Nature-Based Solutions in the Inflation Reduction Act
Implications of the IRA for soil, forest, and blue carbon initiatives
August has a reputation as a time of inaction in DC. This year, however, the late-summer doldrums gave way to a legislative gust that surprised even the savviest of forecasters: a $700-billion climate, tax reform, and health care bill. The transformative potential of the Inflation Reduction Act (IRA) is most often discussed in the context of its incentives for renewable energy and its tax credits and rebates for electric vehicles, heat pumps, and rooftop solar installations. However, just as groundbreaking as its support for built infrastructure is its focus on natural landscapes, whose potential to assist in the fight against climate change has long been overlooked by the government. This comes in the form of about $30 billion for nature-based solutions (NbS)–the use of natural features and processes to tackle climate change. The funding spans three main spheres: soil, forests, and coastlines.
Soil
The largest portion of funding for NbS in the IRA targets soil health. The law adds over $18 billion for existing farm bill conservation programs, including the Environmental Quality Incentives Program (EQIP; $8.45 billion), the Regional Conservation Partnership Program (RCPP; $4.95 billion), the Conservation Stewardship Program (CSP; $3.25 billion), and the Agricultural Conservation Easement Program (ACEP; $1.40 billion). These programs provide private landowners with financial and technical assistance to voluntarily implement conservation practices on agricultural land, and the IRA funding will prioritize climate change mitigation measures.
The IRA also contributes $300 million to the Natural Resources Conservation Service to measure the impact of agricultural practices on greenhouse gas emissions. Furthermore, it includes many initiatives not directly related to soil that will facilitate the decarbonization of agriculture: for example, $13.3 billion for farm bill energy title programs that promote rural electrification and efficiency and $1 billion for conservation technical assistance.
The support for agricultural NbS in the IRA will help heal fragile ecosystems and bring NbS further into the mainstream. However, the treatment of agriculture in the IRA has come under fire for its failure to target the root cause of soil degradation: the predominance of intensive, industrial agriculture. Indeed, the IRA may reinforce the current system by subsidizing the green transition of existing players in the industry. While this may have a positive impact on the climate, it will not produce the wholesale transformation of land management practices that is needed to restore soil health. Much of that task will fall to forces outside government–farmers, businesses, nonprofits–and, perhaps, to future legislation.
Forests
The IRA funds forestry-related NbS to the tune of $5.0 billion. This includes $2.75 billion for non-federal forest management and $1.5 billion for the US Forest Service’s Urban and Community Forestry Assistance Program, which provides grants to state agencies, local governments, tribes, and nonprofits to plant and manage trees. In addition, the law allocates $700 million to the Forest Legacy Program, which funds state programs to protect privately owned forests through conservation easements and land purchases.
The final chunk of funding, $550 million for competitive grants under the Cooperative Forestry Assistance Act, will go directly to non-federal forest landowners. This includes $150 million for underserved foresters to invest in climate mitigation and forest resilience practices; $250 million to support small forest landowners’ and underserved foresters’ participation in private markets for climate mitigation and forest resilience; and $50 million for states and other entities to help private forestland owners implement forest practices that boost carbon sequestration.
The forestry components of the IRA take a collaborative approach that leverages the joint capabilities of federal, state, local, and independent landowners. They create opportunities for private landowners, businesses, and nonprofits to obtain funding for projects related to forest restoration and carbon sequestration.
Coasts
Compared to soil and forests, marine ecosystems receive relatively little attention in the IRA. However, the law makes one significant contribution to coastlines: $2.6 billion over five years to the National Oceanic and Atmospheric Administration (NOAA) for the conservation, restoration, and protection of coastal and marine habitats. This funding is intended to help safeguard coastal communities from extreme weather and boost fisheries and marine mammal populations. It makes up less than 1% of the total climate investment in the IRA but reflects a shift toward nature-based coastal resiliency, whose potential the federal government overlooked until recently.
NOAA is expected to offer funding through contracts, grants and other agreements to local, state, and tribal governments, nonprofits, and institutions of higher education. The IRA does not target blue carbon specifically, but many of the practices it incentivizes will aid in marine carbon sequestration. Projects that receive funding may entail the restoration of wetlands, sea grass, oyster beds, and dunes. Blue carbon initiatives and other marine NbS efforts will also benefit from the funding the IRA provides NOAA for the enhancement of its research capacities. For instance, the law allocates $50 million for NOAA to administer climate research grants on such topics as extreme weather, water availability and quality, impacts of changing ocean conditions on marine life, and improved greenhouse gas and ocean carbon monitoring.
The IRA’s coastal resiliency funding follows a flurry of congressional and executive action with bearing on marine NbS. In 2020, President Biden mandated that the U.S. Army Corps of Engineers consider NbS during the planning stage of some projects. The 2021 bipartisan infrastructure law provided $3 billion for projects related to habitat restoration and climate resilience, half of which was designated for “high-impact natural infrastructure,” including coastal projects. Then, in April of this year, the National Climate Task Force’s Coastal Resilience Interagency Working Group, co-led by the White House Council on Environmental Quality and NOAA, released a Compendium of Federal Nature-Based Solutions for Coastal Communities, States, Tribes, and Territories. The report cited a “dramatic increase in demand for voluntary action and private voluntary investments in the natural carbon offsets market.” The coastal resiliency funding of the IRA will help meet this demand and accelerate the maturation of maritime NbS and blue carbon, which are less established than NbS in forests and soil.
