A Deep Dive into the Inflation Reduction Act
On August 16, 2022 President Biden signed the Inflation Reduction Act (IRA) into law. The IRA is a far-reaching health care, tax, and climate bill which makes historic investments in federal programs to address the climate crisis and aims to reduce carbon emissions by roughly 40 percent by 2030. While the enacted version of the IRA is not as comprehensive as earlier iterations of the Build Back Better Act, it nonetheless represents a wide-ranging and meaningful step forward on addressing the climate crisis and reflects key priorities lifted up by the farmers and communities that NSAC’s members serve.
Back in December 2021, Build Back Better had a total sticker price of just under $2 trillion, with the agriculture conservation investments coming in at roughly $28 billion. As negotiations pushed the total number down, the conservation spending was only trimmed down to $27.15 billion, in large part due to agriculture’s important role in addressing the climate crisis. However, this was all just before Senator Joe Manchin (D-WV) stopped all negotiations on the bill. The newly-enacted version of the IRA contains roughly $20 billion of that original conservation agriculture funding.
This generational investment of $20 billion falls within traditional working lands conservation programs, or programs that are designed to support producers making changes to their operations that improve conservation outcomes on their farms. The IRA funds four key conservation programs: the Conservation Stewardship Program (CSP), the Environmental Quality Incentives Program (EQIP), the Agricultural Conservation Easement Program (ACEP), and the Regional Conservation Partnership Program (RCPP).
For each of these programs the bill does three things: (1) Appropriates new money for Fiscal Years (FY) 2023-2026, (2) attaches climate-focused “guardrails” to that new money, and (3) reauthorizes each through FY 2031. While the first and second constitute both a historic increase in funding to each program and an unprecedented charge to address the climate crisis using Farm Bill programs, the third is important though may not be a permanent change to these programs. Because the IRA is a budget reconciliation bill, the Congressional Budget Office (CBO) must score all the spending it creates over a ten year window, a requirement of the Byrd Rule that applies to all budget reconciliation legislation. In order for CBO to do that scoring, Congress needed to ensure that each program funded would actually exist over the full 10 year scoring window. With all Farm Bill conservation programs set to expire at the end of FY 2023, Congress needed to reauthorize each program it intended to fund via budget reconciliation through 2031. Now that the IRA has been signed into law, a significant portion of the conservation title of the Farm Bill has been reauthorized ahead of the Farm Bill reauthorization expected in 2023. However, this does not mean that Congress will be unable to address programs covered by the IRA during the upcoming Farm Bill reauthorization process. In fact, we expect the passage of the IRA to draw increased attention on the programs it covers as NSAC and other advocates seek to build IRA funding into Farm Bill baseline funding and make additional, policy oriented changes to conservation programs. Instead, this early reauthorization means that in a disaster scenario where Farm Bill negotiations fall apart and Congress fails to reauthorize a new Farm Bill at the end of 2023, those programs covered by the IRA will remain funded and functional.
In order to see the full impact of this package, it’s worth examining each conservation program in turn to see the full scope of both newly appropriated funds and the potential implication of program reauthorization.
Conservation Stewardship Program
The IRA appropriates a total of $3.25 billion in new funding for CSP for FYs 2023-2026. This funding is not equal in all years, but rather follows a stepped-up structure similar to most Farm Bills:
- FY2023 – $250 million
- FY2024 – $500 million
- FY2025 – $1 billion
- FY2026 – $1.5 billion
Like Build Back Better before it, the IRA directs this new funding with climate-focused “guardrails”. The funds can be spent on, “1 or more agricultural conservation practices, enhancements, or bundles that the USDA determines directly improve soil carbon, reduce nitrogen losses, or reduce, capture, avoid, or sequester carbon dioxide, methane, or nitrous oxide emissions, associated with agricultural production.” This targeting language is slightly more specific than the original Build Back Better in that it focuses on mitigating a finite list of greenhouse gasses. This means that Congress has ultimately provided more specific, proscriptive marching orders to USDA and NRCS for utilizing these funds. Further, the IRA prohibits USDA from using any other funds for satisfying contractual obligations initiated using these appropriations. This maintains a firm line between these new appropriations and general CSP mandatory funding, in effect creating a climate-focused pool of funds within CSP through 2026.
