New Wave of Clean Fuel Bills Could Spur a Boom in the Biogas Industry

State legislatures across the United States are intensively considering a series of bills aimed at establishing credits for low-carbon fuels, including those derived from landfills and other waste sources. Clean fuel standards, low-carbon fuel standards, or clean transportation standards typically set timelines for fuel producers to gradually reduce the carbon intensity of their products by blending existing low-carbon fuels such as ethanol or purchasing credits from producers of lower-emission fuels like renewable natural gas (derived from landfill gas or anaerobic digestion).

Supporters say the spread of such standards has been aided by unexpected coalition partners and could be accelerated by the success of California's Low Carbon Fuel Standard (LCFS) and early models that first appeared on the West Coast. If more states establish similar programs, it is likely to boost the so-called "brown gold rush" that has already attracted attention among some waste industry giants and brought them millions of dollars in new revenue.

"Without a low-carbon fuel standard, you simply cannot achieve a zero-emission future, because without carbon-neutral fuels, that is impossible," said Todd Campbell, Vice President of Public Policy and Regulatory Affairs at Clean Energy Fuels, a renewable natural gas producer. "This is really helping us move in that direction, and I think the opportunities are just beginning to emerge, especially for the waste industry."

A "win-win" situation

In recent years, the largest waste companies in the United States have turned to renewable natural gas to take advantage of incentives created by low-carbon fuel standards and their supporting programs. Republic Services, which declined to comment for this article, plans to increase the proportion of biogas from its facilities that is put to beneficial reuse by 50% by 2030. Meanwhile, WM recorded $273 million in net operating income from its renewable energy business, including renewable natural gas, last year (2023), and listed "federal and state incentive programs" as a key driver of growth in its business segments in its year-end 2023 filing.

WM also supports new clean fuel programs in states such as New Mexico, New York, and Minnesota. John Skoutelas, WM's Vice President of Law and National Director of Government Affairs, said in an emailed statement that these three states are "the most likely to pass legislation."

New Mexico Governor Michelle Lujan Grisham signed House Bill 41 on March 5, 2024, creating the state's clean transportation fuel standard program. The signing ceremony was livestreamed on Facebook Live.

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Last week, New Mexico became the fourth state in the U.S. to enact a clean fuel standard, with Governor Michelle Lujan Grisham signing House Bill 41. The bill sets a target to reduce the carbon intensity of the state's transportation fuels by 20% by 2030 and includes provisions to ensure the participation of rural electric cooperatives common in the state, as well as traditional biogas producers.

"This is a win-win-win, no-loser legislation," Grisham said at a press conference announcing the signing of the bill.

New Mexico is one of the largest fossil fuel oil and gas producing states in the U.S., and its biofuels industry is relatively small. According to the American Biogas Council, the state currently has only 16 biogas production facilities: 12 at wastewater treatment plants, 3 at landfills, and 1 at a manure digester. But the industry group estimates that, under supportive policies such as the clean fuel program, the state could accommodate up to 144 such facilities, considering existing landfills, farms, and food waste that is currently wasted and could be beneficially reused. These facilities could produce up to 13.7 million MMBtu (million British thermal units) of biogas annually, equivalent to heating 892,000 homes in New Mexico.

This potential has long attracted the attention of the state's Democratic governor and her allies, who have pushed for a clean fuel bill for about four years. Supporters say they have witnessed fuels such as renewable diesel produced in Texas being transported through New Mexico to California, and now they can compete to bring those producers to the state.

"Let's rethink how these fuels are produced, transported, and used, and ensure those renewable diesel trucks stop here," said Michelle Miano, Director of the New Mexico Environment Department.

Nationwide, states are taking note of the economic impact of California's program. Currently, eight state legislatures are considering related bills, with groups from the Midwest to the East Coast increasingly eager to see programs implemented.

