Biomass electricity generators in the United States could benefit from two new technology-neutral tax credits introduced under the Inflation Reduction Act (IRA), according to analysis published by KPMG.
The credits — the clean electricity production credit (section 45Y) and the clean electricity investment credit (section 48E) — are available to a broad range of generation technologies, including facilities that produce electricity from combusted or gasified biomass, provided they can demonstrate a greenhouse gas (GHG) emissions rate of zero or below on a lifecycle basis.
Unlike the legacy credits they replace (sections 45 and 48), the new regime is not restricted by technology type, meaning biogas-fired engines, anaerobic digestion systems, landfill gas facilities, wastewater treatment plants and woody biomass combustion units may all qualify — subject to lifecycle analysis verification.
Taxpayers must choose between the two credits. Section 48E offers a base investment tax credit (ITC) rate of 6%, rising to 30% where prevailing wage and apprenticeship (PWA) requirements are met, or where a facility's net output is below 1MW.
Additional uplifts of 2% — or 10% if PWA conditions are satisfied — are available for projects located within designated census tracts or incorporating sufficient domestically produced components.
Section 45Y, the production tax credit (PTC), provides a base rate of $0.003 per kilowatt-hour (kWh), rising to $0.015 under PWA requirements or for sub-1MW facilities. Rates are subject to annual inflation adjustment; for 2025 the adjusted base rate stood at $0.006/kWh.
Both credits are generally available to qualified facilities beginning construction before 31 December 2035, with a reduced benefit applying to projects commencing after 2033.
KPMG notes one important distinction for biogas developers: unlike the former section 48, section 48E limits the qualifying asset base for biogas facilities to power-generation equipment only, excluding ancillary components such as anaerobic digesters.
This narrowing of the ITC benefit may make the PTC the more attractive option for some projects.
The credits have also been subject to modification under the One Big Beautiful Bill Act (OBBBA).
While biogas retains the 2034–2035 phaseout timeline — unlike wind and solar, which face an accelerated phaseout — the OBBBA introduced new "prohibited foreign entity" (PFE) restrictions.
From tax years opening after 4 July 2025, credits will be disallowed for any facility constructed with material assistance from entities connected to China, North Korea, Iran or Russia.
The rules cover both direct credit claimants classified as PFEs and facilities where such entities provided a material share of manufactured components or products.
Developers are also required to maintain documentation on the origin of biomass feedstocks used at qualifying facilities to support lifecycle GHG emissions verification.
