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

State legislatures across the United States are intensively considering bills aimed at establishing credits for low-carbon fuels, including those derived from landfills and other waste sources. Such "clean fuel standards" or "low-carbon fuel standards" set timelines for fuel producers to progressively reduce the carbon intensity of their products, which they can achieve by blending existing low-carbon fuels like ethanol or by purchasing credits from producers of lower-emission fuels such as renewable natural gas (e.g., gas produced from landfill gas or anaerobic digestion).

Supporters say the proliferation of these bills has been aided by unexpected coalition partners and could be accelerated by the success of California's Low Carbon Fuel Standard (LCFS) and other early models that first emerged on the West Coast. If more states establish such programs, it is likely to boost the so-called "brown boom" that has already captured the attention of waste industry giants and brought them millions of dollars in new revenue.

"Without a low-carbon fuel standard, you really can't achieve a zero-emission future because without carbon-neutral fuels, that's impossible," said Todd Campbell, Vice President of Public Policy and Regulatory Affairs at Clean Energy Fuels, a renewable natural gas producer. "It's 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 (RNG) 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 by 50% the proportion of biogas from its facilities used for beneficial reuse by 2030. Meanwhile, WM recorded $273 million in net operating income from its renewable energy business, including RNG, last year and cited "federal and state incentive programs" as a primary driver of growth for that segment in its 2023 year-end filing.

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

New Mexico became the fourth U.S. state to enact a clean fuel standard program after Governor Michelle Lujan Grisham signed House Bill 41 on March 5. The bill sets a target of reducing 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-lose piece of legislation," Grisham said at a press conference announcing the bill's signing.

New Mexico is one of the largest fossil fuel oil and gas producing states in the U.S., yet its biofuels industry is relatively small. According to the American Biogas Council, the state currently has only 16 biogas production facilities: 12 are wastewater treatment plants, 3 are landfills, and 1 is a manure digester.

But the industry group estimates that, under supportive policies like clean fuel programs, the state could accommodate up to 144 such facilities, considering existing landfills, farms, and food waste that is currently estimated to be wasted but could be beneficially reused. These facilities could produce up to 13.7 million mmBtu of energy 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 see fuels like renewable diesel produced in Texas passing through New Mexico on their way 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 watching the economic impact of California's program. Currently, eight state legislatures are considering related bills, and groups from the Midwest to the East Coast are 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 earns significantly more revenue from federal RIN credits (generated by the RFS) 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 (who are eager to transition to electrification) and from the oil and gas industry, which is eager to maximize its own interests in the booming alternative fuels sector.

A shift in attitude among 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. That was at a time when the U.S. was just beginning to blend ethanol into petroleum, nearly a decade before the Paris Agreement formally established a global framework for addressing the climate crisis.

The Low Carbon Fuel 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 backlash continued when Oregon decided to follow California's lead and implement its own clean fuel program in 2012.

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

But those challenges largely proved futile, 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 in the transportation sector by 137 million metric tons of CO2 equivalent and spurred $4 billion in investments in renewable fuel infrastructure.

Today, California has certified the carbon intensity of 441 facilities producing methane fuel from biological sources. According to the agency, 188 of these are dairy manure digesters and 192 are landfills.

The oil and gas industry began to take notice of the program's success. In 2020, BP left a regional oil and gas lobbying group, partly due to the group's opposition to Washington state's clean fuel standard proposal. According to The Seattle Times at the time, the company instead chose to remain neutral on the bill.

Since then, BP has intensified its pursuit of biofuels while supporting clean fuel program legislation in multiple states, though not in New Mexico, where its operations are limited. BP's blockbuster acquisition of landfill gas company Archaea Energy in 2022 for over $4 billion accelerated these efforts. BP now has a target to increase its biogas supply sixfold by 2030.

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

"Obligated parties, like Shell, BP, Total, Chevron, initially had to buy credits... then they looked further and said, 'What's a better compliance strategy?' That's to 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 in attitude has paved the way for clean fuel programs in new states, including New Mexico. There, both ExxonMobil and Occidental Petroleum expressed support for the proposal, which would support further renewable diesel production in the state and allow these companies to enhance their climate image, said Robin Vercruse, Executive Director of the Low Carbon Fuels Coalition.

"New Mexico itself is opening a lot of people's eyes. People are saying, '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 causing concern among 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 need reform.

In the NRDC's view, today's clean transportation programs should focus on incentivizing electric mobility and reserve 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 directed over $5.8 billion to farm digester projects and crop-based biofuels, and argue that future investments could be better used elsewhere.

"When (the Low Carbon Fuel Standard) was first created, it was a race to see which fuel or other energy resource would be the right choice for decarbonizing transportation," Velez said. "There was no clear winner at the time. Now we know, and the California Air Resources Board has stated, that all-electric is the way forward."

Borrowing from California's playbook

The federal government has previously threatened the fuel industry with legislation and regulation, but the tug-of-war between oil and gas and agricultural interests has made the prospect of a national clean fuel program unviable. Zenk said this is not necessarily a bad thing.

Zenk, who worked for years with alternative fuel producer Sapphire Energy as West Coast clean fuel programs came online, said each new program brings localized opportunities.

In Washington state, the program includes environmental justice-related provisions requiring air pollution mitigation near vulnerable communities and ensuring that other program benefits, such as charging infrastructure, are specifically located in these communities. Zenk said states debating clean fuel programs today can address the particularities of their greenhouse gas challenges by working at the state level—for example, aviation accounts for twice as much of Hawaii's transportation greenhouse gas emissions 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 for different fuels set by the California Air Resources Board within 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,' for example. Then Oregon can look at it and say, 'Okay, the California Air Resources Board has already done the calculations. Let's just copy their homework,'" Adams said.

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

Perhaps the most attractive state for renewable fuel producers is New York, where the state's chapter of the Environmental Voters League 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 advance 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 strict rules barring oil and gas companies from joining.

Although seeing a conservation group standing alongside fossil fuel giants may seem odd, McClellan said the New York League of Conservation Voters came to this issue naturally, comparing it to supporting offshore wind projects when oil producers bid on them.

"If they're willing to support it, great, the more the merrier," McClellan said. "We do think this is 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 thermal energy annually, nearly four times that of New Mexico.

Beyond the numbers of natural gas potential, legislation in New York and New Jersey would be an influential shift, establishing 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 both New York and New Jersey adopt these standards," Campbell said. "When these states adopt clean fuel standards, the scale won't be as large as California's, but it certainly shows that these policies are important considerations for other states."