USA: Inflation Reduction Act signed. Incentives for biogas and a charge on methane emissions

On 16 August 2022 the President of the United States signed the Inflation Reduction Act (IRA), the largest package of climate and energy investment in the country's history, estimated at around USD 369 billion. It includes tax incentives for renewable energy, storage, electric vehicles and low-emission fuels, as well as a charge on methane emissions from large facilities in the oil and gas sector. For the biogas industry the IRA is important as a model of support and as a factor in the competition for investment.

What is changing

In the area of methane, the act creates an emissions reduction programme and a charge on excess emissions from oil and gas facilities above specified thresholds, applicable from 2024. The aim is to limit methane leakage from gas infrastructure, which is one of the cheapest ways of reducing emissions. In parallel, funds are provided for emissions measurement and equipment modernisation.

In the part concerning renewable energy sources, the IRA extends and expands tax credits (production and investment). According to industry analyses the changes also cover biogas installations, which until now had limited access to the investment credit. The new incentives also support fuels with low carbon intensity, which matters for biomethane used in transport.

Significance for the industry in Poland

The IRA gives Polish investors three signals. First, global competition for capital and low-carbon technology is intensifying, and equipment manufacturers may direct a larger share of their output to the USA. Second, governments are putting the emphasis on reducing methane emissions: from gas producers, but also in agriculture and waste. Third, tax instruments, being stable, predictable and long-term, are proving effective in attracting investment.

For European policy it is an incentive to accelerate its own instruments. In REPowerEU the European Commission pointed out that the EU must look after competitiveness and the pace of the transition, and American incentives increase pressure on European support instruments.

What this means for the biogas market

The American biogas market, known there as renewable natural gas (RNG), has developed for years thanks to federal and state fuel programmes. The IRA adds tax incentives to this, which lower the cost of capital. For European technology producers this means greater export opportunities, but also competition for production capacity and contractors. For investors in Poland the key question is whether a similarly stable, long-term support system will also be created in the EU and in the country.

What next

Implementing the IRA requires implementing rules that will set out the detailed conditions of the credits. Biogas producers in Europe are watching to what extent American incentives will attract technology suppliers and capital. For Poland the conclusion is the need to ensure a stable and competitive support system for biomethane and the swift processing of permits.