Proposed Renewable Heat Obligation scheme ‘is a market signal for Irish biomethane

In July 2025, Ireland’s minister for climate, energy and the environment secured government support for the introduction of the RHO scheme and approval to commence drafting the Renewable Heat Obligation Bill 2025, which will provide a legislative basis for administration of the scheme, which is due to begin operation in 2026.

The proposed scheme aims to reduce emissions from the heating sector, aligning the country’s climate and energy targets with the EU’s wider environmental goals. It is also expected to reduce Ireland’s reliance on imported fossil fuels and enhance the country’s energy security.

As part of the pre-legislative scrutiny process, the Joint Committee on Climate, Environment & Energy invited submissions on the government’s proposed legislation from members of the public, stakeholders and interested parties.

If implemented in its current draft form, the scheme will place an obligation on major energy suppliers in Ireland to source renewable heating fuels until 2045. As industry waits for the legislation to be finalised, continued engagement is critical to shape the final legislative framework and prepare for compliance. There are some actions stakeholders should take ahead of the scheme taking effect.

The RHO scheme

The RHO is designed to stimulate the domestic renewable fuel sector, diversify Ireland’s energy mix, and help meet EU and national climate targets, including achieving a 55% reduction in greenhouse gas emissions by 2030 and climate neutrality by 2050.

The RHO sits under the EU’s Renewable Energy Directive (EU) 2018/2001 (RED II) as recast under RED III (the “Renewable Energy Directive”), which require member states to increase the share of renewable energy in heating and cooling and set sustainability criteria for eligible fuels.

The scheme will create a statutory requirement for obligated parties to ensure a proportion of their supplied energy for heating comes from renewable sources.

The draft bill states that obligated parties must meet their obligation by supplying at least 50% renewable fuel, and can only trade, or purchase certificates of 50% of their obligation from other RHO account holders. This trading cap, which is designed to guarantee a minimum level of renewable fuel supply for each fuel type, means that companies must plan for direct renewable fuel supply.

The scheme aims to incentivise domestic biomethane production and opportunities for trading RHO certificates within Ireland. Any supply of bioliquids and biogas produced from high Indirect Land Use Change (ILUC) risk-feedstock will not be eligible for the scheme as it does not meet sustainability requirements. This aligns the scheme with EU sustainability criteria and international best practices. In practice, this is expected to apply to feedstocks associated with environmental impacts such as deforestation.

The RHO is due to be implemented in 2026. It is currently anticipated that ‘year one’ will span six months – running from mid-2026 to the end of 2026 – while ‘year two’ will be the full calendar year of 2027. This scheduling is designed to allow the scheme to run on a calendar year basis.

Accordingly, there is an anticipated initial obligation rate of 1.5% in ‘year one’ – from mid-2026 to end-2026 – and subsequent increase to 3% in ‘year two’ in 2027. Practically, this means that in ‘year one’, each obligated party will be required to ensure that not less than 1.5% of the total energy they supply for heating purposes is derived from renewable sources, such as renewable gas.

Who it affects

The RHO will principally affect large suppliers of fossil fuels for heating in Ireland, which include companies such as Flogas, Electric Ireland, Bord Gáis Energy, Yuno, Energia, SSE Airtricity, as well as services like Enprova and Calor Teoranta that are not connected to the national grid. These are entities liable for excise duty or government levies on the supply of natural gas, LPG, mineral oils, or solid fuels for heat.

The scheme will also be particularly relevant to producers and suppliers of renewable heating fuels, especially those involved in biomethane production, since the RHO has already been identified as a potentially critical support mechanism for the emerging anaerobic digestion sector in Ireland.

Renewable energy market participants interested in trading RHO certificates and stakeholders in Ireland’s renewable energy sector, including investors, project developers, and policy advisors, will also need to keep abreast of the legislation to ensure compliance.

Scheme administration

Obligated parties will need to set up and maintain RHO accounts, keep detailed records, and participate in a central registry managed by the National Oil Reserves Agency (NORA).

Suppliers of fuels used for heat under 400GWh per annum will not generally be considered obligated parties, but may voluntarily open an account in certain circumstances. For instance, if a producer of biomethane wants to receive or trade certificates, they may open an account even if they are not obligated to do so.

The bill, in its current form, introduces a levy and a buy-out charge, which will have direct cost implications. Non-compliance will result in financial penalties – known as a buy-out charge – interest and potential criminal sanctions.

Where an obligated party fails, either in whole or in part, to meet its RHO, it will be required to pay NORA the buy-out charge. The exact amount owed will be calculated by a formula outlined in the draft legislation. If all or any part of the buy-out charge is not paid to NORA by the due date, interest on the unpaid amount will accrue at a rate to be prescribed by regulation. The prescribed interest rate was not included in the draft legislation. Under the draft bill, NORA will also have powers of enforcement if required.

NORA will place a levy on suppliers of renewable fuels to support the administrative costs of the scheme throughout its lifetime. The levy is intended to fund the administrative costs of the scheme and is distinct from the buy-out charge, which is a compliance mechanism.

