Manure-Derived Biogas Now Eligible for Federal Clean Fuel Credit
New IRS guidance confirms that biogas from livestock manure qualifies for a federal clean fuel tax credit, potentially accelerating investment in anaerobic digestion projects. Proponents argue the credit helps reduce methane emissions and turns waste into renewable fuel, while critics contend it rewards large concentrated animal feeding operations. The guidance also covers biogas from food scraps and crop residues, along with other fuels like ethanol and sustainable aviation fuel.
The Clean Fuel Production Credit, designated as 45Z, originated in the 2022 Inflation Reduction Act and assigns value based on a fuel's carbon intensity as calculated through a USDA-developed model. The IRS guidance establishes emissions rates not only for manure-derived renewable natural gas but also for ethanol, biodiesel, hydrogen, and sustainable aviation fuel, broadening the credit's reach across the biofuels sector.
The American Biogas Council reports roughly 631 farm-based biogas capture systems currently operate nationwide, producing about a quarter of all renewable natural gas generated last year. Industry estimates suggest potential for more than 11,000 additional farm systems, though the credit's expiration in 2029 creates uncertainty for longer-term project development timelines.
This guidance could accelerate biogas infrastructure investment, particularly in agricultural regions where manure management is a pressing concern. Farmers may gain new revenue streams, while communities near digesters could see reduced methane emissions and odor issues. However, the credit may also entrench large-scale animal agriculture by making concentrated operations more profitable, potentially affecting smaller farms' competitiveness and raising questions about whether public subsidies should support industrial farming models.