Summit’s common carrier status in South Dakota is the key to the future of its CO2 pipeline project

Over the past few years, Summit Carbon Solutions has been developing a project that would capture the CO2 emissions of 57 ethanol facilities and transport them by pipeline to North Dakota for permanent storage. Summit would construct, operate and maintain this pipeline, which would cross through parts of Iowa, Nebraska, Minnesota, and the Dakotas. Although this project has received tremendous support from the biofuels industry, it has angered scores of landowners who strongly oppose it. Summit's use of eminent domain to gain access to private land is the primary source of their animus.

The size and scope of Summit's project is unprecedented for the US biofuels industry. Securing the proper licensing, contracts and easements to build this pipeline has been met with challenges at every level, including meetings with property owners, public information sessions, administrative hearings and court cases.

Summit's primary competitor, Navigator CO2 Ventures, canceled a similar project in October 2023, citing "the unpredictable nature of the regulatory and government processes involved."

Undeterred, Summit pressed forward and even expanded its project's footprint following Navigator's announcement. Nearly all the facilities on Summit's footprint are in states where CCUS is geologically infeasible. Only a handful of US ethanol plants currently have CCUS capabilities due to the challenges of sequestration.

While Summit has faced many hurdles during this process, an August South Dakota Supreme Court decision (Strom Trust v. SCS Carbon Transport, 2024 S.D. 48) focuses on what may be a "make or break" issue for the project –-- whether Summit falls within the definition of a "common carrier" in South Dakota. If Summit does not qualify as a common carrier, it will not be able to exercise eminent domain powers there, preventing it from building a pipeline through the state if landowners band together to block its way. Could an unfavorable ruling require Summit to re-route and remove facilities from the project? Could it stall or possibly sink the project? There are many questions and many possibilities.

Is Summit a common carrier in South Dakota?

The term "common carrier" is defined by state law and varies by jurisdiction. All common carriers have limited rights of eminent domain, which is used to gain access to privately-owned land. Although Summit has indicated that it will avoid using eminent domain whenever possible, getting 100% cooperation from property owners is impossible. Securing common carrier status expands its options in the states where it intends to operate.

Summit has litigated the definition of common carrier in the past. In a decision in June, the Iowa Utilities Board (now known as the Iowa Utilities Commission) determined that Summit was a common carrier under Iowa law, which vested Summit with the right of eminent domain over certain parcels. The Iowa ruling is not binding on other states.

Summit secured a favorable ruling in South Dakota's state court in 2023 that it was a common carrier, but this was reversed by the South Dakota Supreme Court in August. Under South Dakota law, "[a]ll pipelines holding themselves out to the general public as engaged in the business of transporting commodities for hire by pipeline are common carriers." Pipelines meeting this definition are entitled to limited eminent domain power. The South Dakota Supreme Court found that it was "premature to conclude" whether Summit was a common carrier and that more evidence was necessary to make a decision. At issue is whether Summit is engaged in the business of transporting commodities for hire.

The South Dakota Supreme Court remanded the case to the lower courts for further proceedings, and it is critical for Summit to win on the common carrier issue. Any decision made by the lower courts will eventually climb back to the state Supreme Court, so its dicta regarding this issue should not be ignored. This quote from its August opinion should raise eyebrows for anyone thinking that this will be a slam dunk for Summit:

"However, in this early phase of the litigation, the record does not demonstrate that [Summit] is holding itself out to the general public as transporting a commodity for hire. It is thus premature to conclude that [Summit] is a common carrier, especially where the record before us suggests that CO2 is being shipped and sequestered underground with no apparent productive use."

Summit is confident that it can once again prove that it qualifies as a common carrier. The company's opponents argued that Summit takes ownership of the CO2 as it entered the pipeline and that transporting its own CO2 is not transporting CO2 "for hire." Summit's opponents further claimed that since the CO2 was disposed of as waste, it is not a commodity.

Recent developments should strengthen Summit's case. Summit now has tariff-based agreements under which it will transport CO2 owned by third parties for a fee. This is a much stronger position than what the record previously showed.

The stakes are extraordinarily high. South Dakota is home to 15 facilities on Summit's route and all the CO2 collected in Iowa, Nebraska, and six of seven sites in Minnesota will pass through South Dakota. This seems like a "must win" for Summit and the dozens of ethanol producers counting on Summit to help them meet their decarbonization goals. There are no other large-scale initiatives at this time that would lower the carbon intensity of so much domestic biofuel production.

What's next?

It has been oft repeated that a chain is only as strong as its weakest link. Summit's common carrier status in South Dakota seems vulnerable. S&P Global Commodity Insights is not privy to all the facts that will be considered to decide this issue, but an adverse ruling could be one of the most impactful developments so far in several eventful years of litigation. Commodity Insights expects this ruling to be made in 2025.

With various legal actions and permit applications pending in multiple states, Commodity Insights does not anticipate that Summit's pipeline will be built prior to 2027. But some ethanol facilities will not need to wait that long before their emissions are captured. The Trailblazer CO2 pipeline, which will be smaller in scope, could be operational sooner.