For years, the U.S. Environmental Protection Agency's Renewable Fuel Standard (RFS) has been a primary source of revenue for biogas projects. Clean Energy Fuels, a biogas developer with six operating facilities and multiple projects under construction, still derives far more revenue from federal RIN credits than from California's program, according to its 2023 financial report. But if more states continue to pass their own legislation, they could significantly expand revenue opportunities for waste-derived fuels, especially in densely populated areas like New York and New Jersey. However, as these ideas enter the mainstream, they will face scrutiny from environmentalists eager to transition to electrification and from the oil and gas industry seeking to maximize its own interests in the booming alternative fuels sector.

The shift of oil giants

The seeds of California's Low Carbon Fuel Standard were first planted by the state's Global Warming Solutions Act, signed in 2006 by then-Governor Arnold Schwarzenegger. At the time, the U.S. was just beginning to blend ethanol into petroleum, nearly a decade before the Paris Agreement formally established a global response to the climate crisis. The standard was first approved by the California Air Resources Board in 2009 and implemented in 2011, immediately triggering a wave of lawsuits from the oil and gas industry. This staunch opposition continued when Oregon decided in 2012 to follow California's lead with its own clean fuel program.

"The oil industry wasn't too excited about another regulation requiring them to reduce greenhouse gases," said Tim Zenk, Managing Director at Earth Finance, a climate strategy firm. "They fought it tooth and nail."

But most of these challenges were unsuccessful, and the program itself began to yield returns. According to a spokesperson for the agency, in the decade since the California Air Resources Board implemented the Low Carbon Fuel Standard, it has reduced greenhouse gas emissions from the transportation sector by 137 million metric tons of CO2 equivalent and spurred $4 billion in investment in renewable fuel infrastructure. Today, California has certified the carbon intensity of 441 biogenic methane fuel production facilities, including 188 dairy manure digesters and 192 landfills, according to the agency's data.

Clean Energy Fuels announced in February 2024 the completion of its Marshall Ridge dairy digester facility in Iowa. The facility uses manure from a herd of approximately 8,000 cattle to produce renewable natural gas.

Image source: BusinessWire

The oil and gas industry began to take notice of the program's success. In 2020, BP partially exited a regional oil and gas lobbying group due to its opposition to Washington state's clean fuel standard proposal, instead choosing to take a neutral stance on the bill, as reported by The Seattle Times at the time. Since then, BP has intensified its pursuit of biofuels while supporting clean fuel program legislation in multiple states, though not in New Mexico, where it has limited operations. BP's blockbuster acquisition of landfill gas company Archaea Energy in 2022 for over $4 billion accelerated these efforts. BP now aims to increase its biogas supply sixfold by 2030.

ExxonMobil has also made significant investments in renewable diesel, including Canada's largest renewable diesel project. Facilities like these, along with projects from Valero, Chevron, Marathon, and others, have flooded California's Low Carbon Fuel Standard credit market, which currently faces a credit surplus as capacity continues to come online.

"Obligated parties—Shell, BP, Total, Chevron—initially had to buy credits... then they looked further and asked: 'What's a better compliance strategy?' The answer was 'get in the game,'" Campbell said. "Now they're not just buyers of these credits, they're active market participants, and they're converting refineries from crude oil refineries to renewable diesel refineries."

This shift has paved the way for clean fuel programs in new states, including New Mexico. There, both ExxonMobil and Occidental Petroleum (Oxy) expressed support for the proposal, which would support further renewable diesel production in the state and allow these companies to enhance their climate profile, said Robin Vercruse, Executive Director of the Low Carbon Fuels Coalition.

"New Mexico itself made a lot of people sit up and take notice. People said: 'Wow, if New Mexico can do it, and they're the second-largest oil and gas state in the country, why can't we?'" Vercruse said.

