Just in the United States, 500 facilities are likely to be operational by the end of 2025, with that number predicted to double by 2030.

For investors, this is more than a sustainability play – it’s a relatively untapped market with considerable upside, particularly in the renewable thermal credit (RTC) space.

While still nascent, RTCs represent an emerging financial instrument that could play a pivotal role in decarbonization strategies for corporations navigating complex regulatory landscapes.

These financial instruments, akin to renewable energy credits (RECs) in the electricity sector, provide companies with a market-based mechanism to offset emissions from thermal energy use.

While the RTC market remains relatively illiquid, there is growing interest among institutional capital to participate in this emerging space as the overall REC market is forecasted to grow to $40bn by 2033. Early investors are structuring their involvement by purchasing RTCs directly from producers, financing RNG infrastructure projects, and leveraging structured commodity swaps to manage exposure.

Given the increasing pressure on corporations to meet net-zero targets, the demand for these credits is expected to increase, presenting a key investment opportunity for the alternative investor industry.

Regulatory complexity and market opportunity

The US regulatory environment surrounding RNG and RTCs is a patchwork of state-level initiatives, federal mandates, and evolving corporate sustainability requirements.

California’s Low Carbon Fuel Standard (LCFS) and the Environmental Protection Agency’s Renewable Fuel Standard (RFS) have been instrumental in driving RNG adoption, but policy uncertainty remains a challenge for investors, especially at the federal level.

At the same time, multinational corporations operating across jurisdictions must contend with varying compliance regimes. The European Union’s commitment to its “Fit for 55” agenda is still strong.

Multinational companies having to comply with the Renewable Energy Directive and the newly-established FuelEU Maritime initiative will necessarily incorporate RNG into their energy mix.

The continuation of renewable fuel requirements and regulations will make the market remain on its growth path, regardless of the policy shifts under the current US administration.

Regulatory frameworks in the US, Europe and beyond, continue to drive demand for low-carbon energy solutions, which will undoubtedly lead to the emergence of associated secondary markets for RTCs and other renewable fuel credits.

Early investors in these markets are likely to gain understanding and capitalize on their eventual growth.

Experienced investors who enter such markets will be in a prime position to understand market dynamics and structure their portfolios accordingly. In a market with a variety of regulatory, geopolitical, and corporate-led drivers, sophisticated investors will have the opportunity to adapt their hedging strategies and position themselves to profit from volatility and price uncertainty in this nascent market.

The case for investor involvement

Investors, including hedge funds and private equity firms, are beginning to take notice of RNG as a real asset with long-term value. As corporate sustainability commitments solidify and regulatory landscapes evolve, demand for RNG and RTCs will keep rising.

Investors who understand the intricacies of these markets today will be best positioned to benefit from their maturation in the future.

The early 2000s saw the growth and evolution of renewable energy credit markets. Carbon markets started consolidating less than a decade ago. Now, the investment in biofuels and green gas points towards a similar surge in the RTC market, creating investment opportunities and secondary markets.

Investors with environmental products in their portfolios or experience in environmental markets will see that this space presents as large an opportunity as other liquid and heavily financialized environmental asset markets.

At Marex, we have the necessary expertise and product offerings to help clients navigate this market as it scales and matures.