How much money do CO2 pipeline companies stand to gain from the Inflation Reduction Act?

Developers hoping to build thousands of miles of carbon dioxide pipelines across the Midwest continue to face fierce opposition from landowners and repeated setbacks from state and local regulators. But that hasn't stopped one company from trying to expand its project — already the largest proposed pipeline of its kind in the United States.

In the past month and a half, Summit Carbon Solutions announced deals with two ethanol producers that added 25 additional facilities to its proposed 2,500-mile carbon dioxide pipeline network in the Midwest. The project would transport CO2 sequestered by ethanol plants in five states and store the climate pollutant permanently underground in North Dakota.

By capturing more carbon dioxide under contract, the expansion would help Summit's financial case and, crucially, open up billions of dollars in additional tax credits, without which the project would never be built. If the pipeline is built and operating at full capacity, Summit and its partners could be eligible for up to $18 billion in federal tax benefits over 12 years. In reality, the pipeline is unlikely to get that full amount, experts say, but it could fetch many billions, potentially enough to cover most or even all of its construction and operating costs.

“Just obscene amounts of money,” said Emma Schmit, an activist with the Iowa-based BOLD Alliance, which helps organize landowner opposition to the CO2 pipelines.

The project is among several proposed in the Midwest as a result of the Biden administration's effort to combat climate change by reducing carbon emissions from industries such as ethanol production. The pipelines have faced significant pushback from environmentalists and Midwest landowners concerned about potentially dangerous CO2 leaks and angry at developers for trying to take their land through eminent domain.

In October, Navigator CO2 Ventures canceled a separate carbon dioxide pipeline project amid growing public opposition and ongoing regulatory setbacks. The Summit has faced many setbacks of its own, the most recent being the rejection last month license at the county level in Nebraska.

Given the sustained resistance Summit has faced and the project's high cost — about $8 billion to build — the generous federal tax credit could explain why the company is expanding its scope, rather than scaling back.

Daniel Cohan, an associate professor of civil and environmental engineering at Rice University, said the scale of Summit's potential tax benefit is unprecedented and far exceeds what any individual wind or solar project would get, for example. But, he said, that might be the point.

“The government is trying to launch technologies that have only rarely been used,” Cohan said. “Whether I agree with it or not, the rationale behind these carbon sequestration tax credits is to make them particularly generous at the outset in the hope that they can be scaled back as carbon sequestration becomes more widespread in the future.”

The benefits are particularly large for ethanol plants, which produce an almost pure stream of carbon dioxide and are therefore among the cheapest carbon sequestration operations. The value of the tax credit, up to $85 per ton of carbon dioxide captured and stored, far exceeds the estimated cost of carbon sequestration at ethanol plants. numerous calculates position between $20 and $40 per ton.

America's ethanol industry faces a major crossroads as electric vehicles eat into demand for gasoline, and many in the industry now see carbon sequestration and the federal funding that supports it as a critical lifeline for corn farmers across the Midwest. About 40 percent of U.S. corn crops are used to produce ethanol, which is then blended into gasoline sold at the pumps, according to the US Department of Agriculture.

“Whether I agree with it or not, the rationale behind these carbon sequestration tax credits is to make them particularly generous at the outset…”

All of this has raised questions about whether the Summit project would be a good use of taxpayers' money. The company has argued that it will help reduce the carbon footprint of a fuel already used in cars and could be used to produce low-carbon jet fuel, known as sustainable aviation fuel. Jon Probst, Summit's chief commercial officer, said the carbon sequestration work will cut the carbon intensity of the ethanol produced by its partners by more than half. Other estimate for a different ethanol and carbon sequestration project in North Dakota said it would reduce the fuel's climate footprint by more than 40 percent. The difference depends largely on how pure you think the ethanol is in the first place.

Some scientists have questioned whether ethanol should be considered a sustainable fuel. A 2022 study set that US ethanol has a climate footprint similar to or even greater than gasoline because increased production has converted more grassland or forest to crops and requires more fertilizer. Much better choice, some scientists And environmental advocates argued that the focus would be on accelerating a shift to electric cars to fully replace ethanol.

Much of the debate centers on whether ethanol use can be phased out relatively quickly, or whether its continued use in cars, airplanes, or both justifies the reduction in climate pollution associated with its production.

“If we're going to meet the climate goals, the kind of work Summit is doing, that's the scale we're going to have to build,” said Matt Fry, senior policy director for carbon management at the Great Plains Institute, a think tank that has convened a coalition of pro-carbon sequestration industry, unions and environmental groups, including the Summit. Fry pointed to modeling by the International Energy Agency and others that show the world won't be able to electrify all transportation fast enough to meet climate goals and will therefore need low-carbon fuels and carbon capture and storage.

According to Summit, the additional 25 ethanol plants will be able to sequester 7.8 million metric tons of CO2 each year, bringing the total amount under contract for the pipeline to more than 16 million metric tons.

Rohan Dighe, a research analyst at consultancy Wood Mackenzie, said the tax credit likely won't be enough to make the project profitable and that Summit is banking on developing markets for low-carbon ethanol. California, Washington and other states have already created markets that pay dearly for low-carbon fuels. The federal government is trying to launch a market for sustainable jet fuel — the Inflation Reduction Act established several new tax credits with that goal.

Cohan said that while the carbon sequestration tax credit was a much more expensive way to reduce emissions than building renewables, he compared it to some of the first wind and solar incentives enacted decades ago.

“I think it makes sense for a rich, advanced country like the United States to devote some of its policies to promoting emerging technologies,” Cohan said. “And in this case, carbon capture from ethanol plants is a nascent technology that is one of the most affordable ways for industry to capture carbon.”