Last summer, Robert Bonnie attended Farmfest, a farm show annually held near Morgan, Minn. So, what was the main thing on the mind of Minnesota corn growers that day?
“Carbon intensity,” says Bonnie, the former USDA undersecretary for farm production and conservation during the Biden administration.
Bonnie, who addressed members of the North American Agricultural Journalists at their late April meeting, was struck by how much those farmers knew about the CI system that’s part of the Section 45Z tax credit of the Inflation Reduction Act of 2022. It tracks the carbon footprint of the biofuels supply chain that includes on-farm greenhouse gas emissions such as carbon dioxide, nitrous oxide and methane.
Fewer emissions used to produce a bushel of corn or soybeans also translates into fewer emissions with the resulting produced biofuel. This translates into more tax credits a biofuels manufacturer can glean, says Mitchell Hora, a Washington, Iowa, farmer and founder and CEO of the software company Continuum Ag.
These tax credits could spur potential shareable payments — split between farmers, biofuel producers, grain merchandisers, third-party verifiers and many others — potentially worth over $100 per acre, Hora adds.
“Sustainability is not just about the environment, it's about new markets for agriculture,” Bonnie says. The farmers Bonnie talked to in Minnesota were interested in the market opportunities from reducing their carbon intensity scores.
“They're getting very smart about it,” he says.
Strong bipartisan congressional support has accompanied this interest, Bonnie adds. The Clean Fuel Production Credit, or 45Z, took effect Jan. 1.
So far, though, 45Z’s potential for farmers and other supply chain partners hasn’t materialized.
“Some 45Z draft guidance was issued by the Biden administration, but it didn’t provide clarity as to how farmers and their biofuel feedstock production will be accounted for,” Hora says. “We are still waiting for the critical details required to let 45Z get off the ground.”
He’s hopeful more 45Z movement will result in the coming months.
One good sign: The U.S. House Ways and Means Committee released the text of tax policy changes in May as part of the budget reconciliation process. It extends the 45Z tax credit through the end of 2031.
Situation revamp
This 45Z situation sums up the uncertainty revolving around carbon farming and sustainability programs these days.
“Some programs have settled in, some have gone away, and some have let off the gas a little bit,” says Eric Gibson, farm input and crop production sustainability analyst for Rabobank. “The wait-and-see approach is kind of what's on everyone's mind. There is still opportunity there, but tomorrow could be different than today. We're still waiting on final guidance on some of these programs.”
CARBON INTENSITY: These days, a carbon intensification system can track the carbon footprint of the biofuels supply chain from the farm through processing.
So far, most U.S. farmers have not flocked to these programs. An October 2024 report by McKinsey and Co. showed that among U.S. farmers:
- 11% used carbon programs
- 7% plan to use carbon programs
- 72% are not using or do not plan to use carbon programs
- 10% had not heard of carbon programs
Federal changes also have heightened uncertainty in this space. In mid-April, USDA Secretary Brooke Rollins canceled the Partnerships for Climate-Smart Commodities that the Biden administration established. She added that certain projects may continue if it is demonstrated that a significant amount of the federal funds awarded will go to farmers.
USDA also announced the overhauling of the Biden-era Partnerships for Climate Smart Commodities initiative into the Advancing Markets for Producers initiative. Existing grant agreement reviews will be based on three of what it terms Farmer First policy priorities:
- A minimum of 65% of federal funds must go to producers.
- Grant recipients must have enrolled at least one producer as of Dec. 31, 2024.
- Grant recipients must have made a payment to at least one producer as of Dec. 31, 2024.
Such moves accompanied by personnel cuts to USDA and other federal agencies concern Bonnie.
“I worry about the erosion of not only U.S. leadership [in carbon and sustainability programs], but U.S. expertise in those agencies,” he says. “I worry that if we start pulling back, whether it's [USDA or] [the Environmental Protection Agency] or the Department of Energy or Department of Transportation or elsewhere in ways that influence those biofuel markets, that farmers are going to pay the price.”
Potential exists
The good news is that low-carbon markets for agricultural commodities — such as sustainable aviation fuel — aren’t going away. Many companies are working with farmers and others to reduce the carbon intensity of biofuels or to reduce their greenhouse gas footprint, Bonnie says.
“There's a huge role for technology and innovation in the private sector,” he adds.
Some programs in which farmers are paid for adopting new practices do add more risk, Gibson says.
“The big question comes into where their comfort level resides,” he adds.
Bayer Carbon Program
In Bayer’s case, the Bayer Carbon Program pays farmers for sustainable practices they are already using on their own farm, says Alyssa Cho, Bayer sustainable agriculture field team lead. Examples include reduced tillage or cover crops. Bayer uses these farmer practices to sell carbon credits to companies that wish to offset their carbon emissions.
“We pay $6 per practice per year back to the fall of 2019,” Cho says. “We've also added a nitrogen reduction offer that pays an additional $4 per acre.”
The Bayer Carbon Program contract is for five years. If a grower decides to sign up again at the end of the contract, Bayer offers another $6 per acre bonus.
“We do this to ensure that the grower knows what to expect and that they can have a guaranteed payment,” Cho says. “This also allows us to generate an asset for our customers downstream, and also allows us to help generate revenue that flows back to the farm for the grower.”
Either Bayer or the farmer can exit the program before the contract expires. “We know that things can change on the farm,” Cho says. “Acreage can switch hands, or a grower may decide they need to switch practices.”
The future
Despite the uncertainty in this space, Cho sees farmer interest holding firm in voluntary programs.
“What we're seeing from our customers is that they're still committed to greenhouse gas emission reductions,” she says. “Whatever is happening elsewhere, companies are signaling they're committed and continue to expand with us.”