Last month, Navigator CO₂ Ventures officially ended their Heartland Greenway CO₂ pipeline project due to regulatory hurdles and political opposition. Navigator’s proposal was vying to be one of the first long-haul CO₂ pipelines in the U.S. built for transporting industrial emissions to dedicated geologic sequestration. Though similar projects remain in active development, they are meeting similar obstacles as the Heartland Greenway. This Energy Market Insight evaluates the acute regulatory risks facing these projects and future energy transition infrastructure development.

The U.S. has more carbon capture projects in development than the rest of the world combined. One factor behind this difference is simple economics: the U.S. is home to emission sources where CO₂ can be captured at a relatively low cost, and the 45Q tax credit provides guaranteed revenue of up to $85 per tonne. A prime example of this dynamic is the corn ethanol industry, which produces around 20 Mt of CO₂ per year from 165 plants in the U.S. Nearly all of this CO₂ could be captured for less than $30 per tonne and the 45Q tax credit would imply potential revenue of $1.7B per year. Additional revenue is likely possible through participation in low-carbon fuel and carbon removal markets. However, the largest challenge for this business case is that most ethanol plants do not sit directly atop favorable geology for sequestering CO₂, making long-haul transportation a necessary and potentially profitable business.

Specifically needed are large interstate trunklines that can aggregate the emissions from many small, dispersed ethanol plants in corn-belt states, like Iowa, Nebraska, and South Dakota, eventually delivering to areas with better geologies for sequestration, such as the Williston or Illinois basins. While “good on paper,” these projects are proving hard to realize. The Navigator project had the benefit of BlackRock-led financing, a management team experienced in pipeline development, and agreements with several of the country’s largest ethanol producers. However, state permitting ultimately sank its chances. Navigator describes the “unpredictable nature of regulatory and government processes involved, particularly in South Dakota and Iowa” as forcing the project’s cancellation. South Dakota’s utility commission had earlier denied permits for both Navigator and their largest competitor, Summit Carbon Solutions. Summit also recently lost its permit application in North Dakota, shortly after which the project’s targeted in-service date was pushed back. Just before the Thanksgiving holiday, Wolf Carbon Solutions withdrew its application in Illinois and announced a delayed project timeline after the staff of the state regulatory commission recommended denial of their permit.

Regulatory risk is nothing new for energy infrastructure development, with multiple projects in recent memory having been derailed (Keystone XL) or nearly derailed (Mountain Valley Pipeline) by political opposition and exacting permitting processes. CO₂ pipelines have less regulatory precedent than other energy projects, with most states having never permitted significant CO₂ infrastructure before. There is also less federal oversight. For instance, these projects do not require FERC approval like natural gas pipelines do. Both factors may prove detrimental. Federal agency PHMSA is responsible for the safety of CO₂ pipelines but is currently redrafting its safety standards, leaving inexperienced state regulators uneasy that the current standards may not be strong enough. As for certifications required for eminent domain, conventional projects, like natural gas pipelines, can use FERC approval to preempt many state and local regulators. Without a federal process, these CO₂ pipelines are reliant on state-by-state or even county-by-county processes where local objectors often have a strong voice.

A number of environmentalist groups, including the Sierra Club, campaign against CO₂ pipelines because, among other things, they view carbon capture as a false solution to climate change. Opposition has also come from other groups, such as rural landowners, who oppose the use of eminent domain and perceive the pipelines as hazardous and unnecessary. This broad-base opposition has meant regulatory agencies are deluged with public comments and petitions to intervene in the proceedings. The Iowa Utility Board (IUB) noted that the 26-day hearing for Summit’s pipeline was the longest hearing ever held by the agency with more than 7,600 filings in the docket and 100 landowners testifying. In contrast, the IUB’s review of the Dakota Access Pipeline was nearly half as long with about 4,000 filings.

Currently, none of the three new-build carbon sequestration pipelines discussed above have received approval in any state and multiple permits have been denied, making this type of project appear more highly risked than ever. Given the general difficulties faced by these projects, developer interest may skew away from similar projects in the future. Several strategies could emerge to hedge regulatory risk. One example is the Trailblazer CO₂ conversion project, which has already secured its right-of-way by converting an existing natural gas pipeline and will not require the use of eminent domain for its mainline. In another strategy to hedge risk, future projects may opt for an intrastate footprint that minimizes the number of agencies involved in permitting. Intrastate projects could also consider industrial utilization of CO₂ as an alternative to geologic sequestration. Finally, projects in less populated areas, such as Wyoming and West Texas, will also likely face less regulatory risk.

BTU Analytics is tracking updates on over 250 active carbon capture projects in the U.S., including all plants announced as suppliers for the above pipelines. The full Carbon Capture Database and the companion Carbon Capture Executive Summary are available in the FactSet Workstation. Contact btuanalytics@factset.com to request a sample or find out more about our energy transition products.