USDA Pauses Loan Guarantee Funding for Biodigester Projects

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January 28, 2026

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by Erin Krueger (Biomass Magazine) The USDA’s Rural Business Cooperative Service on Jan. 14 sent a letter to agency staff implementing a 90-day administrative pause on the acceptance, processing and awarding of loan note guarantees for biodigester projects.

“This action is being taken to allow the agency to conduct a comprehensive review of the existing portfolio of projects, including an assessment of delinquency rates, project performance, operational sustainability and underwriting guidelines to ensure prudent stewardship of federal resources,” wrote J.R. Claeys, administrator of USDA RBCS, in the letter. “This [unnumbered letter (UL)] does not establish new eligibility requirements and does not constitute a determination regarding the merits or viability of any individual applicant or technology.”

The letter explains that RBCS has experienced an increase in biodigester applications across its guaranteed lending portfolio in recent years. “Concurrently, internal portfolio data indicates elevated rates of project underperformance, loan delinquency and operational failure among existing projects falling under these technologies,” Claeys wrote.

According to Clayes, 21 loans for anaerobic biodigesters worth a combined $386.4 million are currently seeing a $102.6 million, or 27%, delinquency.

“The Rural Business Cooperative Service has determined that closer examination is warranted at this time, to ensure that current program administration appropriately accounts for financial, operational, and market risks associated with such projects,
Claeys wrote.

The letter also places a similar 90-day restriction on the acceptance, processing and awarding of loan guarantee notes for projects involving controlled environmental agriculture, such as vertical farming, hydroponics, aeroponics and aquaponics.

A full copy of the letter is available on the USDA Rural Development website. READ MORE

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Excerpt from Inside Climate News: A petition urging the removal of grants and loans for manure digesters from the Rural Energy for America Program highlights concerns that biogas incentives favor factory farms at the expense of smaller livestock operations.

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Biogas made from dairy and pig manure has long been an energy source non grata for environmental groups across the country.

The fuel is touted by agribusiness, utilities and renewable natural gas developers as a way to reduce emissions from livestock operations. But advocates across the country have fought for years against government incentives for the fuel, arguing that its production diverts resources from cleaner energy sources and worsens local air and water pollution.

A recent petition from a coalition of environmental and farmer advocacy groups makes another case against the incentives—that they’re excluding small farmers and giving a leg up to large factory farms that are proliferating across the nation.

In a letter to the U.S. Department of Agriculture earlier this month, the groups asked the agency to remove grants and loans for digesters—devices that farmers install over their manure lagoons to capture methane emissions and convert the gas into fuel—from their Rural Energy for America Program (REAP).

“Digesters are not suitable for small farms, which tend to generate less waste and have smaller budgets, so subsidies for digesters and biogas primarily benefit large, industrial operations,” reads the letter, signed by 34 groups across the country including Friends of the Earth (FOE), Earthjustice, Farm Aid, National Family Farm Coalition and the Institute for Agriculture and Trade Policy. “Support for digesters reinforces the economic advantages that these large operations already have.”

The groups examined grants from the REAP program, which launched in 2002 to promote rural economic development and help farmers and small businesses cut energy costs by funding efficient and renewable energy projects.

They found that of the $3.2 billion in grants and loans that the program doled out for projects like solar panels, wind turbines and energy efficiency upgrades between 2021 and 2025, about $257 million went to 55 new manure digesters.

That’s not a lot relative to the total spending, but the groups argue that the money could have gone to a greater number of smaller projects which are more accessible to small farms, which they say the oversubscribed program was designed to support.

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The petition argues that installing digesters, which cost between $2 million and $12 million depending on their size and design, doesn’t make sense for small farms that don’t have big manure lagoons, so the money is likely going to large operations.

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A February 2025 analysis from the American Biogas Council trade group found that 61 percent of the approximately 397 dairy digesters in the country exist on farms with over 2,500 cows. Twenty-one percent are on farms with 1000 to 2500 cows. And eighteen percent are on farms with fewer than 1,000 cows.

The petition argues that, in addition to excluding small farmers, grants for digesters are unintentionally encouraging farm consolidation, as incentives for biogas production can encourage herd expansion to produce more fuel.

In California, where a state program funnels hundreds of millions of dollars each year to both in-state and out-of-state digester projects, there has been a heated debate about whether it’s happening.

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But, in 2024, the California Air Resources Board concluded that digesters don’t drive farm consolidation. Their analysis confirmed that the total number of dairies in the state has declined, while the average number of cows at the remaining dairies has increased due to consolidation. But they found no significant difference in herd size growth between dairies that installed digesters and those that didn’t.

Michael Boccadoro, head of the California trade group Dairy Cares, said the trend of farm consolidation is driven by other factors.

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Most farmers don’t own their digesters, which removes the incentive to expand production, he added, pointing out that the total number of cows in the state has gradually declined even as dairies have consolidated and average herd sizes have grown.

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Dylan Chase, senior manager of communications for the Renewable Natural Gas Coalition, said the trade group hopes USDA will reinstate funding for digesters, “a well-established and scientifically supported means of managing methane emissions.”

Patrick Serfass, executive director of the American Biogas Council, called the arguments made in the petition “baseless” and said he wasn’t worried about REAP cutting funding for digesters in the long term. The program is meant to support small and large farms, the latter of which have the highest potential to reduce overall livestock emissions and generate renewable energy through digesters, he said.

He added that small farms can install digesters, but they typically have to partner with an entity producing food waste to achieve scale.

“It’s harder because you have a longer return-on-investment, and you have to bring in food waste to make that work,” he said. READ MORE

Excerpt from Manure Manager: According to a 2025 Michigan State University study, anaerobic digestion adoption is highest in California, which houses 31 percent of the nation’s operating digesters. Wisconsin came in second, with 11 percent. Nearly all in both states are located on dairy farms. READ MORE