Changes to biogas tax credits in 2025 

The longstanding Investment Tax Credit (ITC) under Internal Revenue Code (IRC) section 48 for qualified biogas property has expired for projects that have not begun construction by Dec. 31, 2024. Developers who relied on section 48 as a funding source focused on capital cost reductions may need to explore other biogas tax credits, most notably section 48E, for projects that begin construction on or after Jan. 1, 2025.

What is section 48E?

Section 48E introduces Clean Electricity Investment Tax Credit for qualified clean electricity generation projects beginning construction on or after Jan. 1, 2025. Biogas projects that generate electricity (e.g., via fuel cell systems, reciprocating engines, or combined heat and power units) may qualify if they meet section 48E’s clean energy requirements. Specifically, a project’s electricity generation facility must demonstrate net-zero or negative greenhouse gas (GHG) emissions. Fortunately, many biogas projects can show net-negative lifecycle emissions by capturing and destroying methane that would otherwise be released into the atmosphere, thus potentially qualifying for section 48E.

Changes to ITC-eligible basis 

Under section 48 Investment Tax Credit for Qualified Biogas Property, the ITC eligible basis could include all property that was integral to the production of energy, power-generation equipment, as well as feedstock preparation, feedstock collection (e.g., anaerobic digesters), gas upgrading equipment and ancillary systems critical to biogas production. 

However, under section 48E, only power generation equipment (e.g., engines, generators, fuel cells, and inverters) can be included in the ITC-eligible basis. Costs associated with feedstock preparation, digestion, collection, upgrading, or other pre-generation activities are no longer eligible. This reduces the portion of capital costs that can benefit from the ITC, which is significant given the typically high costs of anaerobic digesters and gas upgrading equipment. 

Under section 48E, a “qualified facility” is defined as a facility used to generate electricity. Consequently, standalone renewable natural gas (RNG) and biogas operations do not qualify for the section 48E credit unless they include an electricity-generating component. This differs from section 48, which provided an ITC for such facilities and their RNG-producing components. 

Although some commenters to the proposed regulations requested that certain biogas components, such as anaerobic digesters and gas conditioning systems, owned by the same taxpayer as the generation facility be treated as part of an electricity-generating facility, the Treasury and IRS declined to offer relief. Their position is that such biogas property is primarily involved in producing fuel rather than electricity, making it ineligible for the section 48E credit. As a result, there is no credit under section 48E for anaerobic digesters or gas conditioning equipment. This outcome may be particularly challenging for the RNG industry for projects beginning construction on or after Jan. 1, 2025. 

However, there are still clear pathways for certain biogas properties to be eligible for an ITC under the new section 48E, including: 

Noncombustion technologies (fuel cells) 

• Fuel cells often have low or zero direct combustion emissions, making it easier to meet the section 48E emissions threshold 
• Must show the overall system complies with 48E’s clean electricity criteria validated through a GHG lifecycle analysis 

Combustion technologies (CHP and reciprocating engines) 

• Combustion technologies must demonstrate that the lifecycle GHG emissions rate from the engine-generator is effectively zero or negative. 
• Projects often rely on net-negative emissions benefits derived from capturing and converting biogas, which would otherwise be vented or flared.  

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The complexity of the ITC shouldn’t hold you back. Our specialists and solutions can help eligible taxpayers fully leverage the new section 48E tax credit to maximize Inflation Reduction Act (IRA) tax credits.  

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.