As for the impact of CSP’s early reauthorization, there are a few things worth noting. The 2018 Farm Bill used a stair-step approach for CSP funding over the Fiscal Years it covered, culminating in $1 billion in funding available for new contracts in FY 2023. The IRA extends that $1 billion for each Fiscal Year from 2023 through FY2031, ensuring a base level of funding for the program. However, it is unclear as of posting if provisions guaranteeing continued payments on CSP contracts signed since the passage of the 2018 Farm Bill have been extended. This will be a crucial detail to ensure smooth and continued administration of CSP in the event of delayed Farm Bill reauthorization in 2023.
On a more positive note, the IRA explicitly extends support for organic producers and those transitioning to organic farming within CSP. This means that NRCS will have a direct charge to support organic producers with CSP through 2031, unless legislation to the contrary is introduced during the Farm Bill cycle. On a less positive note, the IRA fails to extend payment limits within the CSP program beyond FY 2023, a crucial program element, which NSAC has long supported, that ensures the wealthiest producers do not collect an outsized portion of program funds. Beyond FY2023, both reauthorized mandatory funds and “new” appropriations can be spent without any limit on the total amount paid to an individual producer..
Environmental Quality Incentives Program
The IRA appropriates a total of $8.45 billion in new funding to EQIP for FYs 2023-2026. This funding is not equal in all years, but rather follows a stepped-up structure similar to most Farm Bills:
- FY2023 – $250 million
- FY2024 – $1.75 billion
- FY2025 – $3 billion
- FY2026 – $3.45 billion
Like CSP above, the IRA directs this new EQIP funding with climate-focused “guardrails” identical to the language used for CSP.Again, this means that Congress has ultimately provided more specific, proscriptive marching orders to USDA and NRCS for utilizing these funds for making new EQIP contracts. Like with CSP, the IRA prohibits USDA using any other funds to satisfy contractual obligations initiated using these appropriations, preserving that firm line between these new appropriations and general EQIP mandatory funding.
Afew additional rules govern this new EQIP funding. First, the bill waives the requirement that 50% of EQIP funds be spent on livestock operations. This is a victory as NSAC has long taken issue with this requirement, which functionally funnels EQIP funds to Confined Animal Feeding Operations (CAFOs). With this requirement waived for IRA funds, it means that appropriated EQIP funding can support any practices that satisfy the targeting language of this bill (cover crops, reduced tillage, conservation crop rotations, etc.) regardless of whether or not they are associated with livestock operations.
The Conservation Innovation Grant (CIG) program also received special treatment in the IRA. An EQIP subprogram, the CIG program supports the development and testing of promising new conservation technologies and approaches with the goal of making them available for use as quickly as possible by farmers and ranchers. CIG contains a subprogram that supports on-farm trials of conservation practices. Under the 2018 Farm Bill, $25 million is reserved from total EQIP funding for CIG On-Farm Trials each Fiscal Year. The IRA applies this reservation to the newly-appropriated EQIP funding and increases it, requiring $50 million of the newly-appropriated EQIP funds be held separately for CIG On-Farm Trials each year. Although this increase applies only to the newly appropriated IRA funds, this is another positive step that aligns with NSAC’s longstanding advocacy to permanently increase the funding available for CIG On-Farm Trials. Further, the IRA creates a priority for CIG On-Farm Trial applications funded with appropriated money. Applications that “utilize diet and feed management to reduce enteric methane emissions from ruminants” will be ranked highest in CIG On-Farm Trial competitions funded with IRA appropriations.