The investment boom in alternative combustible fuels rather than electrification sparked by these clean fuel programs is unsettling environmental groups. Kiki Velez, an advocate for equitable gas transition at the Natural Resources Defense Council (NRDC), believes that after more than a decade of supporting such fuels, low-carbon fuel standards urgently need reform. In NRDC's view, today's clean transportation programs should focus on incentivizing electric mobility and reserving biofuels for sectors that are truly hard to decarbonize, as policies like the Advanced Clean Fleets Rule do. They point to research showing that low-carbon fuel standards have channeled over $5.8 billion to farm digester projects and crop-based biofuels, arguing that future investments could be better directed elsewhere.

"When the (Low Carbon Fuel Standard) was first created, it was a race to see which fuel or other energy resource would become the right choice for decarbonizing the transportation sector," Velez said. "There wasn't a clear winner at the time. Now we know, and the California Air Resources Board has stated, that all-electric is the way forward."

Copying California's homework

The federal government has threatened the fuel industry with legislation and regulations in the past, but the tug-of-war between oil, gas, and agricultural interests has made a national clean fuel program unviable. Zenk says this is not necessarily a bad thing. Zenk, who worked with alternative fuel producer Sapphire Energy for years when West Coast clean fuel programs came online, says each new program brings localized opportunities. In Washington state, the program includes provisions related to environmental justice, requiring air pollution mitigation near disadvantaged communities and ensuring that other program benefits, such as charging infrastructure, are specifically located in those communities. Zenk says states debating clean fuel programs can address the specifics of their greenhouse gas challenges at the state level—for example, aviation accounts for twice as much of transportation greenhouse gas emissions in Hawaii as it does in Washington state.

As new programs come online, they can now reference the structure of California's Low Carbon Fuel Standard and the carbon intensities of different fuels set by the California Air Resources Board in that program, saving administrative costs, said Dana Adams, State Legislative Policy Manager at the Renewable Natural Gas Coalition. "The California Air Resources Board can say: 'From your x digester, y processing plant, to here, to end use, the carbon intensity is negative 10.' Then Oregon can look at it and say: 'Okay, California has already done the math. Let's just copy their homework,'" Adams said.

Each state can also choose how aggressive it wants to be in its carbon reduction trajectory. For example, Oregon is currently increasing its carbon intensity reduction targets at a faster rate than California's current path, although the California Air Resources Board is exploring a more stringent path of its own.

For renewable fuel producers, perhaps the most enticing state is New York, where the local chapter of the League of Conservation Voters has been building support for the past three years. A clean fuel standard bill that would have set a 20% reduction target by 2031 passed the state Senate but failed to gain traction in the Assembly. This year, advocates hope to pass it as part of the state budget or as a standalone bill, said Patrick McClellan, Policy Director at the New York League of Conservation Voters. The group has also found some unexpected allies. It leads a coalition that includes major airlines, ethanol producers, automakers, and biogas groups. BP is also lobbying for New York's program, but McClellan said the coalition has set hard rules preventing oil and gas companies from joining.

While seeing a conservation group allied with fossil fuel giants may seem odd, McClellan said the New York League of Conservation Voters came to the issue naturally, comparing it to supporting oil producers when they bid on offshore wind projects. "If they want to support it, great, the more the merrier," McClellan said. "We do see this as an important piece of the transportation decarbonization puzzle."

New York's biogas potential is enormous—the American Biogas Council estimates the state has the potential to build over 300 new facilities, most of which would be in the manure sector. At full build-out, the state could produce 52.3 million MMBtu of heat annually, nearly four times that of New Mexico. Beyond the biogas potential numbers, passing legislation in New York and New Jersey would be an influential shift that would establish clean fuel programs on the East Coast, said Campbell of Clean Energy Fuels. He noted that while proposals take time to gestate in state legislatures, once they catch on, they can have an impact.

"I'm really looking forward to seeing New York and New Jersey adopt these kinds of standards," Campbell said. "When these states adopt clean fuel standards, the scale won't be as large as California's, but it will certainly show that these policies are important considerations for other states."