The Climate-Smart Program Trump Didn’t Kill (Yet)

The Treasury Department published proposed guidance last week for claiming the clean fuel tax credit — one of the few energy subsidies that was expanded, rather than diminished, by Trump’s One Big Beautiful Bill Act. There was little of note in the proposal, since many of the higher-stakes climate-related decisions about the tax credit were made by Congress in the statute itself. But it did clear up one point of uncertainty: The guidance indicates that the administration will reward biofuel crops cultivated using “climate-smart agriculture” practices.

On the one hand, it’s a somewhat surprising development simply because of Trump’s record of cutting anything with climate in the title. Last April, the U.S. Department of Agriculture terminated grants from a Biden-era “Climate-Smart Commodities” program, calling it a “slush fund,” and refashioned it into the “Advancing Markets for Producers” initiative.

On the other hand, depending on how the Trump administration implements it, integrating climate-smart agriculture into the clean fuel tax credit could become its own kind of slush fund, paying out billions in taxpayer dollars for questionable benefits and with little accountability.

The clean fuel tax credit, known by its section of the tax code as 45Z, subsidizes the production of low-carbon transportation fuels for vehicles and aviation. Companies can earn up to $1 per gallon depending on the carbon intensity of the production process.

Sourcing corn and soy from farms that use climate-smart agriculture practices is one potential way for biofuel producers to claim more of the credit. “Climate-smart agriculture” can refer to a wide variety of techniques that increase the amount of soil stored in carbon or otherwise reduce emissions, such as reducing soil disturbance, planting cover crops, or implementing nutrient management practices that reduce nitrous oxide emissions. But to date, the federal government has not issued guidance for how to account for these practices.

The Biden administration put out proposed rules just before leaving office that were quite controversial, Nikita Pavlenko, the fuels and aviation program director at the International Council on Clean Transportation, told me. The methodology relied entirely on modeling and did not require farmers to take any real-life measurements of soil carbon before or after adopting the climate-smart practice. The rules also assume that these climate-smart practices would be implemented anew, when in reality many farms have been practicing some of them for years without subsidies. That means ethanol producers could potentially get free money to buy corn from farms that adopted no-till practices long ago, with no additional benefit for the climate.

“These climate-smart ag practices are a rare example of bipartisanship, for what it’s worth, and there’s a lot of money to be made in it,” Pavlenko told me. “But I’m not sure exactly how much actual greenhouse gas reduction or sequestration.”

According to estimates by Pavlenko’s group, the lack of an additionality requirement could lead to the government paying $2.1 billion in subsidies for farms to keep doing what they were already doing, with no new benefits for the climate.

I should note that the climate integrity of the clean fuel tax credit, also known as 45Z, was already compromised by changes made in the OBBBA. Subsidies for crop-based biofuels can indirectly drive deforestation. Prior to Trump’s tax law, producers would have had to take into account emissions related to land use changes when they calculated the carbon intensity of their fuel. Now they don’t. The change will make it much easier for a fuel like ethanol, which is already heavily subsidized through other programs, to qualify.

That, in turn, could cost taxpayers an estimated five times as much per year. When the subsidy was first created in the Inflation Reduction Act, the Joint Committee on Taxation estimated that it would cost taxpayers $2.9 billion over three years. After the OBBBA passed, extending the credit by two years, the committee’s estimate was $25.7 billion.

The existing proposal for incorporating climate-smart agriculture practices into the tax credit calculation would likely push that estimate even higher. After the Biden administration released its proposal last January, groups like Pavlenko’s submitted comments critiquing the methods and suggesting changes. But after the Trump administration took over, it was unclear what would happen with it, he said.

Last week’s guidance was still somewhat vague about what’s next for the climate-smart agriculture calculations, saying only that the proposal published in January is still “undergoing testing, peer review, and public comment,” and that the Treasury expects it to be ready some time in 2026. In the meantime, the Treasury will be taking public comments on the broader 45Z guidance through April 6 and hold a public hearing on May 28.