Carbon Pipeline Debate

OMAHA (DTN) -- Iowa, the state with the world's largest ethanol production, could lose as much as 75% of its ethanol production to neighboring states if lawmakers or other state officials block carbon pipelines from crossing the state.

A new study released by the Iowa Renewable Fuels Association details financial losses of more than $10 billion a year if the state's ethanol plants do not have a means to sequester carbon and reap the rewards from new federal tax credits.

The study, conducted by Des Moines-based Decision Innovation Solutions, forecasts that Iowa ethanol plants would relocate out-of-state if they cannot take advantage of new tax credits from the Inflation Reduction Act such as the Clean Fuel Production Credit, or 45Z, that would generate, on average, roughly 48 cents a gallon tax credit for ethanol by using carbon sequestration. For some ethanol plants, the tax credit could be much higher.

"45Z is probably the most revolutionary public tax policy with regards to incentivizing low-carbon fuel," said David Miller, chief economist for Decision Innovation Solutions. "It really puts the onus on the industry to accept methodologies and procedures that allow them to significantly reduce their carbon footprint as measured by a CI (carbon intensity) score."

Monte Shaw, executive director of the Iowa Renewable Fuels Association, reiterated a point he made last week at his group's annual meeting that the ability to collect those 45Z tax credits will mean "life or death" for ethanol plants in the next five years.

"They are the biggest thing to hit the industry since the Renewable Fuel Standard 2 passed in 2007," Shaw said.

The tax credit is large enough that gross operating margins for ethanol plants "basically doubles" for facilities. Assuming Iowa were to prevent carbon pipelines from being built, the study projects as much as 3.5 billion gallons of ethanol production in Iowa would relocate across state borders to places where they could tap into a carbon pipeline.

"It creates a real incentive for those who have access to carbon capture," Miller said.

Shaw later indicated corn farmers would see lower prices because basis would fall in the local markets or farmers would be faced with hauling their corn farther distances to ethanol plants in other states.

"About 40% of the Iowa corn crop would end up finding a new home," Shaw said.

The study adds more fuel to the fire in the growing debate about whether developers of carbon pipelines should be allowed to use eminent domain to secure land access from landowners who don't want the pipelines crossing their land.

At least three pipeline projects are looking to cross Iowa, though each crosses into multiple states. One project, led by Summit Carbon Solutions out of Ames, Iowa, would capture carbon from 33 ethanol plants across five states -- Iowa, Minnesota, Nebraska and South Dakota to sequester carbon in a formation in North Dakota. Last week, Summit stated landowners had signed 4,000 voluntary easements, accounting for more than 60% of the proposed 1,250-mile route.

"Landowners across the Midwest are embracing Summit Carbon Solutions because they know it will bolster the ethanol industry long-term, drive growth in our ag economy, and strengthen land values and commodity prices," said Summit Carbon Solutions' CEO Lee Blank.

A second project, led by Navigator CO2 Ventures, crosses Iowa, Minnesota, Nebraska and South Dakota to sequester carbon in Illinois. Last month, Navigator withdrew its regulatory application in Illinois but expects to refile a new plan later this month.

"The latter part of this month, we plan to refile a more expanded footprint that looks to encompass a broader range of sequestration," said Elizabeth Burns Thompson, vice president of government affairs for Navigator. "The footprint we are at right now very much will stay, but we're just looking to connect two additional areas."

Staff for both Summit and Navigator CO2 Ventures pipeline have said they do not want to use eminent domain but instead sign voluntary easements with landowners.

OPPOSITION BUILDS

Visiting the Iowa Capitol last week were more than 30 landowners and county officials from northwest Iowa counties of Clay, Dickinson, Emmet and Sioux. The residents were lobbying their lawmakers to get a hearing on at least four bills in the Iowa Senate related to carbon pipelines. At least one bill would ban the use of eminent domain for "hazardous liquid pipelines." A separate bill would set a threshold requiring at least 90% of landowners to sign easements before a company could use eminent domain.

So far, the bills haven't received committee hearings.

