Negative emissions rates: potential for extreme, unintended fiscal and environmental consequences
Treasury must not include negative emissions values in the published table of emissions rates or allow 45Z credits for blending fossil natural gas with biomethane or captured fugitive methane
Negative emissions rates could have extreme, unintended fiscal and environmental consequences
Assigning negative emissions rates to certain fuels––such as compressed biomethane or compressed captured fugitive methane––will lead to extreme fiscal and environmental consequences. This is also true for allowing a facility blending fossil natural gas with relatively small amounts of biomethane or captured fugitive methane to receive credits under section 45Z. We refer only to biomethane, but these arguments apply equally to biomethane and captured fugitive methane.
If Treasury includes negative emissions rates in the annual table of emissions rates, suppliers of neat biomethane could generate enormous credits when that biomethane is sold as transportation fuel, resulting in harmful market distortions and expending huge amounts of taxpayer dollars subsidizing well-established technologies (methane capture from digesters, etc., and internal combustions engines burning compressed natural gas). It could also delay deployment of other clean fuel alternatives by distorting the market in favor of compressed biomethane. Likewise, allowing producers that blend biomethane and fossil natural gas to claim clean transportation fuel credit under section 45Z may lead to similar negative outcomes.
Negative Emission Rates
Without a cap on the amount of credit a producer can earn per gallon or gallon equivalent, there is the possibility for runaway credit values. As demonstrated below, negative emissions could lead to very high credit values for fuels, which could result in poor environmental outcomes and irresponsible expenditure of taxpayer dollars.
Consider the magnitude of credits that might be claimed for biogenically sourced methane if negative emissions rates are allowed. Under the California LCFS, the carbon intensity for current fuel pathways for biomethane produced from dairy and swine manure ranges from -92.22 to -790.41 g CO2e/MJ biomethane, averaging -302.75 g CO2e/MJ biomethane. Converting the units, this yields -97.29 to -833.88 kg CO2e/mmBTU biomethane, averaging -319.40 kg CO2e/mmBTU. Plugging into the equation to assess the potential tax credit earned for non-aviation transportation fuels:
Allowing such high per-gallon credits for a fuel like compressed biomethane would be expensive for the taxpayer and subsidize an established technology that likely causes significant environmental harm.
Additionally, large per-gallon credits for fuel such as compressed biomethane would lead to undesirable market distortions. This includes the possibility of highly disparate prices between biogas or biomethane from operations that begin capture in response to 45Z compared to those with existing biogas capture or biomethane production. It could also create massive incentives to increase methane production from digesters, such as by addition of non-waste material to the digester. Finally, per-gallon incentives as high as $17 could lead to truly wasteful uses of compressed biomethane in schemes to excessively consume compressed biomethane so that more subsidies can be collected, since the use of CNG as a transport fuel is quite limited while the per-gallon subsidy is so high. Therefore, Treasury must not include negative emissions values in the published table of emissions rates.
Blending of fossil natural gas with biomethane
Treasury should not allow producers that blend a small amount of biogas, biomethane, or captured fugitive methane with fossil natural gas to receive credits under section 45Z. Congress passed section 45Z to subsidize truly clean fuels through feedstocks that may require a subsidy to grow their market share. But because of the strongly negative emissions intensity of some biomethane (see above), allowing such blending would necessitate only a small amount of biomethane to be blended with natural gas (either as a feedstock or a fuel) to qualify for the credit. It would also vastly over-subsidize mature fuels and feedstocks with lifecycle emissions well beyond the amounts intended by Congress in the IRA. Blending could also lead to some of the negative market distortions discussed above, because it could increase the value of negative emissions biomethane.
See CATF’s full comments on 45Z for more information.
