Iowa Utilities Commission Grants Summit's Petition for a Carbon Pipeline Permit

On August 28, 2024, the Iowa Utilities Commission granted Summit Carbon Solutions, LLC, a hazardous liquid pipeline permit. The company cannot begin construction until the authorities in South Dakota and North Dakota grant their approval for the project. (Note: the Iowa Legislature changed the name of the Commission from the Iowa Utilities Board, effective July 1, 2024).

On June 25, 2024, the Iowa Utilities Board issued a 507-page decision and order, granting the petition of Summit Carbon Solutions, LLC, for a hazardous liquid pipeline permit, subject to several terms and conditions. The Board determined that Summit’s proposed carbon pipeline will “promote the public convenience and necessity” as required under Iowa Code § 479B.5. Finding also that the pipeline is for a “public use,” the Board vested Summit with the right of eminent domain over parcels listed in the order, once the permit is issued.

Background

Summit filed its petition for a hazardous liquid pipeline permit on January 28, 2022. Summit intends to build a carbon pipeline across Iowa, Nebraska, Minnesota, South Dakota, and North Dakota to transport liquified carbon dioxide from approximately 57 ethanol plants throughout the region for underground sequestration in North Dakota. The project comprises approximately 688 miles of pipeline across 29 Iowa counties.    

Board’s Public Convenience and Necessity Analysis

Iowa Code § 479B.9 states that the Board cannot grant a hazardous liquid pipeline permit unless it determines that the proposed services will “promote the public convenience and necessity.” In reaching its decision, the Board relied on the Iowa Supreme Court’s 2019 Puntenney decision[i]  reviewing the Board’s issuance of a permit to Dakota Access to build a crude oil pipeline. Because the Court in that case determined that the Board’s use of a balancing test was not “irrational, illogical, or wholly unjustifiable,” the Board treated the public convenience and necessity determination as a balancing test weighing the public benefits of the carbon pipeline against the costs.

In reviewing the “most significant” factors, the Board considered testimony from proponents and opponents of the project. The factors fell into several categories: national issues, state issues, impacts to landowners, safety, transportation methods, and alternative options. The Board’s analysis of these factors is summarized below.

National Issues

The Board evaluated three national issues, ultimately concluding that they all weighed in favor of granting the Summit petition.

Federal Tax Credits

The Board considered testimony from Summit explaining that it will be eligible to receive the IRC § 45Q federal tax credit in an amount up to $85 per qualifying metric ton of carbon oxides permanently sequestered. Additional credits for clean fuels under IRC §§ 45Z and 45B may also be available. Several opponents argued that the more than $1 billion in credits Summit could receive is “corporate welfare,” which should be considered a cost to taxpayers, not a benefit.

Although these credits are not permanent, the Board found that they were evidence of a longstanding federal policy to promote carbon sequestration, suggesting that the pipeline would promote public convenience and necessity.  The Board therefore found that the existence of federal tax credits weighed “heavily” in favor of granting the petition.

Low Carbon Fuel Markets

The Board next evaluated Summit’s claim that the project would improve ethanol’s environmental impact, thus improving its ability to compete in low carbon fuel markets. Opponents contended that ethanol will likely never meet the future fuel standards of California and other West Coast states. They argued that wind, solar, and hydro power were the renewable power sources of the future.

The Board ultimately found that the potential for ethanol plants to be able to sell into a low carbon fuel market was a factor that weighed slightly in favor of the petition. Although the plants may currently be able to sell into low carbon fuel markets, the requirements will get more stringent, and carbon sequestration would likely allow ethanol to continue to meet these carbon threshold limits.

Climate Change  

The Board also reviewed Summit’s assertion that its proposed pipeline will “play an important role in reducing greenhouse gas emissions in the effort to combat climate change.” Opponents argued that spending “5.6 billion on pipes and carbon capture from ethanol refineries” was a significant opportunity cost that could be better directed toward wind and solar, options that would also reduce consumer costs and more successfully reduce carbon emissions. Others asserted that “Iowa’s governments do not agree that climate change exists and have not adopted policies to mitigate it.”