"We're just getting a lot of feeling that this is coming from the top down to squelch it and telling the committee chairs not to bring these bills forward," said Dan Wahl of Spirit Lake. "We are all here on our own dime and had to get up early and pay for gas to come down here. We're being advised to work from the bottom up and do a lot of talking to people that are willing to listen."

Dennis Valen, a corn, soybean, hay and alfalfa farmer with a cow-calf herd near Estherville, Iowa, said he was frustrated that Iowa lawmakers last year told them there was time to make changes to protect landowners. Now, lawmakers are suggesting it is too late for them to pass a bill that would block the Summit or Navigator pipelines.

"It would run right through my property, and I have a cow herd that would be right by the pipeline. So, I could go to bed every night wondering if I'm going to get gassed, or my grandson, or my whole herd," Valen said. "We can't wait for the safety rules that the federal government has said they are going to put in because Summit and Navigator are going to plow ahead right now."

A landowner and pipeline opponent also provided DTN with a letter from a State Farm agent about liability coverage. The letter stated liability insurance doesn't cover damage from discharges or exposure to contaminants and noted landowners would have "significant personal liability exposure" from having a CO2 pipeline run through their property.

The State Farm agent added, "As time passes, nearby landowners may change hands, the pipeline owners and operators may change, future technology may render the pipeline useless or ineffective. All of these factors, among others, increase the potential that you may be held personally liable in the future for cleanup, removal and other activities that could cause damage as a result of this pipeline being installed."

A spokesman for Navigator responded, "Landowners do not have the liability for pipelines under their land, it's the company's responsibility to cover that liability, and that is clearly outlined in each and every single easement contract we are signing with landowners."

INDUSTRY RESPONSE

Shaw pointed to natural gas pipelines and stated the risks for a carbon pipeline are similar. He said landowners should be prepared to talk to pipeline operators and bring their list of questions. Landowners also should also get a fair and equitable payment.

Al Giese, president of Iowa RFA and a northwest Iowa farmer and board president for an ethanol plant, said landowners in his area are overwhelmingly signing up for the easements. "They are astounded about the payments they are receiving," Giese said.

Giese added at least some landowners want to get paid for easements every year, though that isn't how such pipeline payments work.

Shaw also pushed back against legislation targeting pipelines, saying the legislation is not about property rights if it singles out carbon pipelines. He said it is also unfair to change the rules for projects already before the Iowa Utilities Board.

"Does it allow a fair and equitable path going forward?" Shaw said. He added, "We want people to know there will be a huge economic impact if that is the road Iowa decides to go down."

OTHER STATES MOVE

The debate over carbon pipelines is not exclusive to Iowa. In the South Dakota Legislature, the House passed a bill last week on a 40-28 vote that would block carbon pipeline companies from using eminent domain.

Scott VanderWal, president of the South Dakota Farm Bureau, told DTN his members have opted to stay neutral on the legislation because there are farmers and landowners on both sides of the debate.

"It's because of our long-standing policy in favor of private property rights," VanderWal said. "That would include the rights of people to say 'no' to a pipeline as well as the rights of people to go ahead and sign an easement with the pipelines. That's a side issue from whether we should be burying carbon dioxide in the ground in the first place. That's an issue that gives a lot of our members heartburn because it all goes back to the climate-change thing and the fact that the ethanol plants want to sell ethanol into the California market."

VanderWal said there is also a debate in South Dakota over whether carbon is a commodity or a waste product because that determines whether a pipeline falls under the authority of the Public Utilities Commission to use eminent domain. VanderWal said that legal definition would likely end up in court.

"You can use eminent domain for something that benefits the entire population but not for something that benefits private enterprise," VanderWal said.

In North Dakota, residents on both sides of the issue testified before a legislative hearing last month on bills tied to eminent domain. The North Dakota Public Service Commission also has set four hearings running from March-May across the state to get public comments on Summit's pipeline.

Also see "Biofuels Industry Champions Carbon Pipelines Under State Legislative Challenges" here: https://www.dtnpf.com/….

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

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