We just passed the biggest investment in climate and clean energy. Here’s how to get the most out of it in ag.

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The Cut Inflation Act of 2022 will reduce our nation’s carbon emissions by approximately 40% by 2030 while minimizing price shocks caused by fuel price volatility. The bill will provide more than $400 billion to improve energy security and combat climate change, and provide significant incentives for companies to invest in clean assets with predictable operating costs. More importantly, it inspires individuals and businesses to accelerate their transition to cleaner energy sources.

The bill is complex, but this article summarizes below the salient facts applicable to the agricultural and forestry industries. Government-sponsored programs offer tax credits, grants, and loans for emissions reductions and electrification.

AGRICULTURE

Reduce enteric methane emissions

Methane emissions from livestock will account for 32% of man-made emissions in 2021. Reducing these emissions while maintaining farm competitiveness is a key IRA priority. Not only is methane a major source of climate change, but livestock feed and fertilizers are also heavy economic burdens on farmers. In 2021, total agricultural production expenditures amounted to more than $362 billion. An estimated $56.8 billion was spent on livestock feed and $24.4 billion on fertilizers and soil amendments.

As inflation, high energy prices and global demand increase input and operational costs, farmers will need to implement strategies that reduce feed and fertilizer costs. HR 5376’s Agriculture, Nutrition and Forestry Committee offers incentives that will produce long-term returns on investment while reducing the environmental footprint of livestock.

Throughout this article, I will analyze a hypothetical case study, making assumptions for best-case scenarios for Farmer Joe’s 500-cow dairy farm.

Several corporations and state agencies will invest in funds contributing to tax credits and loans. Priority will be given to proposals focusing on feed and feed management to reduce methane emissions, with tax credits of up to 10% of program costs and inputs through 2026.

For example, the total feed cost for a dairy farm with 500 cows is approximately $2.5 million per year. By improving feed and feed management, Joe’s Dairy Farm can receive up to $250,000 in tax credits, helping to offset costs and improve margins.

Rural electrification projects

About 15% of agricultural production costs are energy-related, exposing the industry to volatility in energy markets. Transitioning the agriculture industry to renewable energy will increase profitability, revenue predictability, and climate resilience. Lower maintenance, fuel and machinery costs will reduce operating expenses, significantly improving margins.

HR 5376’s Rural Development and Agricultural Credit provides both grants and loans, summarized below.

loan guarantee

Rural electrification projects are eligible for loan forgiveness of up to 50% of project cost. For example, if Joe’s Dairy Farm receives the maximum loan of $400,000, up to $200,000 could be forgiven, reducing the cost of a project from $1.3 million to $1.1 million.

Grants and Loans

If your program is an eligible rural electrification project, grants and loans are available to cover project costs and technical costs:

  • Technical assistance for outreach, financial training, and agricultural training and support (grants and loans up to 50% of project costs)

  • Storage, supply and distribution of biofuels (subsidies up to 75% of project costs)

  • Long-term resilience, reliability and affordability of rural electricity systems (grants up to 25% of project costs)

Joe’s Dairy Farm who has received a loan can also apply for the mentioned programs. For example, the administrative overhead for a typical project is approximately 7%, which can be offset by a grant of up to $43,050.

Joe’s Dairy Farm then decides to buy an anaerobic digester, which turns animal manure and crop residues into biofuel, as well as solar water pumps to support the farm. Since the $1.2 million anaerobic digester is eligible for the biofuel subsidy, this number would receive $900,000 in subsidies.

Installing an anaerobic digester alone is not enough – a functioning system requires a high pressure water supply. The purchase of solar water pumps qualifies for the Resilience and Long-Term Reliability Grant. Joe’s Dairy Farm needs approximately 35,000 gallons of water every day to operate, requiring 13 solar-powered water pumps. Thanks to this program, the number reaches $307,500 in grants. The savings are summarized below:

Program

IRA Savings Program

Section

Type

Initial cost

Savings

net cost

Annual feed cost

Diet and food management

§21001

To agree

$2,500,000

$250,000

$2,250,000

Anaerobic digester

Biofuels

§40

To agree

$1,200,000

$900,000

$300,000

13 Solar water pumps

Long-term resilience,

reliability and affordability

§22004

Credit

$30,000

$30,000

$0

Administrative overhead

Technical assistance

§22002

To agree

$86,100

$43,050

$43,050

Loans

§22001

Forgiveness

$200,000

($200,000)

$3,816,100

$1,173,050

$2,393,050

FORESTRY

National Forest Land

Private forest owners own approximately 445 million acres of federal forest land. The bill will also invest a total of $200 million in vegetation management and environmental reviews. You can benefit from tax credits for improving your forest landscape. Types of vegetation management include prescribed fires ($125 – $175 per acre), herbicide application ($50 – $250 per acre), and more.

Non-federal forest land

If you are an underserved farmer with 100,000 acres of land, where only 60,000 acres are used as farmland, the other 40,000 acres of land can be turned into forest. The United States defines forest land as an area of ​​one acre or more and has at least 10% tree cover OR previously had such tree cover and is able to regrow these trees. Tree reforestation costs on average between $400 and $900 per acre depending on the region.

Forest owners will be eligible for the following grants:

  • All Underserved Landowners ($150 million)

  • Underserved Landowners in Emerging Private Markets ($150 million)

  • Landowners with less than 2,500 acres ($100 million)

  • Other grants to be allocated to states ($50 million)

The bill provides significant incentives for farmers to invest in sustainable projects to generate a long-term return on investment in a context of rising operating costs, where the total savings will be up to 50 % of initial project costs. Taking advantage of these tax credits will require real capital investment in renewable energy operations. Actual’s ESG transformation platform can provide your company with the tools to model, plan and implement this transformation.

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