Editor’s note: This is the second of a two-part series on renewable natural gas in the agricultural sector.
The California Air Resources Board is scheduled to vote next month on a revision of the low carbon fuel standard that could help build demand for livestock-derived renewable natural gas in what has become a saturated biogas market.
Supplies of renewable natural gas, known as RNG, from dairy operations have displaced so much diesel fuel in California's LCFS that environmental credit values have tanked, forcing project developers to find less-lucrative markets.
The board is expected to vote to reduce the carbon intensity of most of California’s energy by 9% each year starting in 2025, higher than the previously proposed 5%. The change is expected to raise credit values on the higher demand.
RNG is shipped to California markets either directly or through the interstate gas pipeline network through displacement, then compressed for use in buses, trucks and other vehicles.
Fuel derived from manure is considered net carbon-negative, since more greenhouse gas is captured by making it than is emitted by vehicles burning it. The low score comes from capturing methane in an anaerobic digester that would otherwise be released into the atmosphere.
Proposed amendments to the LCFS released by CARB Oct. 1 give dairy and swine RNG a temporary carbon intensity score, expressed in grams of carbon dioxide per megajoule, that is the lowest among many biofuels.
The score would be good for six months of credit generation, after which a project would have to submit a new petition. Comments on the proposal were due Wednesday.
The low carbon intensity score would generate more credits for developers and farmers. Supplies have grown so fast that values of more than $200 per ton of carbon in 2020 in the California market have fallen to $50 in July.
By displacing traditional transport fuels, RNG also qualifies under the federal Renewable Fuel Standard for a renewable identification number, or RIN, issued by EPA, that also can be traded.
RNG projects are not very economical today, said one developer who did not want to be identified. LCFS prices could continue to fall, he said, and with the uncertainty of the presidential election, RIN prices could decline as well. The previous Trump administration exempted, on the basis of economic hardship, many refineries from having to acquire RINs.
Even as RNG has penetrated California, renewable diesel fuel has also flooded the credit market. Over 60% of the state’s diesel is bio-based, dominated by renewable diesel.
RNG has a 5% share of the biofuels in the state. Dairy-sourced RNG accounts for 85% of the state’s current farm biogas supply. Swine-sourced gas is lower but has room for growth.
Industry participants generally support the proposed changes to the LCFS, including the two biogas trade groups, the Coalition for RNG and the American Biogas Council.
“Given the dramatic oversupply ... a step-down [in carbon intensity] as soon as possible is critical to the integrity of the market going forward,” project developer Anew said in comments earlier this year.
Daryl Maas, CEO of Maas Energy Works, which has 69 anaerobic dairy digesters in the country, mostly in California, said he expects market conditions to improve, but not overnight.
Utility markets slow to arise
California is the nation’s primary RNG market but the industry expects acceptance more broadly in the country.
"The U.S.'s domestic RNG production potential is 7 to 12 times greater than current production, according to non-governmental organization Energy Vision, which assesses the industry each year in collaboration with the Department of Energy's Argonne National Laboratory.
Local gas utilities have been a small market for RNG because its cost of production is higher than fossil gas. Utilities like to tout their green credentials, but state utility commissions are more concerned about the cost of service than environmental aspirations.
At the same time, utilities don't make a case for higher rates because RNG is exponentially more expensive. Some utilities allow consumers who wish to buy RNG to pay higher rates.
Others have set up subsidiaries to get dairy and swine RNG to California, taking advantage of the LCFS market, RINs and attributes of their projects posted in registries open to deal-makers.
DTE Vantage, an arm of Michigan’s DTE Energy, said its primary focus remains on actively adding landfill and dairy feedstock RNG projects across the country. “The California vehicle transportation market places great value on such fuels, [so] it is a natural destination for RNG derived from our dairy projects,” the company said.
Utilities that have tried to add the fuel to their gas supply portfolios remain flummoxed. “No affordable dairy RNG has come my way,” a gas utility buyer said. “Dairy RNG targets compliance markets and is twice the cost of landfill gas. Voluntary markets won’t support it.”
Corporate buyers with an eye on environmental attributes to meet their goals for social responsibility also raise the price of RNG, the buyer added.
Duke Energy’s Piedmont Natural Gas arm in North Carolina transports RNG from swine through its system. 
Mark StoermannDuke uses swine gas to generate power, which was the early RNG business model before displacement of California diesel became common.
Mark Stoermann, chief operating officer of Newtrient, said that prices outside vehicle transportation markets are variable, and unless a company can monetize carbon credits, gas prices alone usually are not high enough to support most RNG projects. “There are projects that are being done with utilities because of the long-term contracts that they can provide,” he added.
Maas said there can be a 10-1 difference between the prices that various utilities are willing to pay for RNG.
Other compliance markets develop
Technology developments and pending regulations are expected to continue to improve RNG prospects, particularly from dairy and swine. But obstacles remain.
Oregon, Washington and New Mexico have adopted low carbon fuel standards, but these markets are in their infancy and are still dwarfed by California. Trading entities often lament that individual state programs are neither large nor uniform enough to attract market participants.
Daryl MaasMaas said California eventually will force truck fleet operations away from compressed natural gas and to zero-emission vehicles fueled by hydrogen. “We suffer from California setting a target and once we achieve it, they say they want something better,” he said.
Irra Core, principal for Ashworth Leininger Group, an environmental consulting firm, said revisions to the LCFS will put the RNG market “on steroids.”
California lacks sufficient grid power, while CARB has plans to incentivize green electricity to meet more aggressive carbon reduction goals, she said.
RNG developers could skip gas pipelines and instead generate power with transmission lines directly to end-users such as electric vehicle charging, Core added. Fuel cell vehicles sourced by RNG are also an option.
The LCFS amendments make that easier, proposing an accounting method called book-and-claim when biogas produces fuel cell power for electric vehicles. Book-and-claim means the gas does not have to physically reach its destination, but simply be accounted for in normal displacement in the transmission and distribution network.
An ideal outcome for some would be to use RNG as the gas for fuel cells that generate power to split water into hydrogen and oxygen by applying an electric current, known as electrolysis. The resulting “green hydrogen” could be used as a feedstock for renewable diesel, cutting emissions.
The proposed LCFS amendments include a new category of carbon intensity score for fuel cell power fueled by dairy or swine gas. The CARB staff also proposed making hydrogen produced using fossil gas ineligible for credits in 2035, five years later than the current standard.
Projects rely on federal programs for RNG development as well. The Inflation Reduction Act of 2022 included a tax credit for clean hydrogen, based on the carbon intensity of the output.
Developers that cannot wait for the science to arrive will have another means to stay afloat.
Beginning in 2025, RNG producers that serve the transportation sector will be eligible for the IRS Section 45Z clean fuels production tax credits.
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