New Law Offers $1.00 Per Gallon Tax Credit for Renewable Natural Gas, Direct Payments Start 2026

The Renewable Natural Gas Incentive Act of 2025 is essentially a massive financial boost aimed at getting more renewable natural gas (RNG) into vehicles, planes, and boats. Think of it as a significant subsidy for cleaner fuel, structured through the tax code. Starting in 2026, anyone selling or using qualifying RNG as fuel will be eligible for a new tax credit: $1.00 for every gallon (or gasoline gallon equivalent) they move. This isn’t just a small deduction; this is a dollar-for-dollar credit that runs until the end of 2035.

The $1.00 Fuel Discount

What does $1.00 per gallon mean in the real world? For a trucking company running a fleet on natural gas, this credit could drastically lower their operational costs, making RNG far more competitive against traditional diesel and gasoline. RNG is gas produced from biomass—think decomposing organic matter like landfill waste or agricultural runoff. By offering this strong incentive, the bill aims to accelerate the transition to this fuel source. To make sure the money actually flows, the bill includes a crucial provision: businesses that earn this credit can opt to receive the amount as a direct payment from the government. This is a big deal because it means companies don't have to wait until tax time or have enough tax liability to benefit; they get the cash directly, improving their immediate bottom line and making investments in RNG infrastructure more appealing.

Blending Rules and the Fine Print

Since RNG often gets mixed with regular compressed or liquefied natural gas, the bill lays out clear rules for how that works. If you blend the two, you can still claim the credit, but only for the certified amount of RNG in the mix. This requires the producer of the RNG to register with the IRS and provide specific certification documents to the taxpayer claiming the credit. The law also establishes a technical standard for what counts as a “gasoline gallon equivalent” of nonliquid RNG: it must contain 124,800 British Thermal Units (Btu). This level of specificity is good—it removes ambiguity for the energy sector and makes compliance straightforward.

Who Benefits and Who Pays?

The primary beneficiaries here are the producers of RNG (like waste management companies or large agricultural operations with anaerobic digesters) and companies that operate large vehicle fleets. For example, a city transit authority that switches its bus fleet to RNG could see significant savings thanks to the $1.00 per gallon credit, potentially freeing up budget for other municipal services. However, this is a tax expenditure, meaning it costs the federal government money. While the bill is clear and low on vagueness, the cost of this decade-long subsidy will ultimately be borne by taxpayers, either through increased revenue generation elsewhere or through deficit spending. Also, if you’re trying to sell RNG produced outside the United States, you're out of luck—the credit is strictly for domestic production and use.