Pricing, impact, and other corporate considerations for RNG

Renewable natural gas (RNG) is an exciting solution for addressing greenhouse gas (GHG) emissions from natural gas combustion. To date, RNG has been used primarily in U.S. transportation markets associated with compliance programs, but the voluntary market for corporate buyers is growing quickly. The target market among corporations is those with significant natural gas consumption that they cannot easily electrify in the near term. 

Assessing whether RNG may be a good solution for your company starts by looking at your GHG emissions inventory. If your scope 1 emissions are more than 100,000 MMBtu per year (~30 GWh) from natural gas consumption and you don’t have plans to electrify in the next 10 years, then RNG could be a good fit. If not, there are other climate solutions to prioritize before pursuing RNG, such as switching to renewable electricity and addressing emissions in your supply chain. 

While RNG can be an effective tool for decarbonization, it is not suitable for all corporate buyers and several considerations must be validated prior to RNG purchasing.  The key considerations are as follows:

Let’s walkthrough each of these considerations for RNG buyers.

Consideration 1: Renewable Natural Gas Price

Price is typically one of the most important decision factors for companies considering whether or not to pursue an RNG procurement. Renewable Thermal Certificates (RTCs) represent the environmental attributes associated with RNG and they can cost significantly more – currently six to eight times higher – than the natural gas itself in the U.S. 

The higher price for RNG is due to its use in transportation compliance markets, known as Clean Fuel Standards (CFS).  RNG developers have their choice of market when selling their product, which often results in voluntary buyers needing to match the compliance market price to procure RNG.  However, because the value of the CFS market can be volatile and is unknown in the long term, some developers are willing to agree to long-term contracts with voluntary buyers for prices that are lower than the current compliance market, although still well above the natural gas commodity price.

Consideration 2: Renewable Natural Gas Feedstocks

The biogas that is used to create RNG can come from a variety of sources, or feedstocks.  There are many feedstock project options available for alignment with your company’s mission, values, and impact preferences.  The feedstock options vary in price, carbon intensity, and co-benefits.  There are tradeoffs that result when companies prioritize certain factors, such as higher prices for greater carbon displacement or lower prices for projects that may have less environmental integrity. It is critically important to be aware of these tradeoffs and conduct appropriate due diligence to understand the risks.

For example, some crops can be used as a feedstock for RNG.  While crops as a feedstock are more common in Europe than they are in the U.S., these feedstocks are part of the debate around food versus fuel and how growing crops for RNG production, rather than for food, could divert resources from food production.  There can also be criticisms about the farming practices used to grow these crops that can result in the degradation of soil health and environmental quality.  This critique of crop-based RNG is an important consideration for any company, but especially for food companies as the use of crops as a feedstock may directly conflict with their mission and values, posing a major reputational risk. 

RNG can also be made from food waste, landfill gas capture, dairy effluent, animal manure, and more.  In order to choose, it’s helpful to filter through the project options with your company’s needs and mission in mind.  To continue the example of purchasing RNG as a food company, you could incorporate the concept of circularity in sourcing your RNG from a project that uses food waste as the feedstock.

Consideration 3: GHG Reporting Validity

Each GHG reporting standard, whether voluntary or compliance, has its own set of rules and guidelines as to what is accepted.  The primary example is the Greenhouse Gas Protocol (GHGP), which is still reviewing whether RTCs can be used to claim scope 1 emissions reductions.  While other voluntary standards, like the Climate Registry, allow RTCs, there are others that align with the GHGP and note that their GHG accounting role is still under development.

As a result, it’s important to:

1. Review the standards to which your company reports in detail in order to ensure that they allow the use of RTCs; or
2. Decide that your organization will invest in RNG for ingenuity purposes or mission alignment, rather than the reporting aspects.

While it will take time, 3Degrees believes that the GHGP will define a transparent, comprehensive methodology that allows for the use of RTCs to adjust gas emissions. Until then, we recommend companies use the frameworks put forward by regulatory programs, while also consulting with their auditors and being transparent about their use of market-based accounting. More detail on GHGP guidance around RNG can be found in this article. 

Consideration 4: Environmental integrity

To have the desired impact, make credible claims, and avoid reputational risk, it is important to choose a project with sound integrity (i.e., it’s doing what it says and doing it well). There are several environmental risks that RNG projects can pose, and below are a few to look out for: 

• Projects that don’t have necessary safeguards in place to prevent environmental damage, like manure projects that contribute to waterway pollution;
• Projects that have negative public perception because of the environmental harm that its feedstock contributes to, like landfill gas projects; and
• Projects that offer inflated environmental claims that are unsubstantiated.

Conducting deep project-level due diligence is required to ensure that factors like those above do not cause unnecessary hurdles in your RNG procurement process or expose your company to avoidable reputational risks.

Consideration 5: Social and environmental co-benefits

While we’ve been largely focusing on costs and risks associated with RNG, there are often benefits outside of the obvious environmental attributes that can increase the social and/or environmental benefit of your investment.  Some examples include: investment into projects that provide additional revenue to farmers and local communities; water quality improvements through RNG projects that reduce harmful runoff; projects offering a source of biogenic CO2 to replace fossil-based alternatives; or air quality improvements from projects such as landfill gas conversion. 

As with the feedstock selection, picking a project that has co-benefits that align with your company’s mission and values is a best practice.  A food company might find it highly mission aligned to focus on co-benefits from projects using food waste diverted from landfills and bringing investment into the farming community.

Conclusion

RNG can be a great solution to address your GHG emissions from natural gas consumption, but a key component of evaluating your company’s decision to pursue RNG, or not, is making sure you evaluate the factors outlined above.  While this list contains many primary considerations, it’s not exhaustive and there are additional factors to consider, such as location of the project, and opportunities to match RTCs with actual gas consumption throughout the year, among others.

Reviewing each of these considerations will help ensure that your company is making an informed, impactful purchase that best meets its needs.