What they’re thinking: Mitchell Hora talks about 45Z tax credits for reducing ag emissions

A new federal tax credit could help farmers earn money by reducing greenhouse gas emissions from corn production.

The 45Z tax credit, authorized last year in the Inflation Reduction Act, provides up $1 per gallon for domestic production of clean transportation fuels, which includes ethanol. One way ethanol plants can get the tax credit is to prove the corn they are using has a low carbon intensity score derived from the farmer’s practices, such as use of cover crops and reduced tillage.

Mitchell Hora, a Washington County farmer and founder and chief executive officer of Continuum Ag, a soil health data company, has been digging into the 45Z tax credit to see how it might benefit his farm and those of his customers.

“There’s an additional route to decarbonizing and it’s through the grain,” he said in a recent interview.

Q: There’s been a lot of talk about the 45Q tax credit as it relates to CO2 pipelines. How is 45Z different?

A: The difference is who gets the tax credit. 45Q is specifically for CCS (carbon capture and storage) through a pipeline back into the bedrock systems. The tax credit goes to the pipeline company: Summit, Navigator and Wolf. 45Z goes to the biofuel manufacturers. The pipelines can be a major contributor to garnering these 45Z tax credits, but it’s only one part of it. The amendment for 45Z tax code allows for the inclusion of Scope 3 reductions, which is your supply chain. Ethanol has an average carbon intensity score of 56. Corn contributes 29.1 of those numbers. Corn coming off our farm has a CI score of -4.4. Instead of corn being a major contributor (of CO2 emissions), we could be a carbon sink.

Q: How can farmers reduce the carbon intensity of their corn production?

A: We’ve seen the regenerative farming movement continue to progress, but there’s still only a small percentage of farmers using these practices. In order to optimize your score for low carbon intensity, a farmer should utilize cover crops, reduce tillage, efficiently manage fuel and optimize fertilizer use, among other things. There are lots of different ways you can improve your CI score, and having the data to document the practices will be paramount.

Q: How much money could farmers make?

A: Today farmers can earn cost share for cover crops, typically around $15 an acre. Now we’re talking significantly higher compensation. Total ballpark on my farm for 45Z value — top line — is potentially over $400 an acre. We’ve documented it. The average farmer in our network has a CI score of 8, garnering a potential value of over $200 an acre. The farmer cut should not just be a flat per-acre compensation. It needs to be based on their actual score. The more value they bring, the more money they earn as a percentage of the total tax credits.

Q: Besides money, what are the benefits of these regenerative practices?

A: Regenerative practices put farmers in a unique spot to be part of the solution to de-carbonite the agricultural supply chain. This will morph beyond just carbon. These practices help to improve water quality and reduce flooding. Plus, they produce nutrient-rich grains for health. So many additional benefits are going to come out of these efforts.

Q. Why should farmers be thinking about this now?

A: The key thing about why we need to start these conversations now is because the current (Inflation Reduction Act) says the tax credit will start after Dec. 31, 2024, and it will end at the end of 2027. It’s only a three-year thing. But fuels produced in 2025 are utilizing grain from 2024, which is utilizing practices from 2023. They have to plan going into this fall so 2024 crop is as low of CI score as possible so they can capitalize on this program.

Comments: (319) 339-3157; erin.jordan@thegazette.com