Renewable natural gas is set to be in more demand in the coming years to help reduce emissions and diversify energy supply chains. Supported by policy and customer willingness to pay, the market is expected to nearly triple in Europe and more than double in the US by 2030. Despite this growth, challenges remain around policy streamlining and innovation
Renewable natural gas (RNG), also known as biomethane in Europe, is experiencing a resurgence in popularity due to its significant benefits.
As a clean energy source, RNG not only prevents methane emissions from waste but is also fully compatible with the existing natural gas infrastructure, making it a seamless and sustainable alternative to conventional natural gas.
While the market is niche right now, it is rapidly growing. Between 2024 and 2030, we forecast a 2.7-fold increase in production in the EU and a 2.3-fold increase in the US.
Still, the higher cost of production creates challenges for the industry, and we think targets set by the EU may be too ambitious. Indeed, current policies and market dynamics lead us to expect that EU production will be less than half of the bloc’s target, while the aspirations of US companies and state governments may also face obstacles. To unlock the production potential, we believe that policy support can be further improved.
In this article, we explore the RNG market by examining its societal benefits, supply and demand dynamics, and policy developments in the US and Europe.
RNG is produced from organic materials and refined to meet high purity standards. Production methods include:
The societal benefits of RNG
These attractive traits, combined with government mandates and incentives, have boosted RNG's momentum in recent years. Production capacity is estimated to have doubled in both Europe and the US between 2020 and 2024.
Looking ahead, new growth drivers have emerged. The first is versatile decarbonisation. RNG's role, initially concentrated in transportation, is expanding into additional sectors. The second is supply diversification. The willingness to add RNG to natural gas portfolios, particularly in Europe, to reduce dependence on Russian imports, is translating into concrete actions.
As a result, we anticipate robust expansion of the RNG market, with annual production projected to rise to around 15 billion cubic meters by 2030 in the EU, experiencing a 2.7-fold growth. During the same period, US RNG production is likely to increase 2.3-fold to about 14 Bcm.
It is true that the RNG market will remain niche. RNG production will likely account for 5.2% of natural gas demand in the EU by 2030, from 1.5% in 2023. For the US, the share is expected to increase from 0.5% to 1.6% during the same period. Nonetheless, RNG represents one of the fastest-growing alternative gas markets, and its appeal in energy security and decarbonisation means the fuel will only become more important in the future.
The profitability of RNG projects is supported by several pillars, and as the RNG market evolves, revenue streams have become more diverse, boosting the outlook for production.
Nevertheless, cost remains a challenge. Today, the cost of RNG production ranges from $17 to $26 per million British thermal units (mmBtu) (€51-78/MWh) for anaerobic digestion in Europe, while natural gas prices at the Netherlands-based Title Transfer Facility (TTF) are around $10-$12/mmBtu (€32-38/MWh). In the US, the range of RNG production costs is wider, from less than $10/mmBtu for the cheapest landfill-to-RNG projects to over $40/mmBtu for certain projects through anaerobic digestion. That compares with natural gas prices of around $3-4/mmBtu. In both markets, the thermal gasification process for RNG production from bio-feedstock is more expensive, and there is more limited application of this method.
The abovementioned revenue streams are thus crucial to making projects profitable and attractive. But in various cases, they can be either uncertain or insufficient. For instance, policy support can sometimes be concentrated in a specific sector and not others; high RNG premiums can also discourage smaller customers from purchasing. Additionally, RNG production is tied to feedstock price and availability. For instance, RNG produced from landfill gas depends on the quantity and composition of waste collected at landfill facilities. Similarly, RNG produced from manure relies on the availability of animal waste, such as from cows.
The cost of RNG production is on a downward trajectory because of improving feedstock collection mechanisms, advancing biogas upgrading technologies, developing infrastructure, etc. Nevertheless, fluctuations in feedstock costs can impact the total cost of RNG production.
