TL/DR –
The use of renewable natural gas (RNG) in the US has grown due to factors including the Inflation Reduction Act (IRA) of 2022. RNG is derived from biogas, which is produced through the anaerobic digestion of organic materials such as food waste, agricultural waste and landfill waste. The growth of RNG production could also be influenced by the availability of feedstock, with Argonne National Laboratory reporting that 69% of all RNG production is from landfills.
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Renewable Natural Gas Growth in the U.S.: A Closer Look
The use of renewable natural gas (RNG) has seen a steady rise in the United States since 2022. A key driver of this growth appears to be the federal incentives introduced under the Inflation Reduction Act (IRA) in 2022.
Understanding Renewable Natural Gas
RNG essentially mirrors natural gas, with the distinction that its source is biogas. Through anaerobic digestion, organic materials such as landfill waste, food waste, and agricultural waste decompose to produce biogas. Although raw biogas is laden with contaminants and typically contains methane content of 45–65%, it undergoes processing to eliminate moisture, carbon dioxide, and other contaminants. The resulting RNG suitable for being injected into gas pipelines boasts a methane content of 96–98%.
Despite its potential, RNG has been underutilized in the past decade, accounting for a mere 0.03% of the daily gas production in the U.S. Its production is bound by the availability of the source materials, unlike conventional natural gas which can be ramped up by more drilling. Economic factors and policy decisions have a considerable impact on RNG adoption and production. Additionally, the availability of feedstock may also affect RNG growth. A 2024 report from the Argonne National Laboratory shows that 69% of all RNG production is sourced from landfills, indicating the importance of tracking relevant variables alongside legislation.
The Ups and Downs of RNG Growth
From 2017 to 2020, programs like the EPA’s Renewable Fuel Standard (RFS) and state legislation such as California’s Low Carbon Fuel Standard (LCFS) spurred a significant increase in RNG production. However, a combination of factors, including the Covid-19 pandemic and an oversupply from the initial surge of facilities, led to a stagnation in RNG growth between 2020 and 2022. The undervaluation of credits due to oversupply forced many companies to reconsider their plans for RNG expansion.
However, recent years have seen a resurgence in RNG production. Since 2023, about 20 new RNG production facilities have been established annually, a significant increase from the average of around 4 per year prior to 2023. This expansion has boosted average daily flows to 105 MMcf/d in 2026, representing a 162% increase from 2022.
Dissecting the Factors Behind RNG Growth
Initial assumptions suggested that legislative factors would play a major role in RNG growth. However, an analysis of states with RNG incentives versus those with high RNG facility numbers revealed little correlation. Exceptions to this trend include California, Colorado, and Illinois, which have RNG-positive legislation and high production. Interestingly, states such as Texas, Pennsylvania, and Ohio also show high production levels despite lacking RNG-positive legislation. This finding suggests that state-level legislation might not be impacting U.S. RNG production as much as previously thought.
Impact of the Inflation Reduction Act
A notable shift in the last five years has been the incentives introduced through the Inflation Reduction Act (IRA) of 2022. The legislation introduced two key incentives: the Clean Fuel Production Credit (Section 45Z) and Methane Fees. The former offered a tax credit to RNG producers, while the latter imposed penalties for venting or flaring methane. These incentives transformed RNG into an opportunity for revenue generation and avoidance of EPA fines, culminating in a 162% increase in RNG production since 2022.
The Future of Renewable Natural Gas
Despite the Trump administration’s known stance against renewable fuel sources, the Big Beautiful Bill of 2025 extended the 45Z tax credit until December 31, 2029, thereby preserving the growth potential of RNG. It is anticipated that the maintenance of these federal credits will incentivize the establishment of more facilities and consequently, increase RNG flows.
Although RNG currently comprises a small portion of natural gas production, it will be intriguing to track the potential growth of this industry in the coming years.
The information contained in this article is intended solely for informational purposes and does not constitute legal, tax, or investment advice. FactSet does not endorse or recommend any investments and accepts no liability for any outcomes resulting directly or indirectly from actions taken based on the information presented in this article.
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