Last month, the U.S. Environmental Protection Agency (EPA) announced a host of new incentives to encourage the use of fuels derived from biomass—including biogas that replaces traditional natural gas in the form of compressed natural gas (CNG) or liquefied natural gas (LNG). EPA is planning to develop rules allowing states to rely on biomass obtained from sustainable practices to be used for compliance with its “Clean Power Plan” to cut carbon dioxide (CO2) emissions from power generating facilities and exempting certain biomass-based greenhouse gas (GHG) emissions from best available control technology requirements when obtaining permits under the Clean Air Act.

Incentives Under the Clean Power Plan

These measures are significant, because the proposed existing source performance standards under EPA’s Clean Power Plan would require an overall 30% reduction in CO2 emissions from the power sector by the year 2030. States are expected to propose implementation plans by 2017 in order to meet interim emission reduction goals beginning as early as 2020. States have flexibility to meet their targets and may include measures that increase reliance on renewables.

With regard to biomass, EPA is planning to treat the combustion of “waste-derived feedstocks,” “certain forest-derived industrial byproducts” and “sustainably-derived agricultural- and forest-derived feedstocks” as elements of an acceptable state implementation plan. Acceptance of these types of feedstocks is likely to boost investment in biomass and biogas feedstocks for power generation facilities as states struggle to find ways to meet their reduction targets. Complicating such investment, however, is that EPA has not yet provided clear guidance to the states or the regulated community on how these feedstocks are to be defined, what sort of verification may be required to qualify, or how state compliance plans should integrate these resources.

Exception to Best Available Control Technology Requirements

In addition, EPA is preparing to consider GHG emissions from certain biomass-derived fuels as exempt from the best available control technology requirements when a permit is required under the agency’s Prevention of Significant Deterioration (PSD) program. Under EPA’s existing regulations, a best available control technology analysis must be performed for GHG emissions whenever a source is already required to obtain a PSD permit for another regulated pollutant. The exemption would be based on EPA’s assertion that the use of waste-derived feedstocks and sustainable non-waste biogenic feedstocks would have minimal or no net contributions to CO2 in the atmosphere.

Although EPA’s proposals are not final, both measures stand to further encourage the use of various biomass-derived fuels, particularly woody biomass and biogas from landfills, wastewater treatment facilities and waste digesters. Despite existing challenges to securing long-term feedstock supply for new facilities, woody biomass is already used in sizable quantities to generate electricity in certain areas of the country. Such facilities could gain a competitive advantage over fossil-fired generators under EPA’s proposals. Notice and comment periods will provide stakeholders with the opportunity to submit comments and to offer the agency insight into the most commercially reasonable way to finalize the rule.

Biogas has been particularly attractive to investors in recent years because the Renewable Fuel Standard has significantly spurred its production and use as a transportation fuel. While EPA’s most recent actions would not directly promote biogas used as a transportation fuel in the form of CNG or LNG, they could further incentivize the conversion of biogas to electricity. Further, as part of its recent bill to fund the federal government, Congress has prohibited EPA from using funds to require farms to report GHG emissions from, or obtain GHG permits for, manure management systems. This measure, combined with the above actions taken by EPA as well as low carbon incentives in California, Oregon and Washington State, will help provide a more secure outlook for investment in biogas projects.