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Jonathan Barr, Jimmy Fokas and Maria Luevano Author Article for Corporate Governance Advisor

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Despite federal and state efforts to incentivize development of carbon-capture projects, one major CO2 pipeline has been canceled, and another faces similar hurdles.

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Carbon-capture projects continue to face stiff local and state resistance despite being one of the key pieces of emission-reduction strategies.

Early and substantive public engagement and government relations are key to helping successfully complete carbon-capture projects.

Navigator CO2 Ventures – backed by prominent investors and a leading energy company – recently scrapped its proposed Heartland Greenway project.<a href="#_ftn1" id="_ftnref1">[1]</a> The project aimed to build more than 1,300 miles of pipeline across five Midwest states (Nebraska, Illinois, Minnesota, North Dakota and South Dakota) to capture carbon emissions from corn ethanol projects and permanently store them underground in an Illinois storage site.<a href="#_ftn2" id="_ftnref2">[2]</a> Navigator cited “the unpredictable nature of the regulatory and government processes involved” as the driving factor behind its decision to shutter the project.<a href="#_ftn3" id="_ftnref3">[3]</a>

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Navigator faced stern opposition to its proposed carbon-capture and storage (CCS) pipeline from landowners and environmental groups.<a href="#_ftn4" id="_ftnref4">[4]</a> Opponents of the Heartland Greenway project expressed concerns to state regulators about the alleged safety risks of potential pipeline leaks as well as fears about property seizure and damage stemming from the pipeline’s construction.<a href="#_ftn5" id="_ftnref5">[5]</a> Ultimately, South Dakota regulators denied Navigator’s construction permit in September, citing the company’s lack of landowner support, which caused the company to subsequently pause or withdraw its permit applications in Iowa and Illinois in October.<a href="#_ftn6" id="_ftnref6">[6]</a>

Iowa-based Summit Carbon Solutions, a company seeking to build a similar – and even larger –carbon-capture pipeline in the region, aims to turn Navigator’s departure to its benefit, hinting at the possibility of acquiring Navigator’s assets to expand its own infrastructure.<a href="#_ftn7" id="_ftnref7">[7]</a> Despite the company’s optimism, Summit also faces strong resistance to its CCS pipeline proposal from stakeholders.<a href="#_ftn8" id="_ftnref8">[8]</a> On top of having its permit application denied in South Dakota in September for its inability to comply with local siting ordinances, Summit’s permit application to build its permanent storage site in North Dakota was also denied because of concerns over potential harms to the environment and residents who live along the project’s route.<a href="#_ftn9" id="_ftnref9">[9]</a> Summit is currently urging state officials to reconsider its application.<a href="#_ftn10" id="_ftnref10">[10]</a>

Companies like Navigator and Summit are trying to take advantage of the tax credits in the Inflation Reduction Act (IRA), which attempt to incentivize lower emissions.<a href="#_ftn11" id="_ftnref11">[11]</a> Specifically, the IRA provides up to $85 per metric ton of CO2 permanently stored underground through the section 45Q tax credit,<a href="#_ftn12" id="_ftnref12">[12]</a> increases the number of projects eligible to claim the credit by lowering capacity requirements<a href="#_ftn13" id="_ftnref13">[13]</a> and extends the time frame for projects to qualify until January 2033.<a href="#_ftn14" id="_ftnref14">[14]</a> Despite the strong local opposition to CCS pipeline projects, the Biden administration continues to encourage the development and use of the technology by pledging up to $1.2 billion in federal funding to support CCS projects, which are a critical part of President Biden’s climate strategy to reach net-zero emissions by 2050.<a href="#_ftn15" id="_ftnref15">[15]</a>

But the cancellation of the Heartland Greenway pipeline and the delays of Summit’s CCS pipeline represent a setback to the development of CCS projects.<a href="#_ftn16" id="_ftnref16">[16]</a> CCS projects are encountering strong resistance from landowners and environmental nongovernmental organizations over the alleged risks of carbon-capture technology.<a href="#_ftn17" id="_ftnref17">[17]</a> Beyond landowners’ concerns about leaks and property damage, environmentalists voice concerns about the efficacy of CCS pipelines more generally, arguing that capturing and storing emissions will be used merely as an excuse to delay or eliminate the transition to alternative fuel sources.<a href="#_ftn18" id="_ftnref18">[18]</a>

Navigator’s and Summit’s examples indicate a hard road ahead for companies hoping to develop CCS pipeline projects. Similar projects will likely encounter strong local opposition on top of the legal difficulties of navigating state and local regulators and permitting processes. For now, developers will need to increase buy-in from residents and environmental groups by increasing public outreach and government relations through education on the benefits and risks of CCS projects.

