed towards transportation, expanding demand into other industries like power generation and commercial use will be crucial for long-term market stability.  

Despite its environmental benefits, RNG production currently faces higher costs compared to conventional natural gas, primarily due to capital expenditures for biogas upgrading and pipeline connections. Strategic policy support and economies of scale are vital to bridge this cost gap. Encouragingly, state regulatory commissions are beginning to incorporate broader societal benefits, such as a project's contribution to state climate goals, into their evaluation processes for RNG projects. This shift is critical for making more RNG projects financially viable, as many may not be feasible without local distribution company (LDC) support or clear regulatory approval for cost recovery.  

State-level initiatives remain crucial drivers for RNG procurement and investment. Oregon's SB 98, for instance, sets voluntary goals for incorporating up to 30% RNG into the state's pipeline system by 2050 and allows utilities to invest in RNG infrastructure. California's LCFS and Dairy Digester Research and Development Program (DDRDP) have also provided significant incentives for RNG from agricultural sources. These state-specific regulations continue to be important drivers for the RNG market, providing localized support and growth pathways.  

‍

Strategic Implications for AFS Commodities and Clients

The proposed Renewable Natural Gas Incentive Act of 2025, alongside existing market momentum, presents significant opportunities for AFS Commodities and its clients:

• Capitalize on New Incentives: Proactively understand and leverage the proposed $1.00/gallon tax credit to facilitate new RNG project development and expand market participation, particularly in the transportation sector.
• Optimize RNG Supply Chains: Advise clients on securing RNG supply that qualifies for the new tax credit, potentially exploring new feedstock sources and project partnerships.
• Integrate RNG into Decarbonization Strategies: Guide clients on how RNG can enhance their overall sustainability and net-zero goals, given its strong GHG reduction potential.
• Monitor Legislative Progress: Stay informed on the Act's passage through Congress and any potential modifications, providing timely updates to clients.
• Leverage State-Level Expertise: Continue to advise clients on navigating diverse state-level RNG policies and incentives, which remain critical drivers for localized growth and investment.

By focusing on these strategic areas, AFS Commodities can reinforce its position as a leading advisor, helping clients unlock the full potential of Renewable Natural Gas in the evolving U.S. energy market.