World’s largest carbon capture project advances in Midwest

The Midwest may be home to the world’s largest carbon capture project, one of dozens across the country creating a mini-boom in an industry in line for major federal subsidies and that supporters contend is critical to meeting the nation’s zero emissions goals.

Iowa-based Summit Carbon Energy plans to build a $4.5 billion pipeline stretching across 81 counties in North and South Dakota, Iowa, Nebraska and Minnesota.

It would capture carbon emissions at 32 ethanol plants, compressing the greenhouse gas for transport to North Dakota, where it would be permanently stored more than a mile underground.

“This will be the world’s largest carbon capture project, with a total length of 2,000 miles and a footprint across five Midwestern states,” said Jesse Harris, Summit’s director of public affairs. The project would capture eight million metric tons of CO₂ a year, the equivalent of 3.9 million vehicles, Harris said.

On top of the environmental benefits, Summit promises thousands of jobs and new tax revenue — $900,000 per county in property taxes, according to Harris.

“The primary economic benefit of this is for ethanol and agriculture, two of the most critical industries across the Midwest and the U.S,” he said. Stripping greenhouse gases from ethanol will open up large low-carbon requirement markets, like California.

The project, which faces some local opposition from landowners and environmentalists, is one of three such pipeline projects in the Midwest.

Texas-based Navigator CO2 Ventures has proposed a $3 billion, 1,300-mile pipeline that will also span five states, and Archer-Daniels-Midland Co., which already operates a carbon capture storage facility in Decatur, Illinois, also wants to build a pipeline.

Similar projects — more than 120, according to one estimate — are being planned around the country, with developers and investors hoping to capitalize on federal legislation enacted in the last two years that represents the largest investment in carbon management in the country’s history.

That support includes more than $12 billion from the Infrastructure Investment and Jobs Act and generous tax incentives in the Inflation Reduction Act, which boost subsidies, expand eligible projects and extend investment timelines.

Carbon capture, utilization and storage equipment, or CCUS, and direct air capture technologies are now also eligible for private activity bond financing through a new category of tax-exempt facility bonds called qualified carbon dioxide capture facilities, Holland & Knight noted in a 2022 client alert.

Carbon capture works by either separating CO₂ from industrial or power plant emissions or, in what’s called direct-air capture, removing the emissions directly from the atmosphere, a more difficult and costly process.

There are 35 carbon capture and storage plants in operation around the world, according to the International Energy Agency. The U.S., which has 13 of them, plus more than 5,000 miles of pipeline, is a leader in the space. The nation has enough storage capacity to hold 1,000 years’ worth of U.S. emissions, according to supporters.

“It’s basically impossible to get to net zero emissions [by 2050] without CCUS,” said Xan Fishman, director of energy policy and carbon management at the Bipartisan Policy Center, during a Feb. 1 webinar hosted by the Carbon Capture Coalition.

“We’re trying to do something that’s doable but extremely challenging,” Fishman said of the net zero target. “A bunch of the effort is going to be avoid emissions in the first place, but CCUS is also going to capture at the point source, and that’s a really important role, because we will continue to need industry.”

As a national infrastructure for the industry is built out, the bulk of the storage, up to 75%, will likely be located in the Gulf Coast, according to a 2021 Princeton report, Net-Zero America. A fully developed carbon capture industry, which envisions emissions equipment on every major industrial plant, would require up to 65,000 miles of new CO₂ pipelines — at an estimated cost of up to $230 billion – to meet 2050 net zero goals, according to the report.

Some environmentalists and activists point to dangers with pipelines, as illustrated in a 2020 rupture in Satartia, Mississippi, and contend it’s a type of greenwashing for fossil fuel companies.

Projects are also running into opposition over the use of eminent domain for private companies; in North Dakota, lawmakers have filed eight bills that would curtail eminent domain rights for CCUS projects.

Despite the controversy, the industry is poised for a boom, with more than 120 companies announcing projects since the IRA became law, according to Reece Rushing, director of government affairs at Carbon America, who spoke at the webinar.

“There’s many, many more projects in the works,” Rushing said. “Expect incentives in funding to only accelerate this innovation not unlike what we’ve seen with other clean technologies.”

The IIJA provides $12 billion for carbon management from 2022 through 2026, including $2.1 billion for carbon dioxide transportation and infrastructure finance and innovation, or CIFIA program. Meanwhile, the IRA encourages the use of carbon capture and storage by increasing incentives for storage and capture – in some cases up to $180 per ton – giving developers a direct refundable payment, broadening the definition of qualified facilities, and extending the credit to 12 years after the carbon capture equipment is put into place.

For Summit, the value of the annual federal tax credit for the sequestration of CO2 will total $414 million by 2025, according to a 2022 report from Ernst and Young commissioned by Summit.

In addition to the federal subsidies, Summit would generate revenue from long-term contracts with its ethanol partners that give the company a piece of the profit from selling into large markets, like California and Canada, that require all fuel sold to meet low carbon fuel standards.

The Summit pipeline itself will cost about $2.5 billion, while the capture facilities will cost around $712 million. Most of the capital expenditures will occur in Iowa, which has the most pipeline miles at 683 and the most ethanol plants, at 12 out of the 32.

North Dakota, where the greenhouse gases will be stored permanently, is the only state other than Wyoming that has the authority to regulate its own CO₂ storage wells, said Gov. Doug Burgum during his January State of the State address. That will help make the state a leader in CCUS, Burgum said.

“We are already the nation’s CCUS proving ground,” Burgum said. “New federal incentives for storing CO₂ or using it for enhanced oil recovery will drive billions of dollars toward the bottom lines of our ag, coal and oil and gas industries. This, combined with our vast storage capacity and our forward-looking policies, is why we have billions of dollars of projects knocking on our door in North Dakota.”

With an above-average dependence on the volatile oil and gas industry in the last decade, North Dakota’s economy would benefit from diversification, said Scott Nees, analyst with S&P Global Ratings, which maintains a AA-plus issuer credit rating on the state.

“Oil and gas has been a major player and force in the economy and there’s been lots of volatility in North Dakota’s economy because of that,” Nees said. “What’s going to move the needle is something that results in material diversification in exports, and away from oil and gas,” as well as long-term boosts to employment and gross domestic product, he said.

The success of the federal tax credits for the CCUS industry — and how that translates into impact on state and local credit — remains uncertain, said S&P’s Nora Wittstruck.

“It’s yet to be seen what economic diversity or jobs are brought to the state relative to the carbon capture projects,” Wittstruck said. “We’re in a wait-and-see mode in terms of how the aspects of the [Inflation Reduction Act] are going to pan out.”

Summit’s project has sparked litigation in Iowa as well as a flurry of state legislation in other states over the threat of eminent domain.  

In North Dakota, many cities are opposed to bills that would limit their right to eminent domain, which they need for flood mitigation, said Matt Gardner, executive director of the North Dakota League of Cities.

Senate Bill 2313, for example, which has hearings this week, would encourage property owners to go to court to obtain an additional 33% payment above market value, Gardner said.

“If the city has to buy out properties for flood protection, they’d all go to court to get the extra 33%, and that makes projects take longer to build,” Gardner said.

Harris said Summit has secured easement agreements representing more than 60% of the project across the five states, including from two-thirds of property owners in Iowa, with more agreements “coming in every day.”

If Summit wins gets permits this year, it could start construction in late 2023 Harris said, with the project up and running by 2024.