These challenges, along with ambitious targets, create a significant gap between aspirations and reality. The EU aims to produce 35 Bcm of RNG by 2030 under the REPowerEU strategy. It is estimated that about 27bn euros of investment was committed to RNG in the EU by the end of 2024, which could add around 6.3 Bcm of annual production by 2030 from just over 6 Bcm in 2024. While investment is likely to go up further, current policies and market dynamics have led us to expect the EU to produce over 15 Bcm of RNG by 2030. This means that less than half of the bloc’s target is likely to be met, highlighting the discrepancy between the EU's expectations and what member states can realistically deliver.
The US does not have an RNG production target and would not have any under the Trump administration. Nonetheless, there may still be a gap between the ambitions of corporations and state governments and the actual production levels.
Policy has played a pivotal role in facilitating historical RNG market growth and will continue to be key for the fuel’s future. Policy—both carrots and sticks—will be key to providing comfort for offtakers to sign long-term deals, which can unlock easier financing for RNG producers.
In the US, the federal Renewable Fuels Standard (RFS) has been instrumental in stimulating RNG production. This support is expected to continue, as biofuels have been listed by President Trump as a resource to be promoted for US energy dominance. However, this strategy requires balancing the interests of the agricultural and refining industries, which are on opposite ends of the supply chain. We anticipate the Environmental Protection Agency will set moderately aggressive RFS obligations while working with small refineries on waivers and postponed compliance.
At the state level, California’s Low-Carbon Fuel Standard (LCFS) is another key enabler for RNG. Last year, the state proposed reforms requiring the physical delivery of RNG to California and reducing the number of years a new facility can generate carbon credits under the LCFS, starting next decade. We expect these reforms to proceed, with only a mild impact on the long-term RNG outlook. California’s LCFS market is the largest, and several other states have adopted similar standards, with a few more in the process.
The RFS and LCFS programmes primarily target the transport sector. The Inflation Reduction Act, on the other hand, awards tax credits to both the production of RNG as a clean transport fuel and as a source of renewable power. This is a pivotal policy for expanding RNG’s application in the US economy, and we expect these provisions to largely remain in place.
Additionally, policies in about 30 states aim to enhance RNG usage across sectors. These include allowing gas utilities to recover related costs (e.g., Ohio, Nevada), rolling out tax incentives (e.g., Colorado, Hawaii), and making RNG eligible under state renewable portfolio standards (e.g., New Hampshire). While these policies are not as influential as the RFS or LCFS, they are laying the groundwork for broader RNG application.
Similarly, Europe has a long history of supporting RNG. Production surged following key legislative changes, such as Germany’s Renewable Energy Sources Act amendment in 2012, France’s Energy Transition for Green Growth Act in 2016, and Italy’s decree to promote RNG in the transport sector in 2018. These policies were primarily in the form of targets, subsidies, feed-in tariffs, and contracts for difference.
As countries in the EU work towards achieving their national RNG targets, two policy trends have emerged:
These certificates are still under development. Currently, only 15 member states have official GO issuing bodies. Notable exclusions are Poland, Portugal, and Sweden. And while Germany has an issuing body, it will not be operating until 2026. Moreover, of the 15 countries with issuing bodies, only 9 have at least one cross-border transfer system. Nevertheless, ongoing efforts will enhance the transparency and robustness of the European RNG market.
To unlock the production potential, policy support can be further improved. The EU would need to streamline regulations and strengthen cross-country pipeline infrastructure. For the US, policies can be enhanced in non-transport sectors, focusing on injection standardisation and book-and-claim systems. For both jurisdictions, a higher carbon price would strengthen the business case for RNG. The EU's ETS prices are on a long-term upward trajectory, which will help with RNG development, but the ETS can benefit from an even broader sector coverage and deeper emission cap cuts. In the US, there is no nationwide system, and none is expected soon, so other supply drivers will need to play a bigger role.
