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Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes
13. INCOME TAXES
As a result of the Company’s up-C structure effective with the Business Combination, the Company expects to be a tax-paying entity. However, as the Company has historically been loss-making, any deferred tax assets created as a result of net operating losses and other deferred tax assets for the excess of tax basis in Opal Fuels Inc.'s investment in Opal Fuels LLC are offset by a full valuation allowance. Prior to the Business Combinations, Opal Fuels LLC and its subsidiaries were organized as a limited liability company, with the exception of one partially-owned subsidiary which filed income tax returns as a C-Corporation. The Company accounts for its income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial
statement carrying amount of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the period that includes the enactment date. Judgment is required in determining the provisions for income and other taxes and related accruals, and deferred tax assets and liabilities. In the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, the Company's various tax returns are subject to audit by various tax authorities. Although the Company believes that its estimates are reasonable, actual results could differ from these estimates.
The components of income before income taxes are as follows:

Year ended December 31,
20252024
Domestic (loss) income before income taxes$(16,335)$5,419 
The provision for income taxes consisted of the following:
Year ended December 31,
20252024
Current
Federal income tax benefit$(36,290)$(8,906)
Deferred
Federal income tax expense (benefit)$(16,456)— 
The year-to-date effective tax rate for the year ended December 31, 2025 and 2024 was 323% and (164)%, respectively. The Company recognized the tax benefit associated with the sales of investment tax credits to a counterparty. Per ASC 740-10-25-46, the Company uses the flow-through method to account for transferrable tax credits. Under the flow-through method, an entity immediately recognizes the cost savings from the tax credit. The transferrable tax credits are accounted for as a reduction in income tax expense in the year the asset is generated. Therefore, the Company recognized a total income tax benefit of $52,746 during the year ended December 31, 2025 and $8,906 for the year ended December 31, 2024.
The following table shows the principal reasons for the difference between the effective income tax rate and the statutory federal income tax rate (in thousands):
Year Ended December 31,
20252024
 Tax at federal statutory rate $(3,430)21 %$1,138 21 %
Non-controlling interest2,477 (15)%(1,373)(25)%
Tax credits(52,746)323 %(8,906)(164)%
Changes in valuation allowances939 (6)%158 3 %
Nontaxable or nondeductible items177 (1)%77 1 %
Compensation expense177 77 
Other(163)1 %— — %
Provision to return(163)— 
 Total tax benefit$(52,746)323 %$(8,906)(164)%
The components of the deferred tax assets and liabilities are as follows:
Year ended December 31,
20252024
Deferred tax assets:
Investment in partnership$17,670 $19,828 
163j interest limitation1,379 1,328 
Federal NOL carryforward5,480 4,388 
State NOL carryforward2,250 1,436 
45z6,927 — 
ITC9,529 — 
Total deferred tax assets43,235 26,980 
Valuation allowance for deferred tax assets(26,779)(26,980)
Deferred tax assets, net of valuation allowance16,456 — 
Net deferred income tax asset or liability$16,456 $— 
As of December 31, 2025, Opal Fuels, Inc. is in a net deferred tax asset position. Based on all available positive and negative evidence, including projections of future taxable income, the Company believes it is more likely than not that the deferred tax assets related to its investment in partnership, 163(j) interest limitation, and NOLs carryforwards will not be realized. As such, a full valuation allowance was recorded against these net deferred tax asset positions for federal and state purposes as of December 31, 2025. For purposes of determining pre-tax income/(loss) for the pre-IPO period, the Company relied on the historical financial statements of Opal Fuels, LLC as this is the best information to represent the historic pre-tax income/(loss) of Opal Fuels Inc. As of December 31, 2025, Opal Fuels, Inc. is in a three-year cumulative loss position, of approximately $13,706. Should future results of operations demonstrate a trend of profitability, additional weight may be placed upon other evidence, such as forecasts of future taxable income. Additionally, future events and new evidence, such as the integration and realization of profit from recently acquired assets, could lead to increased weight being placed upon future forecasts and the conclusion that some or all of the deferred tax assets are more likely than not to be realizable. Therefore, the Company believes that there is a possibility that some or all of the valuation allowance could be released in the foreseeable future.
The Company has gross state net operating loss carryforwards aggregating $54,398 as of December 31, 2025 representing state tax benefits, net of federal taxes, of approximately $2,250. These loss carryforwards are subject to ten,
fifteen, twenty-year, or indefinite carryforward periods, with $30,919 expiring between 2032-2045, and $23,478 with no expiration. The Company has provided valuation allowances of $2,250 and $1,436 as of December 31, 2025 and 2024, respectively, against the state tax loss carryforwards, representing the portion of carryforward losses that the Company believes are not likely to be realized.
The Company had no material cash taxes paid.
On July 4, 2025, the OBBBA was signed into law in the U.S. and, among other provisions, reinstated the prior treatment of domestic research and experimental expenditures through newly enacted IRC §174A, permanently restored 100 percent bonus depreciation for qualifying assets placed in service after January 19, 2025, favorably modified the business interest limitation under IRC §163(j), and accelerated the timeline for certain renewable energy credits. However, the OBBBA does not have a material effect on our Consolidated financial statements.
For Federal income tax purposes, the 2021 through 2024 tax years remain open for examination. For state tax purposes, the 2021 through 2024 tax years remain open for examination. There is no liability for unrecognized tax benefits.