The Treasury Department may not include negative emissions levels in the published emissions rate table or grant 45Z credits for blending fossil natural gas with biomethane or captured fugitive methane.
Negative emissions rates could have extreme, unintended financial and environmental consequences
Assigning negative emissions rates to certain fuels – such as compressed biomethane or compressed captured volatile methane – will have extreme financial and environmental consequences. This is also true of granting Section 45Z credits to a facility that blends fossil natural gas with relatively small amounts of biomethane or captured volatile methane. We refer only to biomethane, but these arguments apply equally to biomethane and captured volatile methane.
If Treasury included negative emissions rates in the annual emissions table, suppliers of pure biomethane could receive huge credits when that biomethane is sold as fuel. This would create harmful market distortions and result in huge taxpayer dollars being spent subsidising established technologies (methane extraction from digesters etc. and internal combustion engines burning compressed natural gas). It could also delay the adoption of other clean fuel alternatives by distorting the market in favour of compressed biomethane. Likewise, allowing producers blending biomethane and fossil natural gas the Section 45Z clean fuel credit could have similar negative results.
Negative emission rates
Without a cap on the credit a producer can receive per gallon or gallon equivalent, there is a potential for credit values to spiral out of control. As shown below, negative emissions could result in very high credit values for fuels, which could lead to negative environmental impacts and irresponsible spending of taxpayers’ money.
Consider the amount of credits that could be claimed for bio-produced methane if negative emissions rates were allowed. According to the California LCFS, the carbon intensity for current fuel pathways for biomethane from dairy and swine manure ranges from -92.22 to -790.41 g CO2e/MJ biomethane, average -302.75 g CO2e/MJ biomethane. Converted, this results in -97.29 to -833.88 kg CO2e/mmBTU biomethane, average -319.40 kg CO2e/mmBTU. Substitute into the equation to determine the potential tax credit for non-aviation transportation fuels:
Providing such high per-gallon tax credits for a fuel such as compressed biomethane would be expensive for taxpayers and would subsidize an established technology that is likely to cause significant environmental harm.
In addition, high per-gallon credits for fuels like compressed biomethane would create undesirable market distortions. These include the possibility of very different prices for biogas or biomethane from operations that begin capture in response to 45Z compared to operations with existing biogas capture or biomethane production. It could also create massive incentives to increase methane production from digesters, for example by adding non-waste material to the digester. Finally, incentives of up to $17 per gallon could lead to truly wasteful use of compressed biomethane, in programs that overuse compressed biomethane to capture more subsidies, since the use of CNG as a transportation fuel is fairly limited while the per-gallon subsidies are so high. Therefore, the Ministry of Finance is not allowed to indicate negative emission values in the published table of emission rates.
Blending fossil natural gas with biomethane
Treasury should not allow producers that blend a small amount of biogas, biomethane, or captured fugitive methane with fossil natural gas to receive Section 45Z credits. Congress passed Section 45Z to subsidize truly clean fuels through feedstocks that may need a subsidy to increase their market share. However, due to the highly negative emissions intensity of some biomethanes (see above), allowing such a blend would require only a small amount of biomethane to be blended with natural gas (either as a feedstock or as a fuel) to qualify for the credit. It would also greatly over-subsidize mature fuels and feedstocks with lifecycle emissions well beyond the amounts Congress intended in the IRA. Blending could also lead to some of the negative market distortions discussed above because it could increase the value of negative emissions biomethane.
For more information, see CATF’s full comments on 45Z.
