Renewable natural gas plays a role in reducing emissions—scaling it is one potential near-term action on the journey to decarbonization.

The energy transition is underway. Corporations and policymakers are embarking on ambitious decarbonization journeys to reduce dependence on fossil fuels. Renewable natural gas (RNG) emerges as an alternative fuel that could contribute to substantial emissions reductions across multiple industries.

At present, fossil natural gas—which comprises 95 percent methane, 5 percent ethane, and trace amounts of other hydrocarbons—is the second largest source of primary energy in the United States, responsible for 33 percent of the country’s energy consumption in 2021.¹ And in the last decade, natural gas consumption has grown by approximately 2 percent per year.² As natural gas plays a significant role across sectors in the US energy system—including building and industrial heating, transportation, chemicals, and power generation—much infrastructure (such as wells, pipelines, power plants, and liquid natural gas [LNG] export terminals) has been built to extract, transport, and combust natural gas.

RNG is a purified form of waste-derived biogas generated from anaerobic processes and then upgraded to pipeline-quality gas. It is virtually indistinguishable from fossil natural gas (both are more than 95 percent methane).³ RNG has the potential to decarbonize a portion of the emissions across many sectors and can be a like-for-like (in other words, a “drop-in”) replacement for fossil natural gas—meaning that end users do not have to modify engines, distribution systems, or other equipment when switching.

Depending on the type of waste (feedstock) used to produce RNG, the associated greenhouse gas (GHG) reduction ranges between 50 percent (emissions intensity of approximately 50 grams CO₂ equivalent per megajoule [gCO₂e/MJ]) and 300 percent (emissions intensity could drop lower than approximately 300 gCO₂e/MJ) compared to fossil natural gas (90 to 100 gCO₂e/MJ). This calculation will vary based on feedstock as well as the calculated baseline emissions for natural gas used for comparison (see sidebar, “RNG can be produced from a variety of sources—with varying costs, availability, and carbon intensity”).⁴ This characteristic, combined with RNG’s ability to be used in existing gas infrastructure without infrastructure modification, points to its physical viability as an alternative to fossil natural gas.

However, because RNG is feedstock limited and is not always economically viable, it is not a silver bullet for decarbonization. Currently, RNG supply represents less than 1 percent of natural gas supply in the United States and, even if supply were built out to utilize all potential feedstock, RNG would represent about 5 to 20 percent of current natural gas demand.⁵

Despite RNG’s supply limitations, it can become an important part of a portfolio of solutions to achieve deep decarbonization, particularly in the near term, as other low-carbon molecules such as hydrogen are still in the early stages of commercial scale-up. Therefore, scaling up RNG—and determining which end-use markets can derive the most value from it—matters in the energy transition.

This article explores the RNG landscape, including the regulatory environment, the prospects and challenges for developers, and potential unlocks to capture value and realize RNG as a sustainable energy source.

The RNG market and evolving regulations

Policy addresses three areas of the RNG market: first, which end uses consume RNG; second, the calculation of RNG’s carbon intensity (and therefore its value); and third, where RNG physically comes from and to where it can be sent.

End uses

Most RNG goes toward compressed natural gas (CNG) vehicles due to policy incentives, including the federal renewable identification number (RIN) scheme and the Low Carbon Fuel Standard (LCFS) available in British Columbia, California, Oregon, and Washington.⁶ Based on our analysis, these policies can provide incentives up to 20 times the value of natural gas.

The CNG market is small—transport represents less than 1 percent of US natural gas demand. The CNG market in CA is already saturated with RNG and will continue to be saturated as growth in EVs outpaces growth in CNG.⁷ Other sectors’ uptake of RNG will largely hinge on policy, including:

• Buildings (26 percent of natural gas [NG] consumption). Several states—including California, Illinois, and Minnesota—have passed policies that facilitate gas utilities blending RNG into their systems.⁸
• Power generation (38 percent of NG consumption). RNG could theoretically earn value in power generation in some states through Renewable Portfolio Standards, though Renewable Energy Certificate (REC) pricing is currently insufficient to spur the RNG market in the power sector.⁹ Alternately, the Environmental Protection Agency’s (EPA) December 2022 proposed rule introduced a potentially more lucrative opportunity to generate RINs via biogas-to-power for electrified transport, but relevant policies were not implemented in the EPA’s final 2023 Renewable Fuel Standards.¹⁰
• Industry (32 percent of NG consumption). The United States does not have policies promoting the use of RNG in industry. Industrial demand for RNG is instead driven by companies meeting voluntary climate targets.¹¹

Carbon intensity

Under some policy mechanisms, the carbon intensity (CI) of RNG is critical to its value. Therefore, CI accounting policy will influence the relative value of RNG production pathways and which types of RNG go to which end markets.

For example, in California’s LCFS policy today, varying assumptions related to avoided emissions during RNG production result in materially different carbon intensities and associated LCFS credit values across production pathways.¹² Agriculture manure is assumed to emit methane in a baseline scenario; as a result, RNG produced by processing that manure is calculated to have a very low CI due to the avoided methane emissions. By contrast, landfills typically have a cap that captures the methane before it is emitted and a limited amount of methane is released to the atmosphere in a baseline scenario—therefore, the CI calculation for RNG from landfills assumes a smaller avoided methane emission, leading to a higher CI (Exhibit 1).

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