The move to climate-smart farming practices has felt like a disorganized and chaotic movement of different opinions and attitudes toward an elusive and dynamic end point.
That is — herding cats.
The original plan for carbon farming was carbon offsets. Eastern Iowa farmer and carbon-market early adopter Ben Riensche explained that approach very clearly during a recent farmer forum on “AgriTalk.”
“It’s like paying you to go to Jenny Craig to lose weight for me,” he said.
There are still carbon offset opportunities, but the broader market is in transition. Instead of an individual farmer contracting to change production practices to offset the carbon output of another producer, the effort now is to maximize crops with the lowest carbon footprint in the production of biofuels.
The theory is other end users will eventually need to compete to have the crops with the lowest carbon footprint to produce whatever they produce. Maybe even if that’s beef, pork or poultry.
Enter 45Z Tax Credits
Starting Jan. 1, 2025, registered biofuel producers will be eligible for 45Z tax credits totaling as much as $1.75 per gallon. The biggest incentives are expected to be paid to producers of sustainable aviation fuel (SAF), which use ethanol and bio-based diesel produced with crops with the lowest combined carbon intensity (CI) score.
If an ethanol or oilseed crush plant can convince all growers who send crops to its plant to make an effort to lower their carbon intensity score, they might be in line to capture a chunk of that $1.75 per gallon and distribute it to their suppliers via higher corn and soybean bids.
Another option is to put all producers feeding crops into biofuel facilities on the same footing by capturing CO2 and locking it up underground. That would likely make the facility eligible for 45Z credits.
But Is It Worth It?
The beauty of this is many producers are already using production practices that lower their CI score. The key will be to document and certify sustainability efforts. If you are doing the bare minimum to reduce your CI score, you might be eligible for a small share of the 45Z tax credit.
If what you’re doing now generates the greatest return, including the 45Z incentive, you should feel no pressure to change what you are doing. If, however, a change here or there on the production side will lower your CI score enough to result in a payment that would more than offset increased costs or lower production, then maybe that’s something to think about trying.
The analysis is straightforward: If a change in production practices will earn you more net income per acre, it’s a change worth considering.
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