The US Inflation Reduction Act of 2022 is the third piece of legislation passed in the White House since the end of 2021 that aims to improve US economic competitiveness, innovation, and industrial productivity while promoting a clean energy transition.
The Inflation Reduction Act (IRA) makes investments in a wide range of sectors, from energy infrastructure, including both fossil fuels and clean energy production and agriculture. But what does this historic piece of climate legislation have in store for farmers and food systems? Here’s a look at what the bill could mean for your farm, the pros and cons, and how you can benefit.
What’s in the Inflation Reduction Act of 2022?
The Inflation Reduction Act of 2022 was passed by the U.S. government, led by President Biden, to combat high inflation. The climate and social package include $391 billion in tax credits and subsidies for clean energy production and- and climate-related federal spending elsewhere, and another $108 billion for health care. It is designed to help the U.S. economy become a leader in clean energy and ensure reforms in health insurance and drug prices.
On the one hand, the Inflation Reduction Act is expected to reduce climate-damaging CO2 emissions by about 40 percent compared to 2005. On the other hand, the federal government expects additional revenues to reduce the budget deficit by more than $300 billion.
The move aims to combat high inflation, which has risen dramatically in the past year. Taxing large corporations will finance this by at least 15% and strengthen the US Internal Revenue Service.
The Inflation Reduction Act has been making headlines for its broad economic investments, with a special emphasis on the clean energy technology costs combating climate change.
While the legislation is still new, many farmers and rural communities are already looking to understand what this bill and other tax provisions, could mean for their livelihoods for the next decade.
Inflation Reduction Act 2022 – How Does it Impact Agriculture in the US?
The Inflation Reduction Act intends to help keep producers on the farm. It is designed to prevent farmers from becoming ineligible for future subsidies. It promotes climate-smart agriculture and forestry by improving and increasing access to conservation subsidies, tax rebates, and tax incentives on respective farm actions.
Here are 6 ways how the IRA could impact farmers and rural communities in the U.S.:
- Conservation Funding helps to combat climate change and reduce greenhouse gases.
- Financial assistance supports farmers in reducing their farm debt.
- Incentives and tax credits for farmers that invest in wind turbines, methane digesters, or solar panels may qualify.
- Financial support for further infrastructure development to support higher blends of biofuels.
- Forest landowners can receive funding for wildfire protection and sustainable forest management projects.
- Drought Assistance,
Conservation Funding – “The Climate Bill” to Foster Reduction of Greenhouse Gas Emissions and Carbon Storage
Conservation funding is another important aspect of the Inflation Reduction Act. The new funding is available to farmers and ranchers implementing more extensive conservation practices such as reducing tillage, planting cover crops, prescribed grazing, tree and shrub establishment, and wetland restoration. These practices can help decrease greenhouse gas emissions and boost carbon capture and storage, reducing carbon emissions and helping combat climate change and reduce energy costs.
Climate-Smart Agriculture and Forestry (CSAF) Mitigation Activities are covered by Inflation Reduction Act under the following programs of the USDA’s Natural Resource Conservation Service (NRCS), which assists and provides technical support to US farmers in the application process and creation of nutrient management plans:
Environmental Quality Incentives Program (EQIP)
EQIP provides technical and financial assistance to farmers and forest owners to improve water and air quality, conserve ground and surface water, increase soil health, reduce soil erosion, to create wildlife habitat and climate resiliency.
Read more about the program here.
Regional Conservation Partnership Program (RCPP)
This program funds partner-driven and public-private partnership approaches to conservation solutions to natural resource challenges on agricultural land. More about it here.
Conservation Stewardship Program (CSP)
CSP helps farmers to strengthen their farm operations by providing technical and financial assistance to improve the use of natural resources on the farm. This includes management practices such as increasing crop resilience, improving grazing conditions, and developing wildlife habitats.
For further information, consult CSP website.
Agricultural Conservation Easement Program (ACEP)
ACEP assists landowners, land trusts, and other organizations in the protection, restoration, and enhancement of wetlands through conservation easements. ACEP also works to preserve working farms and ranches through conservation easements.
Find more information here.
Farm Debt Relief – Financial Assistance for Distressed Farmers Facing Financial Risk
Under the Inflation Reduction Act, the U.S. federal government is making $3.1 billion available to agriculture through the Farm Service Agency (FSA). The funding is intended to provide expedited assistance through direct loans and loan guarantees to distressed farm borrowers whose operations are in financial jeopardy. This includes both automatic and case-by-case assistance. In total, the Inflation Reduction Act and pandemic assistance will help about 35,000 struggling borrowers.
USDA aims to keep borrowers in agriculture by using credit subsidies to improve long-term conditions and remove barriers that prevent many borrowers from returning to their land.
