But as recently noted, biogas developers stand to lose a material amount of anticipated capital pursuant to Proposed Regulations issued November 17, 2023 by the Treasury Department and the IRS (which, if adopted as written, would mean that biogas upgrading equipment necessary to concentrate and refine renewable natural gas to pipeline-quality conditions would fail to quality for billions of dollars in previously expected investment tax credits, or ITCs).  Such equipment can cost several million dollars or more per component and is critical for refining its biogas into renewable natural gas and transporting it through a pipeline for sale in advantageous markets, such as the California or Oregon transportation fuel markets. 

Background of IRA

The IRA added certain eligible property to the existing Section 48 ITCs available to developers of certain renewable energy projects, including “qualified biogas property,” which was defined in the statute as follows:

The term ‘qualified biogas property’ means property comprising a system which (i) converts biomass . . . into a gas which (I) consists of not less than 52 percent methane by volume, or (II) is concentrated by such system into a gas which consists of not less than 52 percent methane, and (ii) captures such gas for sale or productive use, and not for disposal via combustion.

48 U.S.C. §48(c)(7)(A). 

Qualified biogas property is further defined to include “any property which is part of such system which cleans or conditions such gas.”  Id. §48(c)(7)(B).  Although such language appears on its face to include gas upgrading equipment, the Treasury Department and IRS have taken a different position. 

Proposed Regulations

On November 17, 2023, the Treasury Department and IRS issued Proposed Regulations clarifying what is included and not included in conditioning equipment made a part of such definition.  Specifically, the federal agencies’ guidance provided examples of qualified biogas property, which examples included waste feedstock collection systems, landfill gas collection systems, mixing or pumping equipment, and anaerobic digesters.  However, the guidance specifically excluded “gas upgrading equipment necessary to concentrate the gas into the appropriate mixture for injection into a pipeline through removal of other gases such as carbon dioxide, nitrogen, or oxygen.”

In the federal agencies’ view, the removal of gas upgrading equipment from the definition of qualified biogas property hinges on what kind of equipment it considers “necessary to satisfy the statutory requirements that the biogas converted from biomass contain not less than 52 percent methane, and that it be captured for sale or productive use.”  In other words, because gas upgrading equipment is not necessary to convert biomass into biogas containing at least 52 percent methane content that can be captured for sale or other productive use, it should not be considered an investment that qualifies for an ITC.  Furthermore, the federal agencies clarified that this 52 percent methane content requirement is measured at the point at which the gas exits the biogas production system (such as an anaerobic digester, landfill gas collection system, or thermal gasification equipment).  This appears to be a point prior to when the biogas enters the gas upgrading equipment.

Biogas developers and other interested parties have 60 days from November 22, 2023 (the date such proposals were published in the Federal Register) to submit comments on these Proposed Regulations.

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