Carbon Capture
Although the IRA does more for NbS than any previous legislation in US history, it is far from a NbS law. This is clear from its support for carbon capture and storage (CCS). The IRA increases the so-called 45Q tax credit per ton of captured CO2 from $50 to $85 for CO2 stored in geologic formations and to $60 for the use of captured carbon emissions and for CO2 stored in oil and gas fields, provided that certain wage and apprenticeship requirements are met. Clean air policy advocates have argued that $85 per ton is a threshold value that will allow for the decarbonization of hard-to-abate industrial businesses, such as petrochemicals, cement, steel, and refineries.
The law offers an even more generous credit for direct air capture (DAC), an emerging technology that captures carbon dioxide already in the atmosphere. The IRA grants a credit of $180 per metric ton for projects that store CO2 in secure geologic formations and $130 per metric ton for CO2 that is captured and used. This enhanced credit is designed to provide DAC with sufficient capital to develop these technologies at scale.
The IRA includes several other perks for CCS. It lowers the amount of CO2 that projects must capture annually to qualify for the credit, decreasing the barrier to entry for smaller operations. In addition, it allows for direct pay, in which the taxpayer claims the value of the credit through a tax refund as if it were an overpayment of taxes. This permits project developers and sponsors to circumvent the process of raising tax equity to utilize the credit.
Estimates of the role CCS will play in the roughly 40% of projected emissions reductions from the IRA vary. The Rhodium Group predicted that CCS could contribute between 4 and 6 percent of the total through 2030, and much more in the ensuing years. A Princeton University study, meanwhile, found that CCS could provide as much as 20% of projected reductions by 2030. Either way, CCS faces significant headwinds even with the enhanced credit. CCS developers have struggled to bring the industry to scale due to a combination of high expenses and disappointing rates of sequestration. The credit may help the industry work through these bugs, but it may not be enough to compensate for high costs and lackluster results. In addition, large-scale CCS will require the installation of pipelines, a costly and controversial endeavor.
The successful development and scaling of CCS would be a great asset against climate change. We need all the tools at our disposal, and an ideal scenario would see NbS and CCS supplementing one another, with the former restoring our ecosystems and the later decarbonizing hard-to-abate industries. However, CCS is still a technology of the future, while NbS have the potential to change the landscape of the present.
The path forward
The passage of the IRA is the most significant step the US government has ever taken to enlist NbS in the fight against climate change. It is the culmination of a growing recognition of nature’s potential to heal ecosystems and sequester carbon. The main cause of the shift toward NbS is the maturation of nature-based markets, which have expanded in size and sophistication and drawn increasing corporate backing. These trends have demonstrated to elected officials that private funding will follow public investment and encouraged a collaborative approach that involves government, independent organizations, businesses, and landowners. It is also a product of the heightened understanding of the danger of fraud and deception in carbon markets, which has encouraged lawmakers to take a more active role in this budding industry.
The clearest indication of the growing interest from regulators came on August 30, when top House Democrats requested a federal study on natural carbon offsets. They asked to be briefed on what the federal government is doing to oversee markets and what its approach will be in the future. Although this request came solely from Democrats, both sides of the aisle have shown an interest in NbS. The Rural Forest Markets Act of 2021, jointly introduced by Elise Stefanik (R-NY), would have played a similar role to the forestry provisions of the IRA, creating a program within USDA to finance and facilitate the sale of forest carbon offsets in carbon markets. The Growing Climate Solutions Act of 2021, passed by the Senate and sponsored by Mike Braun (R-IN), would create a USDA certification program for third-party verifiers and technical assistance providers and would require USDA to establish and maintain a list of USDA-backed protocols. While it is uncertain whether these or any other NbS bills will emerge from Congress in the coming years, NbS command bipartisan support.
Conclusions
NbS have enormous potential for growth, both due to the boost provided by the IRA and organic expansion that was already underway before its passage. Increasing government involvement is creating new opportunities for organizations that work in NbS to partner with government agencies in the realms of soil health, forestry, and coastal resiliency, and to benefit from growing streams of federal and state funding. Government involvement may also help to codify the standards of practice in NbS, increasing their rigor and reducing the prevalence of error and fraud.
Government involvement in NbS will create opportunities for funding and partnership, but it also presents challenges. Existing players in the field will need to stay on top of new programs and regulations, parsing the associated risks and opportunities. They will also have the chance to weigh in on and, in some cases, shape the evolving government approach to NbS, leading regulators toward policies that encourage an honest, rigorous, and equitable approach. The incentives and financial support provided by the IRA will accelerate the green transition. Ultimately, however, the task of rebuilding our infrastructure and restoring our ecosystems will fall to a coalition encompassing businesses, academic institutions, nonprofits, and private citizens. The government will be the leavener of ecological transformation, not its primary agent.
If you have any questions about this piece, please feel free to reach out to me at james.fitzgerald@bcarbon.org.
James FitzGerald, Research and Policy Analyst at BCarbon