The Board determined that the climate change factor weighed in favor of the petition. In so finding, the Board stated that it was beyond the scope of its authority to affirm or deny the existence of climate change, but that there was sufficient evidence at the federal and state levels affirming policies to reduce carbon emissions that contribute to climate change.[ii]  Citing the Iowa Renewable Fuels law,[iii] the Board found that Iowa has a policy to reduce “atmospheric contamination” of the environment from the combustion of fossil fuels.

State Issues

The Board next evaluated two state issues and determined that they too weighed in favor of granting the petition.

Ethanol

Summit argued that one of the main benefits of the proposed pipeline would be the positive impact it would have on Iowa’s ethanol and agricultural industry. Providing ethanol plants with a way to sequester the carbon emitted through the production process would “enhance the ethanol plants’ long-term environmental and economic sustainability,” Summit stated. Summit also stated that the ethanol industry purchases 53 percent of Iowa’s corn crop each year and that the ethanol industry supports 44,000 jobs in Iowa alone. Without the pipeline, Summit contended, ethanol plants will not keep up with the growing low carbon fuel markets, and corn prices would decrease.

In opposition to this testimony, a representative from the Sierra Club said that “corn is very much not an environmentally friendly technology.” Specifically, she suggested that ethanol production has peaked and that electric vehicle sales are growing faster than previously forecasted. She also suggested that in the long term, Iowa farmers will be able to grow other, more profitable crops instead of corn for ethanol. Others testified that the ethanol industry is here to stay but that its future viability is not dependent upon this pipeline.

The Board ultimately found that evidence that the pipeline would reinforce the viability of the ethanol industry weighed in favor of the petition. The Board cited a report proffered by Summit and, while questioning “whether there is bias in the report,” noted the projection that ethanol sales would decrease anywhere from $2 billion to $10 billion if carbon reducing techniques are not implemented by ethanol plants. The Board stated, “This potential supply chain collapse of the Iowa agricultural sector would likely have severe economic impacts to the cities, counties, and the state of Iowa, all of which would stand to lose hundreds of millions of dollars.”

Economics

Summit also asserted that its proposed project would provide economic benefits in Iowa and the surrounding region. Specifically, Summit stated that its $5.5 billion investment would generate between 14,000 and 17,000 jobs during construction and 350 to 460 full-time jobs in the long term. Additionally, Summit argued that the project would increase property tax revenue by $30 million.  Opponents primarily argued that the economic analysis provided by Ernst and Young was flawed and did not consider the true costs of the project.

The Board found that this factor weighed in support of the petition. Specifically, the Board found the Summit economic report sufficient, despite its lack of explicit costs.  Although emphasizing that it was not shifting the burden to the opponents of the pipeline, the Board noted that they had offered little in the way of evidence to refute the Summit report.

Impacts on Landowners

Impacted landowners raised many concerns about the project, including health and safety issues, damage to property, insurance coverage, liability issues, and restrictions on future operations. For its part, Summit argued that impact to landowners would include typical temporary construction-related or maintenance-related noise and disruption “routine” for such projects. Summit argued that once the pipeline was buried, normal operations could generally resume.

After reviewing the evidence, the Board determined that this factor weighed against the petition. The Board affirmed that while Summit is trying to mitigate impacts to landowners, there will be both temporary and permanent impacts. Specifically, the Board affirmed concerns about yield issues and drainage tile issues but noted that laws and regulations were available to minimize these impacts across agricultural lands. The Board “disagreed” with testimony that the pipeline would permanently affect housing development, land use values, local tax base, tourism, and the migration of residents to a county. The Board stated that the evidence shows that “development does occur despite the presence of a pipeline.”