Despite the opposition, there is growing support for permitting reform to streamline the deployment of CCS projects. For example, the Fiscal Responsibility Act,<a href="#_ftn19" id="_ftnref19">[19]</a> signed into law in May 2023, included several provisions designed to streamline clean energy permitting, such as (1) designating a lead federal agency and singular environmental review document for permitting projects,<a href="#_ftn20" id="_ftnref20">[20]</a> (2) setting time and page limits on environmental assessments and impact statements required under the National Environmental Policy Act,<a href="#_ftn21" id="_ftnref21">[21]</a> and (3) allowing applicants to write environmental documents themselves with agency oversight.<a href="#_ftn22" id="_ftnref22">[22]</a> The Biden administration has also declared support for state and local permitting reform, stating that legislation that “either standardizes state-level permitting processes or provides financial incentives for states that adopt best practices would significantly accelerate the delivery of” CCS projects.<a href="#_ftn23" id="_ftnref23">[23]</a> States including Georgia and New York have successfully tested models like colocation of federal and state permitting officials or development of a one-stop shop for all necessary permits and environmental reviews,<a href="#_ftn24" id="_ftnref24">[24]</a> which may serve as a guide for other states. Combined with increased community engagement and education, permitting reform will likely make developing and deploying CCS projects such as Summit’s carbon-capture pipeline more feasible in the future.

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<a href="#_ftnref1" id="_ftn1">[1]</a> Kim Chipman, BlackRock-Backed Navigator Scraps US Corn Belt CO2 Pipe Plan, Bloomberg (Oct. 20, 2023, 10:07 a.m.), <a href="https://www.bloomberg.com/news/articles/2023-10-20/navigator-co2-cancels-us-corn-belt-carbon-pipeline-plan?leadSource=uverify%20wall#xj4y7vzkg">https://www.bloomberg.com/news/articles/2023-10-20/navigator-co2-cancels-us-corn-belt-carbon-pipeline-plan?leadSource=uverify%20wall#xj4y7vzkg</a>.

<a href="#_ftnref2" id="_ftn2">[2]</a> Id.

<a href="#_ftnref3" id="_ftn3">[3]</a> Id.

<a href="#_ftnref4" id="_ftn4">[4]</a> Id.

<a href="#_ftnref5" id="_ftn5">[5]</a> Navigator CO2 Ventures Cancels Carbon-Capture Pipeline Project in Midwest, Reuters (Oct. 23, 2023, 2:26 p.m.), <a href="https://www.cnbc.com/2023/10/23/navigator-co2-ventures-cancels-midwest-carbon-capture-pipeline-project.html#:~:text=Navigator%20CO2%20Ventures%20has%20canceled,%E2%80%9Cunpredictable%E2%80%9D%20state%20regulatory%20processes">https://www.cnbc.com/2023/10/23/navigator-co2-ventures-cancels-midwest-carbon-capture-pipeline-project.html#:~:text=Navigator%20CO2%20Ventures%20has%20canceled,%E2%80%9Cunpredictable%E2%80%9D%20state%20regulatory%20processes</a>.

<a href="#_ftnref6" id="_ftn6">[6]</a> Id.

<a href="#_ftnref7" id="_ftn7">[7]</a> Chipman, BlackRock-Backed Navigator, supra note 1.

<a href="#_ftnref8" id="_ftn8">[8]</a> Id.

<a href="#_ftnref9" id="_ftn9">[9]</a> Leah Douglas, Analysis: US Carbon Capture Pipeline Setbacks Reflect Challenges in Climate Fight, Reuters (Sept. 28, 2023, 11:57 a.m.), <a href="https://www.reuters.com/sustainability/us-carbon-capture-pipeline-setbacks-reflect-challenges-climate-fight-2023-09-28/">https://www.reuters.com/sustainability/us-carbon-capture-pipeline-setbacks-reflect-challenges-climate-fight-2023-09-28/</a>.