Turning to the impact of EQIP’s early reauthorization, there are a few things worth noting. The 2018 Farm Bill used a stair-step approach for EQIP from FY2018 to FY2023 culminating in $2.025 billion in funding available for new contracts in FY 2023. The IRA extends that $2.025 billion for each Fiscal Year from 2023 through FY2031, ensuring a base level of funding for the program. On a less positive note, the IRA fails to extend payment limits within EQIPbeyond FY2023, a crucial program element that ensures the wealthiest producers do not collect an outsized portion of program funds. Beyond FY2023, both reauthorized mandatory funds and “new” appropriations can be spent without any limit on the total amount paid to an individual producer.. The IRA also reauthorizes the existing CIG set-asides of $25 million and $37.5 million per Fiscal Year for On-Farm Trials and addressing Air Quality Concerns, respectively
Other set-asides within total EQIP funds have been explicitly reauthorized as well. The 10% set-aside for practices supporting wildlife has been extended through 2031, as has the 5% set aside for Socially Disadvantaged Farmers and the 5% set aside for Beginning Farmers and Ranchers. We expect these last three carve outs to be applied to both newly appropriated funds and reauthorized mandatory EQIP funding.
Regional Conservation Partnership Program
The IRA appropriates a total of $4.95 billion in new funding to RCPP for FYs 2023-2026. This funding is not equal in all years, but rather follows a stepped-up structure similar to most Farm Bills:
- FY2023 – $250 million
- FY2024 – $800 million
- FY2025 – $1.5 billion
- FY2026 – $2.4 billion
Like CSP and EQIP, the IRA directs this new funding with climate focused “guardrails”. Nearly identical language is used, though with some changes that reflect RCPP’s ability to support forestry projects. The IRA states appropriated RCPP funds can be spent on partnership agreements “that support the implementation of conservation projects that assist agricultural producers and nonindustrial private forestland owners in directly improving soil carbon, reducing nitrogen losses, or reducing, capturing, avoiding, or sequestering carbon dioxide, methane, or nitrous oxide emissions, associated with agricultural production.” Again, this means that Congress has ultimately provided more specific, proscriptive marching orders to USDA and NRCS for utilizing these funds for making new RCPP agreements. As with CSP and EQIP, the IRA prohibits USDA using any other funds to satisfy contractual obligations initiated using these appropriations, preserving that firm line between these new appropriations and general RCPP mandatory funding.
Additionally, in an attempt to speed up the process for spending RCPP funds, the IRA waives the annual cap on the total number of Alternative Funding Arrangements (AFAs) that NRCS can enter into with RCPP funds. Alternative Funding Arrangements differ from Classic RCPP awards in that they afford greater flexibility in project design. AFAs allow for greater partner responsibility in conducting technical portions of funded projects and in administering funds over the life of the project. While it is positive to see Congress taking expediency into consideration in the face of the climate crisis, NSAC maintains reservations about the wisdom of placing such a large portion of the IRA funds into a program that has struggled to get money out the door, particularly when other conservation programs have such a clear backlog of farmer applications.
Turning to the impact of RCPPs early reauthorization, there are a few things worth noting. Unlike CSP and EQIP, the 2018 Farm Bill did not use a stair-stepped approach for RCPP funding. Rather, RCPP was funded at $300 million for each fiscal year. The IRA preserves this funding level in its reauthorization of RCPP, making $300 million of mandatory money available to the program each year through 2031. The limit of 15 AFA awards made using mandatory funding is maintained; the AFA limit is only waived for RCPP projects funded using new IRA money.
