Landowners Score Court Victory in Bid to Stop Carbon Pipeline Project

August 23, 2024

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by Jonathan Ellis (Dakota Scout) Supreme Court ruling reverses circuit court rulings, calls into question Summit Carbon Solutions as a common carrier eligible for eminent domain -- A group of South Dakota landowners fighting to prevent a carbon pipeline from crossing their properties won a victory Thursday when the Supreme Court ruled the pipeline company has not demonstrated it has power to exercise eminent domain under state law.

The ruling, which encompassed seven different landowner lawsuits, reverses circuit court decisions granting Summit Carbon Solutions the ability to survey private land for the pipeline route without permission from landowners. The circuit courts determined that SCS had that power under state law to do so.

But the South Dakota Supreme Court in a unanimous decision ruled that the cases were in the “early phase of litigation” when the circuit courts granted SCS summary judgement, and that the rulings came before SCS demonstrated that it was a common carrier eligible for eminent domain rights. READ MORE

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South Dakota high court sides with landowners in latest blow to CO2 pipeline (Agri-Pulse)
Summit Carbon Evaluating SD Supreme Court Ruling (Energy.AgWired.com)
South Dakota Supreme Court reverses orders granting Summit Carbon common carrier status (Des Moines Register)
South Dakota Ethanol Producers Association endorse Referred Law 21 (Hub City Radio)
Summit's common carrier status in South Dakota is the key to the future of its CO2 pipeline project (S&P Global)

Excerpt from Energy.AgWired.com: Summit Carbon said in a statement it is “evaluating the South Dakota Supreme Court’s decision and look forward to providing the information requested to the District Court that reaffirms our role as a common carrier, and that CO2 is a commodity.”

The economic impact of carbon capture, utilization, and storage (CCUS) on rural America is significant, and will greatly benefit agriculture and farmers. We are committed to ensuring that these benefits reach communities across our project footprint as we continue to be a valuable partner in this growing market, and look forward to progressing this project.

Summit Carbon CEO Lee Blank spoke last week at the American Coalition for Ethanol (ACE) annual meeting about how they are working to complete the project by explaining the need to landowners. “Our eminent domain that we may or may not have to use is not a taking,” said Blank. “We’re actually just trying to put a piece of property under your property and give it right back to you. So ultimately it’s different.”

“I know what this pipeline means to the ethanol industry today, and I know what the infrastructure means to agriculture today, which is why we have to get it completed,” he said. READ MORE

Excerpt from Des Moines Register: (South Dakota Justice Janine) Kern, Justices Mark Salter and Scott Myren, Chief Justice Steven Jensen and Jane Wipf Pfeifle, a retired 7th Circuit Court judge, all concurred in reversing the decision and sending the case back to the lower courts for further litigation.

"To be clear, we make no judgment as to SCS’s ultimate common carrier status, and only address the following issues to provide clarity on remand," Kern wrote.

An important determinant in Summit Carbon's status as a common carrier lies in its "offtake agreements" — carbon dioxide transportation contracts between the pipeline company and regional ethanol plants.

Biofuel companies, including POET, the largest bioethanol producer in the world, are planning to use Summit Carbon's pipeline project to siphon carbon dioxide byproducts from their ethanol facilities in order to produce cleaner biofuels, which also allows those companies to also benefit from federal tax credits.

Summit Carbon intends to sequester the pollutants collected from the ethanol plants into an underground site in North Dakota.

Summit Carbon has argued that those agreements are "extraordinarily confidential," since they contain pricing information that would put the company at a competitive disadvantage if publicized.

Prior to the summary judgment order, landowners asked the court to continue with the case, arguing that those agreements could determine whether Summit Carbon truly holding itself out to the "general public" as transporting a commodity for hire. The court determined those business agreements had no bearing on the issues in the case, But Kern found that those unredacted offtake agreements are "crucial to determine whether SCS is shipping a commodity for hire to or for the general public."

Summit Carbon spokesperson Sabrina Zenor wrote in a statement to the Argus Leader that the company would "carefully evaluate" the Supreme Court's decision and that it is preparing to present information that "supports our role as a common carrier, and that CO2 is a commodity."

"The economic impact of carbon capture, utilization, and storage (CCUS) on rural America is significant, and will greatly benefit agriculture and farmers," Zenor wrote. "We are committed to ensuring that these benefits reach communities across our project footprint as we continue to be a valuable partner in this growing market." READ MORE

Excerpt from Hub City Radio: Summit Carbon Solutions’ proposed carbon capture project would add more than $3.26 billion in gross output across South Dakota over 12 years, according to the latest economic analysis from the Dakota Institute released Monday.

“Summit’s CO2 pipeline is set to bring historic benefits to South Dakota,” said Doug Berven, the Executive Director of the South Dakota Ethanol Producers Association. “Increasing job opportunities, boosting income, and injecting billions into the state’s economy, this project represents a massive investment in the future of South Dakota. Ultimately, South Dakota’s family farmers and rural communities stand to gain the most from this project.”

The new report, commissioned by the South Dakota Ethanol Producers Association, seeks to quantify the economic impact of the proposed Summit project for the state, including updated construction and operation expenditures and new tax requirements under SB 201 benefiting landowners and local communities.

The combined economic impacts of the Summit project over 12 years include:

Total Employment 4,101
Personal Income $1.25 Billion
GDP $1.98 Billion
Gross Output $3.26 Billion

The South Dakota section of Summit’s multi-state project will stretch approximately 685 miles (27% of the project’s total miles) across 23 counties. READ MORE

Excerpt from S&P Global: 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. READ MORE