What is the federal government’s involvement in carbon smart agriculture? Dave Ripplinger, NDSU Extension bioproducts/bioenergy economist, said he has been asked a lot of questions about the role of the government in carbon markets.
“I’ve been asked about all of the different ways that agriculture might play a role in either reducing emissions or capturing carbon in the soil,” Ripplinger said during an NDSU agriculture economics webinar in April.
The Inflation Reduction Act (IRA), passed in August 2022, provided a substantial amount of funding for a new program within USDA for climate smart agriculture. In addition, a variety of different agencies related to climate are providing funding for the program.
The IRA has provided significant funding, $18.05 billion, for climate smart agriculture, which is now being rolled out through USDA’s Natural Resources Conservation Service (NRCS).
“Climate smart ag is very much a new term, although it's being used quite regularly in a variety of circles, including in ag research, as well as these carbon markets and the like,” Ripplinger said. “You are looking at a practice that does one of two things – reduces greenhouse gas emissions from crop or livestock production or forestry; or increases the amount of carbon that’s sequestered in the soil.”
NRCS is administering those funds through existing programs, such as Environmental Quality Incentive Program (EQIP) funds.
While the U.S. is still in the early stages of what climate smart ag will look like in terms of federal funding, there is an expectation that the impacts will be quantifiable, which is something the private sector is wrestling with, according to Ripplinger.
He pointed to a slide from the American Farm Bureau that illustrates the increase in funding from the IRA. The four programs are EQIP, $8.45 billion; Conservation Stewardship Program (CSP), $3.25 billion; Agricultural Conservation Easement Program, $1.4 billion; and Regional Conservation Partnership Program, $4.95 billion.
“All four of these are seen as different legs of rolling out climate smart ag,” he said.
The baseline number is “dramatically increased” with the IRA funding to each of the four programs.
“The NRCS is going to do some research – they also need funds for administering the program, as well as doing some additional work to look at ways to verify data,” he said.
The CSP baseline was $1 billion for each of the next four years. But above that, there is an additional $3.25 billion because of the IRA.
The increase is similar for EQIP, although the numbers are bigger with an additional $8.45 billion.
“The Conservation Regional Conservation Partnership program had a dramatic increase in funding. Their baseline, at $300 million a year, would increase tenfold by 2026,” Ripplinger said.
Congress passed the law, which was signed by the President, and then the program will be administered through existing channels.
“One of the things NRCS is trying to do is figure out how they can do their best very quickly. Because the fiscal year for 2023 is now almost halfway over and they have this money to roll out,” he said. “NRCS had a request for comments for public input in November asking a few questions about how they should address a variety of topics related to climate smart ag and administering these programs.”
Ripplinger said agriculture has not seen much in terms of “how NRCS will fully roll this out or deal with things.”
“We do know, however, based in part on announcements by the administration in February, that they’re going to use existing programs,” he said. The existing programs that they will use need to have tangible climate benefits where there is research that supports some sort of climate benefit.
“NRCS has those available, and they are listed,” he said.
NRCS has also identified a shorter list of “provisional practices where producers can receive funding, but right now the evidence isn’t overwhelming that there are significant climate benefits,” he added.
At a future date, if those benefits don’t materialize, NRCS may end up stopping funding of those types of practices. But currently, those IRA funds are going to support any of those practices.
“The way that the program is being rolled out is they’re really just topping off these programs that have been oversubscribed for the most part in recent years,” Ripplinger said. “But those additional funds must be allocated to these climate smart practices that have been identified as either existing practices or provisional practices.”
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The first step that interested farmers should take is to contact their local NRCS office to see what programs are available.
“As you can see in terms of the increased allocations, there’s a lot of work opportunity things that could be done with these funds, but it needs to go through this process,” he said.
Ripplinger pointed out that the good thing about the rollout of this program is that it is for existing programs.
“It’s just more money with some practices identified as being eligible. While there are no real new hoops created yet, we’re almost certainly going to get there,” he added.
NRCS hopes to develop a formal system to track emission reductions in sequestration. The acronym that NRCS is using frequently is MMRV, which means measuring, monitoring, recording and verifying emissions or sequestration.
They also want to develop public/private partnerships, identify ways to maximize benefits, streamline processes to ensure participation and identify ways to provide technical assistance and outreach.
“The federal government's bringing money to the table, but in many respects, this is really meant to be paired with other funds, such as carbon offset contracts, other payments for ecosystem services, or other practices that are adopted within this bigger space,” Ripplinger said.
He also spoke about rising gas prices, saying there is seasonality involved.
“You can look at the calendar – it’s a little bit early, but there is seasonality in gas prices as we transition to the summer driving season,” he said.
In addition, a number of refineries have shut down for a short period of time to transition to summer blends, which are required in many markets in the country.
If refineries have a shutdown, there is less supply going out, and the blends become more expensive, which leads to higher summer gas prices.
“We also see a notable increase in gasoline use in the summer, and that’s just a standard thing,” Ripplinger said.
Specific to 2023, there are really two key drivers for higher gas prices.
“The one that has gotten the most news recently is OPEC, who have agreed to reduce supplies going forward. They want to see higher oil prices to meet the needs of their nation members,” he said.
The other driver is the “very strong economy,” that we have in the U.S. While there have been discussions around recession, in general, the U.S. is experiencing a strong economy, according to Ripplinger.
“We’re seeing significant increases in household travel expenditures recently, with some willing to travel more and no hesitation due to higher gas prices,” he said.
Energy prices have been declining and part of that is gasoline, but the big one is natural gas.
“What we saw this winter, primarily in Europe, is they were significantly short on natural gas with the war in Ukraine and the reduction in imports from Russia. However, they had an extremely mild winter,” he said.
Ripplinger added that there was “greater confidence going forward that we’ll be able to weather those types of situations in the future and that has led to a significant reduction in natural gas prices.”
In addition, it is also the time of year when few households need to buy natural gas.
“Now what we might end up seeing as we go into May and June is an increase in those household energy prices,” he said.
As shown by the AAA chart, gas prices are rising, but they are still substantially less than they were a year ago. Based on the summer season, gas prices should rise into June.
“But there's a number of things that can go wrong. The one wild card in this is if/when and how severe recession strikes and exactly how the motoring public decides to respond. That will be something we will only see with the passage of time,” Ripplinger concluded.