Farming Carbon
By: Mark Stutsman | COO
In my 38 years working in ag retail and as a grower myself, I have seen many changes in trends and a myriad of potential new opportunities arise. When they do, I naturally have many questions. Is there a real opportunity here, or will the buzz go away just as quickly as it arrived? Is it in our best interest to steer clear, or should we jump on the train while we can? Will the financial return be worth the risk and extra effort? One example of this is the trend in farming carbon.
Throughout the past decade, we have seen an emergence in initiatives to sequester and reduce the footprint of carbon in our environment. Sometimes these initiatives are efforts developed by companies to reduce the emissions in their supply chain, referred to as inset markets. In this scenario, companies work with segments of their supply chain to implement sustainable practices. The alternative strategy is offset markets, where an organization purchases carbon offsets from those who are reducing emissions or sequestering carbon. By doing so, they can continue complying with industry emission regulations or benefit from voluntary programs (Thompson et al., 2021).
Today, the income opportunity in carbon sequestration that I am watching is the 45Z tax credit going into effect January 1, 2025. As part of the Inflation Reduction Act (IRA), the 45Z tax credit rewards biofuel plants for lowering their biofuel’s carbon footprint, also referred to as their carbon intensity. The carbon intensity of biofuel is an accumulation of the emissions created when producing, distributing and consuming the biofuel. Contributing to the overall carbon intensity score is the carbon intensity of feedstock, materials such as grains used in biofuel, which is based on the carbon footprint of growing and delivering the grain to the biofuel plant (Kiel, 2023). The national average carbon intensity score for corn is 29.1 (Continuum Ag, n.d.). Like in golf, the lower the carbon intensity score, the better. Biofuel companies are incentivized to purchase grain with a lower carbon intensity score to offset their overall carbon intensity score and help them receive the 45Z tax credit (Kiel, 2023).
On average, gasoline has an average carbon intensity score of 100. Ethanol has an average carbon intensity score of 55 (Continuum Ag, n.d.). The 45Z tax credit awards ethanol plants two cents per gallon for each point they can achieve below a score of 50 (Morgan, 2024). For a plant in Iowa that produces a couple million gallons per year, this could amount to a large amount of money.
To capture these tax credits, biofuel plants are faced with trying to make plant efficiency improvements that don’t move the needle very much or push for carbon pipelines, which are still several years out (Continuum Ag, n.d.). What can move the needle from day one is purchasing corn with a low carbon intensity score. Practices influencing the corn crop’s intensity score could include no-till, cover crops, strip-till, replacing commercial fertilizer with manure, the type and amount of nitrogen used, the amount of LP used to dry the crop, and more (Eckelkamp, 2023). However, there is still uncertainty about which practices the agency overseeing this tax credit will deem applicable. I am confident we work with several farmers who already employ most of these practices in their operations and could qualify for up to a couple hundred dollars in tax credit subsidy per acre.
But here is the big kicker … how much of the couple hundred dollars per acre tax credit will the ethanol plant share with the grower? How much will the grower have to pay someone to do the detailed record-keeping needed to enable them to become certified and eligible for the tax credits? I am also confident that as more and more farmers participate, less and less of the tax credit will be shared.
Chasing false profits such as tax credits, that can go away with the stroke of a pen, can be dangerous. However, something happened recently that got me thinking more about carbon opportunities. My cousin in Seattle sent me a picture from her grocery store of a carton of eggs. The carton said, “These eggs are carbon neutral,” and the eggs were priced at $11.98 per dozen! My first reaction was, “Why would anyone spend their hard-earned money that way?” As I let that picture of eggs sink in, my thought process turned to, “How do we as growers capture our share of that ‘value-added’ product?”
Maybe instead of working on low-carbon efforts for the sake of tax credits, we might capitalize on the trend in other ways. One example is in southeast Iowa; we own the hogs we feed, whereas, in the rest of the country, Tyson or Smithfield owns the hogs and the farmer gets paid to feed them. I think the real opportunity lies in what we have always tried to do — provide value-added products and services, and ultimately, give customers what they want (in this case, a low-carbon food option). Just maybe, the future for your farm is to ship low-carbon corn to the local hog farmer raising low-carbon pork, instead of having to rely on governmental ethanol policy or grain export demand. This example could also extend beyond pork. It would be easy to tweak how other products are grown to change the packaging to “low-carbon footprint”.
Even though determining consumer demand trends has always been tricky, I think many of you would agree with me that the sustainability ship has left the dock, and that ship is not coming back. I believe chasing this trend is much safer than tax credits.
What do you think about farming carbon? Where do you see the opportunities for capitalizing on lower carbon initiatives and demands?
I look forward to hearing your thoughts.
Mark Stutsman
Sources
Continuum Ag. (n.d.). Carbon intensity FAQ. https://continuum.ag/carbon-intensity/ci-faq/
Eckelkamp, M. (2023, August 28). What is a carbon intensity score?. AgWeb. https://www.agweb.com/news/business/conservation/what-carbon-intensity-score
Kiel, J. (2023, November 2). Know your carbon intensity score. Farm Progress. https://www.farmprogress.com/conservation-and-sustainability/know-your-carbon-intensity-score
Morgan, T. (2024, March 15). There’s a new way to cash in on your CI score on the farm, thanks to the Inflation Reduction Act. AgWeb. https://www.agweb.com/news/crops/corn/theres-new-way-cash-your-ci-score-farm-thanks-inflation-reduct
Thompson, N. M., Hughes, M. N., Nuworsu, E. K.M., Reeling, C. J., Armstrong, S. D., Mintert, J. R., Langemeier, M. R., DeLay, N. D., & Foster, K. A. (2021, June 28). Opportunities and challenges associated with “carbon farming” for U.S. row-crop producers. Purdue University Center for Commercial Agriculture. https://ag.purdue.edu/commercialag/home/resource/2021/06/opportunities-and-challenges-associated-with-carbon-farming-for-u-s-row-crop-producers/