Agricultural Conservation Easement Program
The IRA appropriates a total of $1.4 billion in new funding to ACEP for FYs 2023-2026. This funding is not equal in all years, but rather follows a stepped-up structure similar to most Farm Bills:
- FY2023 – $100 million
- FY2024 – $200 million
- FY2025 – $500 million
- FY2026 – $600 million
Like all the other conservation programs, the IRA applies climate-focused “guardrails” to this new funding. The targeting language for ACEP differs a bit from that of the other programs, reflecting ACEP’s conservation goals, which focus on protecting farmland and wetlands. The IRA states that appropriated ACEP funds can be spent, “for easements or interests in land that will most reduce, capture, avoid, or sequester carbon dioxide, methane, or nitrous oxide emissions associated with land eligible for the program.” Compared to the other conservation programs, the climate “guardrails” used for ACEP present greater opportunity for creative interpretation during implementation. While the other working lands conservation programs compensate farmers for specific practices, enhancements to those practices, or bundles of practices (each having a demonstrable impact on specific GHGs), ACEP is a bit different. ACEP protects farm fields from development pressure as well as restores and protects wetlands on agricultural land through two separate subprograms, the Agricultural Land Easement (ALE) program and the Wetland Reserve Easement (WRE) program. With no mention of the subprograms in the IRA bill text, this targeting language should push USDA to examine both subprograms’ relative climate benefits.
For ACEPs early reauthorization, the IRA’s impact is fairly straightforward. The 2018 Farm Bill used a stair-step approach for ACEP funding, culminating in $450 million in funding available in FY 2023. The IRA extends that $450 million for each Fiscal Year from 2023 through FY2031, ensuring a base level of funding for the program.
Conservation Technical Assistance
Finally, the IRA appropriates $1 billion for Conservation Technical Assistance (CTA) to remain available from FY2022 through FY2031. This funding helps ensure staff capacity at the Natural Resource Conservation Service (NRCS), the USDA subagency responsible for administering these conservation programs. CTA is the account used to cover NRCS staff time for both executing contracts made with producers under all of the covered conservation programs in the IRA and time that NRCS staff spend in the field working with producers to select and design conservation practices that work for their operations. NSAC considers this much needed funding for NRCS capacity a major victory, as we have long advocated for increases to CTA through the annual appropriations process.
To help ensure that all of these conservation funds – and presumably future USDA spending – are effective at climate mitigation, the IRA allocates $300 million to the Greenhouse Gas Inventory and Assessment Program housed at the Office of the Chief Economist. By comparison, the Build Back Better bill of 2021 had $600 million planned for this effort.
As with the agriculture conservation program sections of the bill, the greenhouse gasses to be measured are carefully spelled out. Field-based data will be collected to assess carbon sequestration and reductions in carbon dioxide, methane, and nitrous oxide emissions associated with agricultural conservation activities. USDA must then use the data to track carbon sequestration and emissions trends over time, an essential component of ensuring the long term efficacy of agricultural climate mitigation.
The IRA creates additional grants for the Rural Energy for America Program (REAP), covering up to 50 percent of the cost of a project and doubling the existing grant-based cost-share level of 25 percent. Total cost share, including grants and loans, can range up to 75 percent. The IRA appropriates $820.25 million for REAP through FY2031, including $180.28 million per year from FY2023 through FY2027. This compares to nearly $2 billion that the Build Back Better Act would have appropriated for REAP.
Like Build Back Better, the IRA specifically appropriates money for REAP grants and loans for “underutilized renewable energy technologies.” The term has not yet been defined by USDA but is ideally intended to ensure that the program pays for a diverse range of technologies, including newer entrants into the field. $144.75 million is appropriated for FY2022, to remain available through FY2031. The bill appropriates $31.8 million annually forFY2023 through FY2027 for underutilized technologies.
The IRA includes several provisions to provide assistance and support to underserved farmers and ranchers, including beginning farmers, limited resource producers, veterans, and those living in high poverty areas: $125 million is designated for technical assistance for these farmers; $250 million for grants and loans to improve land access; and an additional $250 million for historically marginalized colleges and universities to provide internships and pathways to the agriculture sector or Federal employment.
