Pipelines Seek to Hit Net-Zero Ethanol
Carbon Pipelines Offer Ethanol Lower Carbon Footprints and Tax Credits
OMAHA (DTN) -- After years of battles over oil pipelines, two companies are pitching carbon dioxide pipelines that would crisscross six states and combine to sink as much as 24 million metric tons of carbon emissions into geologic formations -- if they can convince landowners and others their pipelines will help the local ag economy.
The proposed pipeline projects reflect a new strategy in the way ethanol plants can lower their overall carbon footprints. The pipelines will also change the way agriculture has interacted with pipelines. Farmers and landowners will be asked for right-of-way access that may financially benefit the ethanol plants where they sell their corn.
The competing Midwest carbon pipelines were launched within weeks of each other, both with major financial backing and a separate collection of ethanol companies lined up as customers and partners. The pipelines offer ethanol plants more favorable market access in low-carbon fuel markets, the possibility of selling carbon offsets, and federal tax credits for sinking carbon into the ground.
The companies project their ethanol-plant customers can get to "net-zero" emissions by the end of the decade. That fits into President Joe Biden's goal to cut U.S. emissions by at least 50% by 2030.
Summit Carbon Solutions is led by Bruce Rastetter, an Iowa agribusiness leader who operates both pork and ethanol companies in the state. Summit Carbon Solutions, which also has investment support from John Deere, is developing what could amount to 2,000 miles of pipeline. At least 31 ethanol plants are signed on with Summit, including Green Plains Energy and five of its ethanol plants in Nebraska and Iowa. Summit's Midwest Carbon Express pipeline, estimated to cost $4.5 billion, plans to run through Iowa, Minnesota, Nebraska and South Dakota and sink carbon dioxide into a geological formation in North Dakota about a mile into the ground.
Navigator CO2 Ventures, created by the Texas-based pipeline company Navigator Energy Services, is partnering with the investment firm BlackRock Real Assets as the major financial backer and Valero Energy Co., with eight ethanol plants that will connect to Navigator's Heartland Greenway pipeline. The Navigator pipeline, projected at $2 billion in costs, will stretch 1,200 miles across Nebraska, South Dakota, Minnesota, Iowa and sink its carbon dioxide at two sites in Illinois near where ADM is already sinking carbon into the ground.
CARBON EMISSIONS PROPOSITION
Both Summit and Navigator project their pipelines will sequester about 12 million metric tons of carbon dioxide per year. If that comes to fruition, the carbon sequestered would equate to eliminating the emissions of about 5.2 million vehicles.
Matt Vining, CEO of Navigator CO2 Ventures, said Navigator expects its initial customers will be ethanol plants, but the pipeline will also be looking to connect fertilizer plants and some other stand-alone manufacturers. "As the project continues to grow and evolve, we would expect to expand that universe," Vining said. "Technically, any emitter is theoretically a customer."
Vining said the pipeline will be a tool to help ethanol plants and other companies diversify their revenue sources.
Vining said there's a value proposition in the pipelines not just for the ethanol plants, but the farmers who deliver corn to those facilities. "These pipeline projects are going to reshape how pipelines have intersected with ag," Vining said. "Instead of just being a pathway for a pipeline to go across the state of Iowa, this pipeline is going to serve a purpose and be a conduit for value. It's going to create a significant opportunity for the local ethanol plant by virtue of compressing its CI (carbon intensity) score. That's going to give them different value options in the future."
Jim Pirolli, chief commercial officer for Summit Carbon Solutions, talked about the Summit project last week at the American Coalition for Ethanol annual meeting. Pirolli highlighted that carbon capture begins with the corn plant.
"The corn plants filter CO2 out of the air, put it into the kernel and we release it during fermentation, then capture and sequester it forever back into the earth," Pirolli said.
In a video on YouTube, Summit noted that capturing 12 million metric tons of carbon emissions is equivalent to the carbon stored by 14.7 million acres of forest.
Pirolli highlighted the ability to capture carbon emissions from fertilizer facilities that process natural gas and generate federal tax credits there as well. While there is not a market right now for fertilizer with a lower carbon intensity, Pirolli pointed out the companies that own fertilizer plants are global businesses that have committed to reduce company emissions.
Pirolli added there is a possibility to link 40 million acres of farmland tied to these ethanol plants in the Midwest to voluntary carbon markets as well. He indicated Microsoft and John Deere are interested in buying voluntary credits from Summit because of the ability to measure every gram of carbon going down into the well.
LCFS GAME CHANGER
Steffen Mueller, an economist who does biofuel lifecycle modeling at the University of Illinois in Chicago, told DTN ethanol plants face a numbers game to lower their carbon intensity (CI) scores in states with low-carbon fuel standards -- with the main focus being California. Pipelines that sink carbon deep into the ground could become a game-changer for those plants.
"If you have plants that pull their resources together and capture CO2 -- fermentation CO2 -- and pump it underground, it would have a significant reduction in that carbon score," Mueller said. "It's a very promising technology."
The carbon scores for corn ethanol could drop low enough that it would fall into the same range as cellulosic ethanol, Mueller said. The lower carbon scores would play not only in California, but in international markets as well. Corn ethanol would become more competitive internationally as countries seek to lower fuel emissions.
"And that makes it very attractive as a compliance fuel for international or national low-carbon fuel policies," Mueller said.
California's Low-Carbon Fuel Standard continues ratcheting down the carbon intensity of liquid fuels each year. The price of a carbon credit under the LCFS has traded this year in a range from $173 to $201 per metric ton. The California Air Resources Board reports credits worth 2.125 million metric tons were traded in July with the average price per credit at $188 a ton.