The levy is expected to be €0.001 per litre of renewable heating fuel that a supplier either sells or uses in Ireland during a given month. The amount payable will be based on the total volume of renewable heating fuel supplied or consumed by the supplier in that period. Interest will accrue on any overdue levy payments. The draft bill provides that the minister for climate, energy and the environment may make regulations for enforcement of this levy.

Compliance certificates

RHO certificates are the primary compliance instrument under the scheme. The certification process will be likely to be core to market development. The certificates will:

• serve as evidence that a specified quantity of renewable heating fuel has been supplied or used in Ireland in accordance with the requirements of the RHO;
• once issued by NORA to account holders, be used to demonstrate fulfilment of the renewable heat obligation;
• facilitate trading between parties; and
• underpin the scheme’s record-keeping and enforcement mechanisms.

While certificate trading is permitted within Ireland under the draft bill, the scheme does not currently provide for cross-border or EU-wide certificate recognition or trading. Any future integration with EU trading systems would likely require alignment with the Renewable Energy Directive and notification under the Technical Regulations Information System (TRIS).

To be eligible for an RHO certificate, a renewable heating fuel must satisfy the following conditions:

• the fuel must comply with the sustainability and greenhouse gas emissions savings criteria for renewable transport fuels set out in schedule 3 to the Renewable Energy Regulations, and as provided for under article 28(5) of the Renewable Energy Directive; 
• the applicant must demonstrate that the fuel meets the above sustainability and greenhouse gas emissions savings criteria through a recognised verification process. This must be carried out in accordance with the European Union (Biofuel Sustainability Criteria) Regulations 2012 (S.I. No. 33 of 2012) and the European Union (Planning and Development) (Renewable Energy) Regulations 2025 (S.I. No. 274/2025);
• a formal declaration must be provided stating that the renewable heating fuel in question has not previously been counted towards the discharge of a renewable energy obligation applying in any EU member state, including in Ireland. 

Compliance certificates will be issued to RHO account holders in respect of a measure or unit of renewable heating fuel supplied in Ireland. The draft bill:

• includes a provision whereby a partial certificate value, or multiplier of provisionally 0.5 certificates is applied to every unit of domestically produced biomethane;
• recognises market concerns internationally on underpinning the viability of domestic production of renewable fuels or biomethane;
• ensures Irish biomethane is credited with 1.5 RHO certificates per gigajoule, compared to 1 certificate for imported biomethane. This provision aims to ensure parity between the value of domestically produced biomethane and imported biomethane;
• mandates NORA to prepare and issue statements of account for RHO certificates, demonstrating transactions, balances and other relevant information. RHO account holders will be permitted to purchase, sell or exchange RHO certificates for the purpose of flexibility and ease of compliance; and
• RHO certificates will be cancelled where the corresponding renewable fuel is exported from Ireland to ensure that only renewable heating fuel supplied for use in Ireland is credited under the scheme. The account holder will be responsible for notifying NORA of any certified fuel undergoing export. RHO certificates may be revoked if the certification was obtained through false information or unlawful conditions by the account holder.

Omissions in the draft bill

The buy-out price was not published in the draft bill. It will be determined by the minister for climate, energy and the environment, with the prior consent of the minister for finance, by regulation. The department for climate, energy and the environment has advised that this will be published well in advance of the implementation of the scheme.

In determining the buy-out price, the minister must have regard to:

• market prices for heating fuels;
• the impact of the buy-out price on those market prices;
• the wholesale availability and market prices for renewable heating fuels; and
• the level of the buy-out price required in order for the RHO to operate effectively.

The draft bill allows for the buy-out price to be set and varied “from time to time” by regulation, which suggests it will be reviewed periodically, likely in response to market changes.

Next steps

The proposed scheme marks a significant shift for Ireland’s energy sector. The obligation to source renewable heating fuels, coupled with trading caps and financial penalties, will reshape supply chains and cost structures.

Businesses who act early can turn this challenge into an opportunity by taking steps now to invest in domestic biomethane production, secure renewable supply agreements, and leverage certificate trading will position them competitively.

Beyond compliance, the RHO aligns with EU climate targets and signals long-term policy direction. Organisations that integrate renewable heat into their business models now will not only mitigate risk but also capture market advantage as Ireland accelerates towards a low-carbon future.

Stakeholders in the Irish renewable gas sector should keep a watching brief on the the progress of the legislation and consider if they should:

• assess current and projected fossil fuel supply volumes to determine if its organisation will be classified as an obligated party;

• evaluate supply chains and consider sourcing or producing renewable heating fuels, especially biomethane, to meet future obligations;
• set up systems for RHO account management, record-keeping, and compliance reporting.
• monitor regulatory updates;
• explore opportunities for trading RHO certificates and partnerships with renewable fuel producers;
• consider investments in domestic biomethane production to benefit from the certificate multiplier;
• review contracts and commercial arrangements to ensure they accommodate the new compliance and trading requirements; and
• engage with legal and compliance advisers to ensure readiness for the new regime and to mitigate risks of non-compliance.