Policy Changes Impact Farmer Participation in Carbon Programs

As climate change pressures intensify, farmers are increasingly viewed as vital partners in the fight against greenhouse gas emissions. Carbon farming programs, which reward growers for adopting sustainable practices like no-till and cover crops, promise new revenue streams and market opportunities. Yet despite the clear potential, many farmers remain uncertain about how these programs will unfold amid evolving federal policies and unclear guidance.

At the heart of this uncertainty lies Section 45Z of the Inflation Reduction Act, a tax credit system designed to lower the carbon intensity of biofuel production. While it could generate significant payments for farmers, biofuel producers, and other supply chain participants, critical implementation details are still pending. This leaves many growers adopting a cautious “wait and see” approach. In this article, we explore why this uncertainty persists, what it means for farmers today, and how emerging private programs and bipartisan congressional support could help unlock the promise of carbon markets soon.

A Market Still Waiting to Take Off

Last summer at Farmfest near Morgan, Minnesota, Robert Bonnie, former USDA undersecretary for farm production and conservation, observed a striking shift in farmer conversations. “Carbon intensity,” a metric tracking greenhouse gas emissions in biofuel supply chains, was top of mind for many corn growers.

Section 45Z tax credits, part of the Inflation Reduction Act of 2022, measure emissions such as carbon dioxide, nitrous oxide, and methane generated in farming and biofuel production. When producers reduce these emissions per unit of output, biofuel manufacturers earn tax credits, potentially creating a financial incentive to lower carbon footprints.

Mitchell Hora, farmer and CEO of Continuum Ag, explains that these tax credits could translate into payments exceeding $100 per acre, split among farmers, biofuel producers, grain merchandisers, verifiers, and others in the supply chain.

“Sustainability is not just about the environment; it’s about opening new markets for agriculture,” Bonnie said, reflecting the growing awareness among farmers about market opportunities related to carbon intensity scores.

Unfulfilled Potential and Lingering Uncertainty

Despite the promise, 45Z’s benefits have yet to materialize fully. Though the Clean Fuel Production Credit became effective on January 1, 2025, necessary guidance clarifying how farmers’ production factors into tax credits is still pending.

Hora noted, “We are still waiting on the critical details required to let 45Z get off the ground.”

However, a hopeful sign came in May when the U.S. House Ways and Means Committee extended the 45Z tax credit through 2031. This bipartisan support may stabilize the program and encourage market participation in the coming years.

The Shifting Federal Landscape

The uncertainty is compounded by changes within federal agencies. USDA Secretary Brooke Rollins recently canceled the Partnerships for Climate-Smart Commodities initiative established by the previous administration. Yet, she indicated some projects may continue if a significant portion of the funds directly supports farmers.

The USDA introduced the “Advancing Markets for Producers” initiative to replace prior programs, emphasizing “Farmer First” policies:

• At least 65% of federal funds must be allocated to producers.
• Grant recipients must have enrolled at least one producer by December 31, 2024.
• Grant recipients must have paid at least one producer by December 31, 2024.

While these criteria aim to increase transparency and farmer benefits, they also signal a reevaluation of federal sustainability priorities. Personnel cuts at USDA and related agencies raise concerns about the future expertise and leadership in carbon program administration.

Bonnie voiced worries that pullbacks in agencies like the USDA, EPA, or the Department of Energy could shift costs onto farmers and slow U.S. progress in carbon markets.

Adoption Rates Remain Low

A recent McKinsey & Company report from October 2024 underscores the cautious stance among U.S. farmers toward carbon programs:

• 11% of farmers currently participate in carbon programs.
• 7% plan to participate.
• 72% neither use nor plan to use these programs.
• 10% had not even heard of carbon programs.

Such data highlight a widespread hesitancy fueled by unclear program details and evolving federal support. Rabobank sustainability analyst Eric Gibson describes the current landscape as one of “wait and see,” with farmers and stakeholders hesitant until final guidance and stable incentives emerge.

Private Sector Initiatives: Bayer’s Carbon Program

While federal programs evolve, private companies like Bayer are stepping in to offer more immediate opportunities for farmers. Bayer’s Carbon Program pays farmers for sustainable practices they are already employing, such as reduced tillage and cover crops.

“We pay $6 per practice per year retroactively to 2019,” explains Alyssa Cho, Bayer’s sustainable agriculture field team lead. “We’ve also added a nitrogen reduction offer that pays an additional $4 per acre.”

Farmers sign five-year contracts, with the option to renew and receive a $6 per acre bonus for continued participation. Bayer’s program is designed with flexibility; either party can exit the agreement if farm practices or acreage change.

Cho emphasizes that this approach helps farmers plan and provides a reliable revenue stream while creating carbon credits for companies seeking to offset emissions.

The Road Ahead: Technology, Innovation, and Farmer Commitment

Despite current uncertainty, there is optimism about the role of technology and private sector innovation in advancing sustainable agriculture. Bonnie highlights the growing involvement of companies working alongside farmers to reduce carbon footprints and create new market opportunities.

“Low-carbon markets like sustainable aviation fuel aren’t going away,” he says. “There’s a huge role for technology and innovation in the private sector.”

Farmers’ comfort with risk remains a key factor in adoption. “The big question is, where does their comfort level lie?” Gibson observes, noting that voluntary programs like Bayer’s still attract committed growers.

Conclusion

Carbon farming programs hold immense promise to transform agriculture by rewarding sustainable practices and creating new income streams. However, a complex mix of evolving federal policies, incomplete guidance, and market immaturity currently limits farmer participation.

Close collaboration among policymakers, industry leaders, and farmers is essential to clarify regulations, stabilize incentives, and build trust. With bipartisan support for programs like Section 45Z and growing private sector engagement, carbon markets are poised to mature.

For farmers willing to stay informed and adopt carbon-conscious practices, the evolving landscape offers the potential to increase profitability while contributing to critical climate goals.