"This can be really big," said South Dakota farmer Ron Alverson, who has worked on lowering the carbon intensity for corn production. "It's kind of the best case for ethanol and greenhouse gases. You can effectively get to net-zero emissions. If anything, this really demonstrates the value of an LCFS."
Other states such as Oregon, Washington, Minnesota and Massachusetts have created low-carbon fuel programs that largely are modeled after California. That's starting a slow migration of legislation as other states follow the lead, Vining said.
"So, what we find across our customers is about half of them are going to point their gallons to these LCFS markets, and the other half are going to look to monetize their emission reductions by selling off carbon offsets to other companies who need them," Vining said. "So, we think our commercial structure is going to give companies that option to decide if the LCFS or emission offsets represent the highest value to them."
Q45 TAX CREDITS
Along with LCFC credits, pipeline developers are pushing to meet construction goals to make them eligible for federal tax credits known as Section 45Q credits. Companies that capture and store carbon emissions by 2026 can receive $50 per ton for up to 12 years. While the 45Q credit was increased in 2018, there are several proposals in Congress to expand or adjust the credit. The Biden administration seeks to increase the credit to range from $85 to $120 per ton and extend the construction deadline through 2030.
The $50-a-ton 45Q tax credits are critical to helping ethanol plants pull resources together to develop a pipeline that can ship the carbon dioxide to a site geologically a mile into the ground. That makes it economically viable to build a $4.5 billion pipeline, Pirolli said.
"The $50 a ton really covers the majority of that capital expenditure," Pirolli said.
At $50 a ton, a pipeline sinking 12 million tons of carbon dioxide a year would generate up to $600 million in 45Q tax credits. Over 12 years, that's $7.2 billion in revenue just from the federal tax credits available.
"Then, ethanol plants have this further benefit of being able to monetize the CI, so that's what pushes this up into a very economically viable project, either through the LCFS or alternatively if you're monetizing voluntary carbon credits," Pirolli said.
Along with those tax credits, the infrastructure bill that passed the U.S. Senate earlier this month also has $12 billion for carbon capture projects, though most of those funds are reserved to sequester carbon from fossil fuels such as coal plants.
Jane Kleeb of Bold Nebraska has been battling petroleum pipelines and supports biofuel production. The carbon pipelines, though, raise many of the same concerns for Kleeb that come with the petroleum pipelines. Right now, there are questions about the safety of the pipelines, considering the volumes of carbon that will move through them, and what would happen to people in the vicinity of a line break or explosion, she said.
"From my perspective, it seems yet again that farmers, ranchers and rural communities are going to be the guinea pigs for essentially technology that has not been proven yet," Kleeb said. She added, "So we're going to dump a bunch of carbon in the ground, and then what happens in 10 years, 20 years, 30 years or 50 years? What are the long-term effects here?"
Another unanswered question, Kleeb said, is whether the pipelines will seek to use eminent domain. She and others will be working to organize landowners to make them more aware of their own property rights and the risk. She and others representing environmental groups have a webinar later this week on those risks.
"I am more concerned about how we save rural communities and make sure property rights are respected, not to mention that we literally have no information about long-term risks," she said. "So, for me, it's unproven and untested. Why should farmers and ranchers have to give up their land for the pipelines so that a bunch of companies can make billions of dollars while the landowners again assume all of the risk?" Kleeb said.
Vining said a couple of high-profile oil projects largely treated farmland and states as "toll roads" to get across. "There's more than just the right-of-way scars going through this part of the country. There are a lot of emotion scars associated with past projects."
The Navigator pipeline will have multiple connections with local ethanol plants connecting to the trunk line of the pipeline.
"There's value that is organically created locally, and that value stays home," Vining said. "The communities understand the local ethanol plants are participating in the asset itself. They're seeing the value associated with that."
Pirolli also acknowledged conflicts residents have had with oil and natural-gas pipelines. He said carbon dioxide pipelines "have to go about this a different way. Pirolli noted the "vast majority" of 2,000 miles of Summit's pipeline will cross farmland in the upper Midwest. He said that's an opportunity to highlight the tie to profitability for farms with the connection the pipeline will have to agriculture.
"There is going to be a very strong tie if we are able to do this successfully -- and I'm confident we will -- that provides longevity for the community's ethanol plant that can provide a higher value for the ethanol. That translates down to higher corn values, so I think there's a really good tie there."
Summit has sent letters to Nebraska landowners highlighting the state's ethanol plants and noting pipelines offer a solution for a zero-carbon footprint for ethanol producers. The letter seeks to set up meetings with landowners along the proposed route to seek access for survey work.
DTN asked both Navigator and Summit in an email whether the companies would use eminent domain to access land. Summit replied the company's goal is to "rely only on voluntary agreements that provide real value to the landowner while allowing the project to move forward."
Navigator stated the company's principal objective is to work closely with landowners and regulators to deliver the best outcome for all the stakeholders involved. "We are not yet at a point in the Heartland Greenway System's development to have had the proper engagement with regulators and landowners to know if it is necessary to consider," Navigator stated. "We look forward to executing a project that will greatly benefit landowners, the environment, and the local rural communities we will be operating in."
Navigator CO2 Ventures: https://www.navigatorco2.com/…
Summit Carbon Solutions: https://www.summitcarbonsolutions.com/…
Chris Clayton can be reached at Chris.Clayton@dtn.com
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