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Bioenergy carbon capture and storage (BECCS) systems can serve as decarbonization pathways for climate mitigation. Perennial grasses are a promising second‐generation lignocellulosic bioenergy feedstock for BECCS expansion, but optimizing their sustainability, productivity, and climate mitigation potential requires an evaluation of how nitrogen (N) fertilizer strategies interact with greenhouse gas (GHG) and soil organic carbon (SOC) dynamics. Furthermore, crop and fertilizer choice can affect the soil microbiome which is critical to soil organic matter turnover, nutrient cycling, and sustaining crop productivity but these feedbacks are poorly understood due to the paucity of data from certain agroecosystems. Here, we examine the climate mitigation potential and soil microbiome response to establishing two functionally different perennial grasses, switchgrass (Panicum virgatum, C4) and tall wheatgrass (Thinopyrum ponticum, C3), in a cool semi‐arid agroecosystem under two fertilizer applications, a novel cyanobacterial biofertilizer (CBF) and urea. We find that in contrast to the C4 grass, the C3 grass achieved 98% greater productivity and had a higher N use efficiency when fertilized. For both crops, the CBF produced the same biomass enhancement as urea. Non‐CO2 GHG fluxes across all treatments were low and we observed a 3‐year net loss of SOC under the C4 crop and a net gain under the C3 crop at a 0–30 cm soil depth regardless of fertilization. Finally, we detected crop‐specific changes in the soil microbiome, including an increased relative abundance of arbuscular mycorrhizal fungi under the C3, and potentially pathogenic fungi in the C4 grass. Taken together, these findings highlight the potential of CBF‐fertilized C3 crops as a second‐generation bioenergy feedstock in semi‐arid regions as a part of a climate mitigation strategy. [ABSTRACT FROM AUTHOR]