In early July, the U.S. Environmental Protection Agency (EPA) published a final rule for the Renewable Fuel Standard (RFS) program that expands pathways for biogas-based fuel to help meet numeric goals for cellulosic and advanced fuel. The final renewable fuel pathway and modification rule is anticipated to provide a significant boost for biogas projects designed to supply a source of renewable and low-carbon transportation fuel.
Under the final rule, biogas captured from anaerobic digestion using organic material at landfills, wastewater treatment facilities, agricultural operations or from separated municipal solid waste (MSW) is eligible to sell renewable fuel credits to obligated parties. Biogas must be cleaned and used as a renewable replacement for compressed natural gas (CNG) or liquid natural gas (LNG). Commercial equipment and technology is available in the marketplace to process raw biogas for use as a transportation fuel.
In addition to the CNG and LNG pathways, if biogas is used to produce electricity and the generated electricity is used to power an electric vehicle (EV), the volume of biogas utilized by the EV is also an eligible renewable fuel pathway under the rule. These specifications are critical in order to tap the enormous potential of the U.S. biogas resource.
When the RFS was expanded in 2007, there were only a handful of biogas projects in the U.S. that utilized biogas as a transportation fuel. The majority of operational biogas projects were producing electricity from collected biogas. Even though biogas as transportation fuel was more common outside of the U.S., it was visionary to include biogas as a qualifying renewable fuel pathway in the expanded RFS.
It has taken several years to spell out specific program rules that will take advantage of our biogas resources, but this latest rule is significant because biogas pathways can be used to help meet volumetric targets for advanced or cellulosic renewable fuels. Utilizing biogas to generate cellulosic fuel opens up a much larger – and more valuable – pool within the RFS.
Each year since the RFS was expanded in 2007, EPA has had to revise downward the annual volumetric requirement for cellulosic fuels as specified in the statute. Biogas-based fuels have always been an eligible advanced fuel, but the volumetric targets for cellulosic fuels are much higher, which provides more room to bring biogas-based fuels to market. Additionally, since the cellulosic volumes have been harder to reach, the credits used to track program compliance have had a higher value, thereby improving the economic rate of return for biogas fuel projects.
In recent years we have also witnessed a shift towards transportation fuel utilization from collected biogas, especially for new projects coming online. Although there might be a higher capital cost for biogas-based transportation fuel projects, the value from selling compliance credits for the renewable fuel program has helped to improve project economics. A combination of financial incentives or additional revenue streams is needed to make a project cash flow.
There is little doubt that allowing biogas-based transportation fuel projects to sell either advanced biofuel or cellulosic compliance credits will give a big boost to U.S. projects and I hope we will see even more projects brought online as a result of the final pathway rule.
