As we continue exploring how to produce clean fuels from geothermal wells and waste methane, one challenge looms large: regulatory clarity. Specifically, how do we classify waste methane — and will that classification help or hinder our clean fuel goals? Can we get production tax credit (PTC) under section 45, 45Z and 45Y, or Investment Tax Credit under section 48. Further guidance is expected from the Treasury Department and IRS on these topics. Stay tuned.
What’s Ahead in This Series
This article is Part 2 of a 5-part series outlining a novel clean fuel strategy that leverages geothermal energy, waste methane, and modular hydrogen production. Here’s where we are — and what’s coming next:
- Posted Monday: A Novel Clean Fuel Strategy: Where Geothermal Meets Waste Methane
- Today (Tuesday): Can Waste Methane Be the Hero? Navigating Classification and Compliance
- Coming Wednesday: Geothermal-Powered Hydrogen: Rethinking Steam Methane Reforming
- Coming Thursday: Closing the Loop: From Green Hydrogen to Carbon-Neutral E-Fuels
- Coming Friday: A Circular Pathway to Truly Clean Fuels: What It’ll Take
The Compliance Crossroads
Not all methane is created — or regulated — equally.
In many geothermal regions, methane seeps into well production unintentionally. It’s not extracted for commercial use; it’s just there. This “waste methane” poses both an opportunity and a legal puzzle.
Under certification schemes like ISCC (International Sustainability and Carbon Certification), determining whether this methane qualifies as “sustainable” feedstock is critical. If it qualifies, the resulting hydrogen and fuels can command premium pricing and access to low-carbon markets. If it doesn’t, the economics can fall apart — regardless of how low the emissions profile may be.
How Regulators View Waste Methane
Some regulators treat waste methane as a byproduct with limited oversight. Others view it more like natural gas — subject to the same environmental and carbon accounting as any fossil-derived fuel.
To make matters more complex, the treatment can vary depending on whether the methane is flared, vented, or captured. In some cases, capturing methane that would otherwise be released can yield carbon credits. In others, the absence of a regulatory framework leaves project developers stuck in a gray zone.
What Needs to Happen
For geothermal + methane hydrogen projects to take off, we need clearer, more harmonized policy support. That includes:
- Standardizing waste methane classification under global certification systems like ISCC. Right now, it’s unclear whether methane that surfaces unintentionally during geothermal production qualifies as “sustainable” — even when it’s captured instead of flared or vented.
- Aligning incentives to reward the capture and conversion of methane that would otherwise be released into the atmosphere. Under Section 45 of the U.S. Internal Revenue Code, producers of renewable electricity can claim a Production Tax Credit (PTC) of up to 2.75 cents per kWh (in 2023 inflation-adjusted terms) for qualifying projects — and waste methane from landfills and certain natural sources may be eligible. The question is: will geothermal methane qualify under the same rules?
- Section 45Y, introduced in the Inflation Reduction Act, provides a technology-neutral PTC for clean electricity projects beginning construction after 2024. Projects must demonstrate net-zero emissions, which creates both an opportunity and a documentation burden for methane-capture hydrogen systems.
- The Investment Tax Credit (Section 48) offers up to a 30% tax credit for eligible energy property, which could apply to hydrogen production and carbon capture equipment — assuming the project meets prevailing wage and domestic content requirements.
- Clarifying how to measure and verify emissions reductions across multi-step fuel production processes will be essential for compliance and credit qualification. Without transparent accounting, developers risk missing out on incentives — even when their emissions performance is strong.
Some industry players are already lobbying to ensure waste methane — when captured and converted — is treated as a decarbonization asset, not a liability.
Why This Matters
The path from geothermal methane to clean fuels isn’t just a science problem. It’s a compliance and credibility challenge. If classification policies don’t catch up, promising technology may remain stuck in the lab — or worse, the idea pile.
But if the right frameworks emerge, we unlock a fast lane to clean hydrogen that leverages what we already have. The economics of geothermal + waste methane to produce e-fuels suddenly become very attractive, which is good for the environment (because waste methane is being put to good use) and we are producing e-fuels to replace traditional fuels further reducing climate warming.
What’s Next
Tomorrow’s article dives into the engineering side of things: how geothermal-powered SMR could dramatically lower the emissions footprint of hydrogen — and how a modular approach could make it more practical for emerging markets and legacy sites alike.
If you work in sustainability compliance, policy, or fuel certification, I’d love to hear how your team is navigating these issues.