Qualified agricultural carbon sequestration credit

(a)

In general

Subpart D of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 45Z the following new section:

45AA.

Qualified agricultural carbon sequestration credit

(a)

In general

For purposes of section 38, in the case of a qualified applicant, the qualified agricultural carbon sequestration credit for the taxable year is an amount equal to the sum of—(1)the carbon dioxide equivalent abatement credit, (2)the carbon dioxide equivalent sequestration credit, and(3)the early adopter credit. (b)

Carbon dioxide equivalent abatement credit

(1)

In general

The amount of the carbon dioxide equivalent abatement credit for the taxable year shall be equal to the applicable dollar amount per metric ton of qualified carbon dioxide equivalent abatement by a qualified applicant.(2)

Qualified carbon dioxide equivalent abatement

For purposes of this subsection, the term qualified carbon dioxide equivalent abatement means the amount (not less than zero) equal to—(A)the amount of carbon dioxide equivalent emitted into the atmosphere by the qualified applicant during the counterfactual baseline year, minus(B)the amount of carbon dioxide equivalent emitted into the atmosphere by such farm during the taxable year.(3)

Applicable dollar amount

(A)For purposes of this subsection, the applicable dollar amount shall be an amount equal to—(i)for any taxable year beginning in a calendar year after 2022 and before 2027, the dollar amount established by linear interpolation between $22.66 and $50 for each calendar year during such period, and(ii)for any taxable year beginning in a calendar year after 2026, an amount equal to the product of $50 and the inflation adjustment factor determined under section 43(b)(3)(B) for such calendar year, determined by substituting 2025 for 1990.(B)

Rounding

The applicable dollar amount determined under subparagraph (A) shall be rounded to the nearest cent.(4)

Limitation

For purposes of this subsection, the carbon dioxide equivalent abatement credit shall only be allowed in each taxable year subsequent to the counterfactual baseline year.(c)

Carbon dioxide equivalent sequestration credit

(1)

In general

The amount of the carbon sequestration credit for any taxable year shall be an amount equal to the sum of—(A)the qualifying amount, plus(B)an amount equal to the sum of any carbon sequestration allotment for such taxable year.(2)

Qualifying amount

For purposes of this subsection, the term qualifying amount means—(A)in the case of a taxable year for which qualified carbon sequestration by a qualified applicant is greater than zero, 10 percent of the applicable dollar amount per metric ton of such qualified carbon sequestration by such applicant, and(B)in the case of a taxable year for which qualified carbon sequestration by a qualified applicant is equal to or less than zero, 0 percent of such applicable dollar amount. (3)

Applicable dollar amount

(A)

In general

The applicable dollar amount shall be an amount equal to—(i)for any taxable year beginning in a calendar year after 2022 and before 2027, the dollar amount established by linear interpolation between $12.83 and $35 for each calendar year during such period, and(ii)for any taxable year beginning in a calendar year after 2026, an amount equal to the product of $35 and the inflation adjustment factor for such calendar year determined under section 43(b)(3)(B) for such calendar year, determined by substituting 2025 for 1990.(B)

Rounding

The applicable dollar amount determined under paragraph (1) shall be rounded to the nearest cent.(4)

Carbon sequestration allotment

For purposes of this subsection, the term carbon sequestration allotment means, for each of the 9 taxable years subsequent to any taxable year described in paragraph (1)(A), an amount equal to the amount described in such paragraph.(5)

Qualified carbon sequestration

(A)

In general

For purposes of this subsection, the term qualified carbon sequestration means the amount (not less than zero) equal to—(i)the stock of soil organic carbon stored in the soil of the qualified farm during the taxable year, minus(ii)the stock of soil organic carbon stored in the soil of such farm during the preceding taxable year.(B)

First year

For purposes of the first taxable year beginning after the date on which a taxable entity after the date the taxpayer becomes a qualified applicant, the taxable year described in subparagraph (A)(ii) shall be the counterfactual baseline year.(6)