<a href="#_ftnref10" id="_ftn10">[10]</a> Chipman, BlackRock-Backed Navigator, supra note 1.

<a href="#_ftnref11" id="_ftn11">[11]</a> Id.

<a href="#_ftnref12" id="_ftn12">[12]</a> 26 U.S.C. §§ 45Q(b)(1), (h)(1).

<a href="#_ftnref13" id="_ftn13">[13]</a> Id. § 45Q(d)(2).

<a href="#_ftnref14" id="_ftn14">[14]</a> Id. § 45Q(d)(1).

<a href="#_ftnref15" id="_ftn15">[15]</a> Anna Mattson, Pipelines Touted as Carbon Capture Solution Spark Uncertainty and Opposition: Federal Investment in Carbon Capture Could Help Fight Climate Change, But this Technology Is Facing Fierce Opposition, Sci. Am. (Oct. 1, 2023), <a href="https://www.scientificamerican.com/article/pipelines-touted-as-carbon-capture-solution-spark-uncertainty-and-opposition/#:~:text=But%20despite%20the%20green%20intentions,be%20at%20fighting%20climate%20change">https://www.scientificamerican.com/article/pipelines-touted-as-carbon-capture-solution-spark-uncertainty-and-opposition/#:~:text=But%20despite%20the%20green%20intentions,be%20at%20fighting%20climate%20change</a>.

<a href="#_ftnref16" id="_ftn16">[16]</a> Chipman, BlackRock-Backed Navigator, supra note 1.

<a href="#_ftnref17" id="_ftn17">[17]</a> Douglas, U.S. Carbon Capture Pipeline Setbacks, supra note 9; see also Tom Pelton, Federally-Funded Carbon Waste Disposal Projects Ignite Opposition, News (June 21, 2023), <a href="https://news.oilandgaswatch.org/post/federally-funded-carbon-waste-disposal-projects-ignite-opposition#:~:text=An%20environmental%20organization%20called%20Healthy,little%20or%20no%20environmental%20benefit">https://news.oilandgaswatch.org/post/federally-funded-carbon-waste-disposal-projects-ignite-opposition#:~:text=An%20environmental%20organization%20called%20Healthy,little%20or%20no%20environmental%20benefit</a> (explaining that an environmental organization called Healthy Gulf has raised concerns about proposed carbon storage projects in the Gulf of Mexico because they could damage the “fragile ecosystems for little or no environmental benefit”).

<a href="#_ftnref18" id="_ftn18">[18]</a> Anna Mattson, Pipelines Touted as Carbon Capture Solution, supra note 12.

<a href="#_ftnref19" id="_ftn19">[19]</a> Fiscal Responsibility Act, Pub. L. No. 118-5, 137 Stat. 38.

<a href="#_ftnref20" id="_ftn20">[20]</a> Id., div. C, sec. 321(b), § 107(a), 137 Stat. at 40 (codified as amended at 42 U.S.C. § 4336a).

<a href="#_ftnref21" id="_ftn21">[21]</a> Id., div. C, sec. 321(b), § 107(e), (g), 137 Stat at 41–42.

<a href="#_ftnref22" id="_ftn22">[22]</a> Id., div. C, sec. 321(b), § 107(f), 137 Stat. at 42.

<a href="#_ftnref23" id="_ftn23">[23]</a> FACT SHEET: Biden-Harris Administration Outlines Priorities for Building America’s Energy Infrastructure Faster, Safe, and Cleaner, White House (May 10, 2023), <a href="https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/10/fact-sheet-biden-harris-administration-outlines-priorities-for-building-americas-energy-infrastructure-faster-safer-and-cleaner/">https://www.whitehouse.gov/briefing-room/statements-releases/2023/05/10/fact-sheet-biden-harris-administration-outlines-priorities-for-building-americas-energy-infrastructure-faster-safer-and-cleaner/</a>.

<a href="#_ftnref24" id="_ftn24">[24]</a> Id.

Despite Growing Federal Support, Carbon Capture and Storage Developers Face Permitting Challenges and Strong Local Opposition in the Midwest

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