This assistance is critical for many farmers – including that hard hit by the pandemic. More frequent, intense, and climate-related natural disasters will exacerbate the situation, threatening food, fiber, and fuel production. Yet these are essential to the well-being and energy security of the entire country.
There are two ways of assistance:
1. Automatic Assistance
Direct payments have been made to the accounts of approximately 11,000 borrowers who were 60 or more days delinquent on their direct loan guarantees or guaranteed FSA loans as of September 30, 2022. Direct borrower assistance includes payments to bring loans current and cover the next annual payments.
Additional direct payments went to 2,100 borrowers whose loan collateral was liquidated but whose remaining debt was or will be sent to Treasury for offset or collection of federal taxes. This action means that these borrowers no longer face garnishment of their tax refunds, Social Security benefits, or other federal benefits.
1. Case-by-Case
USDA also works directly with affected farmers to resolve complex cases and help producers with cash flow problems. Approximately 1,600 farm loan borrowers who are facing bankruptcy and foreclosure have the opportunity to receive assistance in resolving their delinquency. This includes reviewing whether there is sufficient cash flow to cover the next payment on the loan. Qualified participants can apply for FSA to underwrite the next payment.
Find out more about the Additional Assistance for Distressed Borrowers.
Incentives for Farmers Investing in Renewable Energy Systems and Reducing Energy Costs
Another way the Inflation Reduction Act affects farmers is through various tax incentives and tax credits for those who replace old and inefficient energy infrastructure and invest in renewable energy systems such as wind turbines, solar panels, methane digesters, electric or advanced technology vehicles, or install heat pumps.
Farmers who invest in these clean energy infrastructures and technologies can qualify for an investment tax credit that reduces their overall operating costs and help them become more competitive.
Increasing Biofuel Production Tax Credits
The Inflation Reduction Act provides tax credits for producing clean energy, including sustainable aviation fuel, clean hydrogen, and clean transportation fuels. Additional tax credits benefit transportation biofuels, such as alternative fuel blends, including biodiesel, renewable diesel, and other alternatives.
The energy policy aims to support the production of low-emission transportation fuels for sale in 2025, 2026, and 2027 through a technology-neutral clean fuels production tax credit.
As part of the Inflation Reduction Act, a competitive grant program will be established to support alternative aviation fuels and low-emission aviation technologies that could lead to increased production capacity and increased biofuel blending with existing conventional fuels. The program will provide grants to eligible entities to conduct projects located in the United States that involve the production, transportation, blending, or storage of sustainable aviation fuels.
Funding for Wildfire prevention and Forestry Projects
While not the largest investment, nearly $6 billion of the Inflation Reduction Act will go toward wildfire protection and sustainable forest management. This funding will be available to non-federal forest landowners through competitive grants under the Cooperative Forestry Assistance Act of 1978, cost-share grants for climate change mitigation and forest resilience practices, and the Wood Innovation Grant Program.
Drought assistance through the Disaster Assistance Programs of the USDA
The Inflation Reduction Act sets aside nearly $5 billion in federal funding for drought-stricken areas in support of water conservation, mitigation efforts and habitat restoration. In addition, the U.S. Department of Agriculture’s (USDA) Farm Service Agency provides emergency assistance and loans for losses to crops, livestock, trees, and farmland in arid regions of the U.S.
Does the Inflation Reduction Act bring good or bad to the US Farmers?
Certainly, the Inflation Reduction Act is a unique step in U.S. history in supporting voluntary and incentive-based conservation programs that support the regenerative and sustainable practices of farmers. Some say it recognizes the key role of farms, landowners, and foresters in addressing climate change and its impacts. Others say the increased technical assistance will help farmers implement conservation practices on their land, reduce greenhouse gas emissions, and sequester carbon.
Less euphoric about the Inflation Reduction Act are other voices that say it could further exacerbate inflation and that the climate bill will create indirect tax burdens on American farm families. Another growing concern is the loss of U.S. farmland to clean energy infrastructure such as solar and wind farms.
The ultimate impact of the Inflation Reduction Act on small and large farms across the U.S. will be seen in the coming years.
Conclusion
Farmland is a finite resource. The value and importance of farmland are increasing every year. Farmers and ranchers know that farmland and its resources are irreplaceable and require investment, protection under public law, and support from all parties to preserve it for future generations. While the Inflation Reduction Act is significant legislation, it will take time to understand its impact on farming and rural communities fully.
As the government started to roll out its provisions in 2022, farmers and rural communities can apply for loans and other forms of financial assistance, making it easier to navigate the ongoing challenges of the climate crisis for the agricultural industry.
Ultimately, the Inflation Reduction Act is a significant step towards addressing climate change and building a more sustainable future for American farmers and rural communities.