Recapture

The Secretary shall, by regulations, provide for recapturing the benefit of any carbon sequestration credit allowable under this subsection with respect to any carbon which ceases to be sequestered in a manner consistent with the requirements under this section for a period of not less than 10 years.(d)

Early adopter credit

(1)

In general

The amount of the early adopter credit for any taxable year shall be an amount equal to the applicable dollar amount per metric ton of early adopter carbon sequestration.(2)

Early adopter carbon sequestration

For purposes of this subsection, the term early adopter carbon sequestration means the amount (not less than zero) equal to—(A)the stock of soil organic carbon stored in the soil of the qualified farm during the taxable year, minus(B)the average stock of soil organic carbon stored in the soil of other farms in the county in which such qualified farm is located during the taxable year.(3)

Credit may be taken only once

The credit under this subsection may only be taken with respect to a qualified farm in the first year a credit is allowed to such farm under this section. (4)

Applicable dollar amount

(A)

In general

Rounding

The applicable dollar amount determined under paragraph (1) shall be rounded to the nearest cent.(e)

Qualified applicant

For purposes of this section, the term qualified applicant means a farm (including the taxpayer with operational control over sequestration on such farm, or a third party project developer or aggregator acting on the taxpayer’s behalf) which has been certified by the Secretary pursuant to subsection (f).(f)

Qualified agricultural carbon sequestration and abatement program

(1)

In general

Not later than 180 days after the date of enactment of this section, the Secretary, after consultation with the Secretary of Agriculture, shall establish a qualified agricultural carbon sequestration and abatement program to consider and award certifications for qualified applicants eligible for credits under this section.(2)

Application

An applicant under this subsection shall submit an application containing such information as the Secretary may require, including information required for the selection described in paragraph (3). (3)

Selection

In determining which applicants to certify under this subsection, the Secretary shall do the following: (A)Certify the manner and methods by which the taxpayer will measure the amount of carbon dioxide equivalent abatement and sequestration. Such manner and methods shall be consistent with current best practices, with measured changes independently verified by the Secretary of Agriculture as—(i)real,(ii)additional,(iii)based on a realistic and credible baseline,(iv)quantified, monitored, reported, and verified,(v)having a clear and transparent chain of custody,(vi)representing permanent emissions reductions,(vii)assessed and mitigated against potential increase in emissions elsewhere,(viii)only counted once towards a mitigation obligation, and(ix)causing no net harm.(B)Assess and approve independent greenhouse gas crediting programs which register projects and credits involving qualified farms.(4)

5-year certification

A certification under paragraph (3) shall be valid for a period of 5 years after the date such certification is issued. (g)

Counterfactual baseline year

For purposes of this section, the term counterfactual baseline year means the year in which the Secretary certifies a qualified applicant under subsection (f).(h)

Requirements regarding carbon dioxide equivalent

The credit under this section shall apply only with respect to carbon dioxide equivalent the abatement or sequester of which is—(1)within the United States or a possession of the United States, and(2)measured on a qualified farm and verified using the methods or independent greenhouse gas crediting programs certified by the Secretary under subsection (f)(3).(i)

Regulations

Not later than 14 months after the date of enactment of this section, the Secretary shall, after consultation with the Secretary of Agriculture, prescribe such regulations and guidance as may be necessary or appropriate to carry out this section, including regulations or guidance to—(1)establish the method and frequency by which soil samples are taken from qualified farms to determine the amount of carbon which is sequestered in the soil of such farms, (2)provide rules for the treatment of credits in cases where a qualified farm is sold or transferred to another person subsequent to the baseline year, and(3)provide rules for the early adopter credit in subsection (d).

(b)

Conforming amendments

(1)Section 38(b) of such Code is amended by striking plus at the end of paragraph (37), by striking the period at the end of paragraph (38) and inserting , plus, and by adding at the end the following new paragraph:

(39)the qualified agricultural carbon sequestration credit determined under section 45AA(a).

(2)The table of sections for subpart D of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 45Z the following new item:

Sec. 45AA. Qualified agricultural carbon sequestration credit.

(c)

Effective date

The amendments made by this section shall apply to taxable years beginning after December 31, 2022.