Safety

Almost every landowner who testified and thousands of filed comments raised safety-related concerns with the proposed pipeline. The Sierra Club testified about the impact of carbon dioxide on the human body and the need for an emergency notification system and trained emergency responders in the event of an unintended release. The organization’s representative testified that, contrary to the assertion of Summit, carbon pipelines are more hazardous than crude oil, anhydrous ammonia, and natural gas pipelines. An emergency management expert testified that emergency preparedness was a significant concern with carbon pipelines. He explained that robust dispersion models that would identify the potential impact of a rupture with accuracy are still in development. ‘

Summit argued that its pipeline would comply with all current and future federal safety regulations and standards and that its operation control center would continuously monitor the pressure and operation of the pipeline. It also asserted that the pipeline would be visually inspected every two weeks, not less than 26 times annually. Summit also contended that it had contracted with experts to complete robust vapor dispersion modeling and that it will continue with ongoing risk assessment for the life of the project.

The Board explained that while it could consider safety as part of its analysis, it could not impose safety criteria on Summit since that was within the jurisdiction of federal regulators. The Board noted that it was clear that there are risks associated with the proposed pipeline; however, there were ways to reduce or minimize those risks. Specifically, the Board noted that Summit has agreed to conduct annual training with all local first responders and to buy enough carbon dioxide air monitors to ensure that a monitor could be placed in every emergency vehicle across the route. Summit has also agreed to provide necessary equipment to first responders through grants. The Board found that these and other commitments by Summit would reduce risk and go beyond what is required by the federal regulations. The Board required Summit to implement these promised features in its order.

In the end, the Board determined that the safety factor weighed against the petition, but that its negative impact was lessened by actions proposed by Summit and made mandatory in the order.

Transportation Methods

Summit argued in support of its petition that pipelines were a safer and more efficient way to transport hazardous liquids, as compared to rail and truck transportation. Opponents argued that this was an unproven assertion.

The Board agreed with Summit, finding that “logic dictates” there is a reason a pipeline is being proposed rather than a new trucking company or railroad company. “Having either nearly half a million tanker trucks or 150,000 railcars added to roadways or railroads, respectively, would create untold numbers of risks and areas where accidents can happen,” the Board stated, finding that the transportation factor weighed slightly in favor of the petition.

Alternative Options

Finally, the Board considered two concerns consistently raised in the hearing: (1) Could the carbon be better sequestered in Iowa and (2) wouldn’t converting carbon dioxide to methanol remove the need for a pipeline?

In response to these concerns, Summit asserted that Iowa does not have the geologic formations capable of storing the volume of carbon dioxide the plants produce. With respect to the second question, Summit’s representative testified he was not aware of any large-scale green methanol producers, but if there were, the methanol would likely need to be transported via pipeline.

The Board found that while potential alternatives should be a factor, they had little impact on the Board’s analysis. The Board determined that the arguments in favor of these alternatives were primarily based on speculation, rather than proven facts. State law does not require an analysis of all possible alternatives.

Decision on Public Convenience and Necessity

After weighing the above factors, the Board determined that the proposed pipeline would promote the public convenience and necessity as required by Iowa Code § 479B.9. As such, the Board granted the petition for the permit. The Board attempted to mitigate several of the negative factors by subjecting the permit to a list of terms and conditions with which Summit must comply. Some conditions are required by Iowa Code § 479B or Board rules, but others require Summit to follow-through on promises made throughout the testimony, such as supplying emergency responders with carbon dioxide monitors and conducting X-ray inspection of 100 percent of welds.   

 Eminent Domain Authority

The Board next turned to the question of eminent domain, citing Iowa Code § 479B.16(1):

A pipeline company granted a pipeline permit shall be vested with the right of eminent domain, to the extent necessary and as prescribed and approved by the board…

Ultimately, the Board agreed that eminent domain does not automatically vest with a finding that a hazardous liquid pipeline will provide a service that is in the public convenience and necessity. However, the Board found that the proposed pipeline was for a public use and agreed to grant Summit the right of eminent domain over requested parcels, subject to certain conditions described in the order.