Notably, the bill also includes debt relief provisions for small and socially disadvantaged producers in a manner designed to address concerns the courts have raised over race-specific debt relief for farmers of color included in the American Rescue Plan Act (ARPA). The IRA repeals the ARPA provision to write off 120% of debt for socially disadvantaged farmers, and in its place authorizes two streams of financial assistance to support at-risk farmers and ranchers.
First, the IRA allocates $3.1 billion for debt relief to distressed borrowers of loans administered by the Farm Service Agency (FSA), which holds a portfolio that includes approximately 3 percent of total farm loans. Second, the IRA allocates $2.2 billion for financial assistance to farmers and ranchers who are determined to have experienced discrimination in USDA lending programs prior to January 1, 2021. No individual farmer or rancher shall receive more than $500,000 under this provision.
It is not immediately clear how USDA plans to determine eligibility for financial assistance on the basis of discrimination, nor how that assistance will be distributed to eligible farmers and ranchers and whether the amounts specified will be sufficient to meet the need. To swiftly provide needed relief to borrowers promised debt relief under ARPA who are now vulnerable to foreclosure, NSAC urges USDA to issue clear guidance and a plan to implement these relief programs as soon as possible. For additional context and perspective on these provisions, we invite you to read statements from the Federation of Southern Cooperatives, Rural Coalition, the National Young Farmers Coalition, Intertribal Agriculture Council, and National Family Farm Coalition.
DROUGHT AND WILDFIRE RELIEF
Farmers, farmworkers, and agricultural support organizations, particularly in the western United States, have been experiencing multiple adverse effects as a direct result of climate change. Several provisions in the IRA are designed to reduce and better manage such challenges.
For example, the bill includes $4 billion for grants, contracts, and financial assistance via the Department of the Interior’s Bureau of Reclamation to mitigate the impact of droughts in Reclamation States, with priority given to the Colorado River Basin and basins experiencing comparable levels of drought. In addition, the bill includes $25 million for projects to cover canals with solar panels to increase water efficiency, as well as meeting clean energy goals. Further, Tribes will receive $12.5 million to address drinking water shortages.
Wildfires have been increasingly plaguing the western U.S. as a result of climate change. Wildfires have multiple negative impacts, including on farmworker health, the production of certain crops, and threats to farms in the wildland-urban interface. The forestry title of the IRA includes $1.8 billion for hazardous fuels reduction on National Forest System land within the wildland-urban interface, $200 million for vegetation management projects, and $50 million for protection of old-growth forests, all on National Forest Service land. None of the funding is to be used in wilderness areas.
WHAT COMES NEXT?
Although the President has now signed the IRA into law, the work to unlock the full potential of these potentially transformational investments is only beginning. For many of the provisions highlighted above,the successful implementation of IRA is vital to ensuring that these investments have their intended impact of setting us on a path toward a more equitable and climate-resilient food and farm system. The processes through which USDA will seek to implement the IRA are still coming into focus, including whether or not the Department will initiate a formal rulemaking process, or something else altogether. The process notwithstanding, NSAC strongly believes that implementation of the IRA should be transparent, inclusive, and ultimately result in increased investment for solutions which promote both climate mitigation and adaptation.
The scope of the implementation process, as well as the longevity of IRA funding, will be significantly influenced by the 2023 reauthorization of the Farm Bill. As highlighted throughout this post, the IRA primarily provides new program funding between FY2023-26. Consequently,when the 118th Congress begins writing the 2023 Farm Bill, the vast majority of IRA funds will not yet have been spent. This leaves the door open for Congress to rescind some or all of the IRA funding and reallocate it elsewhere within the Farm Bill. Whether or not Congress chooses to do this may come down to political will, and if they do, the specific outcomes of rescission and reallocation – including the extent to which new baseline is created – will be determined by the outcome of the 2022 midterm elections.
As all of this unfolds in the weeks and months ahead, NSAC will engage closely with Congress, the Administration, and stakeholder partners toward the creation of a more sustainable, resilient, and equitable food and farm system.