Public Use Requirement

To pass constitutional muster, eminent domain must be for a “public use.”[iv] The Iowa Supreme Court in Puntenney held that a valid “public use” under the Iowa Constitution must either be (1) where the sovereign takes the private property and transfers it to public ownership (i.e. roads, hospitals, etc.), or (2) where the sovereign takes private property and transfers the property to another private party, but the beneficiary is a common carrier ( i.e. railroads, a public utility, or stadium).[v] The Court also found that economic development could not qualify as a public use in Iowa, but that agricultural land could be condemned if the company seeking the condemnation was under the jurisdiction of the Board.[vi]

Common Carrier Analysis

Summit argued that it was a common carrier because it actively held itself out to the public as being willing to carry carbon dioxide for anyone able to provide carbon dioxide in line with its specifications and interested in its services. Summit asserted that it was reserving 10 percent of its pipeline capacity for “walk up shippers” or those not seeking a long-term contract for the shipment of carbon dioxide.

Opponents argued that Summit was not a common carrier because it was not willing to perform services for the public but would reserve the right to contract with whomever it liked. Some argued that even if Summit were a common carrier, it must show that its benefits are for a public purpose. To the extent the public does not use or benefit from the taking, eminent domain should not be granted.

The Board found that Summit qualified as a common carrier because it had committed to reserving 10 percent of the capacity of its pipeline for walk-up customers. To support this conclusion, the Board relied on a statement from the Court in Puntenney, “There is no dispute that most of the pipeline capacity has been contracted to shippers in advance; however, 10% is required to be made available for walk-up business. That is all the Federal Energy Regulatory Commission requires of a common carrier.”[vii] The Board also found that Summit would meet the common law definition of a common carrier, finding that Summit was not limiting its business via its contracts. Common carriers, the Board found, can reserve the right to deny service. In the end, the Board concluded, “Summit Carbon is a ‘for hire’ company with its primary business being the transportation of carbon dioxide for the independent ethanol plants and those who will do business with Summit Carbon under the transportation service agreement or as a walk-up shipper.”

Eminent Domain Requirements

In its order, the Board agreed to vest Summit with the right of eminent domain over more than 100 parcels, subject to stated limits and conditions. The Board also found sufficient evidence to grant greater easement areas for construction, operation and maintenance and for the location of pumps and other equipment and facilities. The Board did not use the number of outstanding easements (approximately 27 percent at the time of the hearing) as a factor in making its eminent domain determination. The Board imposed several requirements upon Summit’s easements, for example including indemnification language in all easements, limiting modifications that can occur without requiring an amendment, and working with landlocked landowners to ensure access across construction easements.

Final Order

The Board granted Summit’s petition for a hazardous liquid pipeline permit but will not issue the permit until Summit has filed corrected exhibits, and the Board has approved the changes.  Once the permit is issued, Summit will have the right of eminent domain over the parcels listed in the order. The permit is subject to many terms and conditions set forth in the order, including the following:

• Summit cannot begin construction on any segment of Iowa pipe until Summit has obtained agency approval for a route and sequestration site in North Dakota and a route in South Dakota
• Summit cannot begin construction on certain segments of its route until it receives agency approval from Minnesota and Nebraska for connections and routes in those states.
• Summit must obtain and maintain a general liability insurance policy in an amount of no less than $100 million and provide proof prior to commencing construction.
• Summit must offer to purchase voluntary easements from eminent domain landowners with the same terms and conditions already offered to landowners and for the last best price already offered by Summit Carbon Solutions, LLC, at least until the county compensation commission is empaneled to determine the compensation for the taking.

Although those subject to eminent domain by this order are incentivized to voluntarily settle, it is very likely that some will refuse and challenge the Board's order in court. We will be watching for further developments.