President Joe Biden visits a biofuels plant in Menlo, Iowa, in April 2022. A suite of tax credits passed under the Biden administration are opening up new revenue streams for ethanol refineries in the US Midwest. Source: Scott Olson/Staff via Getty Images

Where an average person might see a field of corn, a tax lawyer sees two potentially lucrative commodities: jet fuel and carbon dioxide.

The US Inflation Reduction Act provides incentives for the production of both with tax credits worth up to $1.25 per gallon of qualified sustainable aviation fuel and $85 per metric ton of CO₂ captured and buried.

Shariff Barakat, a partner at Akin Gump Strauss Hauer & Feld LLP, recently highlighted the 45Q tax credit program for carbon capture and storage (CCS) in particular. According to Barakat, what was once a waste product for ethanol refineries in the US Midwest is now an asset.

"It's created a lot of opportunities in the industry," Barakat told attendees at the Energy Bar Association conference in Washington, DC, in May. "In particular, what we've seen in our group and our practice is that emitters are very valuable."

But as several first-movers are discovering, the economics of carbon capture and public trust in the technology are two wholly separate issues.

CCS is an approach to decarbonization that involves capturing CO₂ from emissions sources and injecting the gas underground for permanent storage. Despite federal incentives, carbon capture retrofits have proven uneconomic in most applications, including at power plants, in which CO₂ is diluted.

But for ethanol refineries, the overall cost per metric ton of CO₂ stored is only about $36-$41, according to a recent report by the Energy Futures Initiative, which advocates for a low-carbon energy transition. That low cost reflects the ability of biofuel plants to emit nearly pure streams of CO₂, limiting the additional costs of CCS to the compression, transport and storage of the gas.

The Inflation Reduction Act conferred further benefits to CCS infrastructure developers in America's breadbasket. In addition to nearly doubling the value of the 45Q tax credit, the act tweaked the program to allow the incentive to be transferred from the party capturing the emissions to the party sequestering them.

Even before the landmark legislation was signed into law in August 2022, a nascent industry of CO₂ pipeline development was already emerging in the Midwest.

In 2021, farm management company Summit Agricultural Group formed the company Summit Carbon Solutions LLC in hopes of building the "world's largest" CCS project in the region. A month later, petroleum producer Valero Energy Corp. and investment manager BlackRock Inc. backed a similar project under the name Navigator CO2 Ventures LLC.

Both companies aim to build interstate pipeline networks to transport CO₂ from industrial facilities to injection sites in Illinois and North Dakota, among the few states with the geology suited for carbon sequestration. The combined infrastructure projects would also crisscross South Dakota, Nebraska, Minnesota and Iowa.

A third project has since emerged in the form a partnership between Wolf Carbon Solutions US LLC and agricultural commodities firm Archer Daniels Midland Co. (ADM), announced in 2022.

Summit and Navigator are still completing the permitting process for the pipelines, with the next hearing scheduled by the Iowa Utilities Board on Summit to be held in August. In the meantime, the developers have signed deals with dozens of ethanol refineries along their proposed routes.

"They're in a unique position right now, these ethanol plants and fertilizer plants," Megan Davis, general counsel at CCS company CapturePoint LLC, said at the bar association conference's session on 45Q tax credits. "There's a limited amount of CO₂ being generated, and there's a lot of people trying to capture the same volumes, so emitters are in a good position to negotiate rather aggressively in these transactions."

Midwesterners cast a wary eye

In early June, a truck circling an ethanol conference in Omaha, Neb., displayed a digital billboard telling attendees to "Google Satartia." The slogan refers to the tiny town of Satartia, Miss., where a CO₂ pipeline rupture sent dozens of people to the hospital in 2020. The activist group behind the truck, Bold Alliance, also planted fake magazines at the event titled "Ethical?" — a play on Ethanol Producer Magazine — with a cover story about 45Q tax credits.

The backlash to the pipelines has spurred unlikely alliances between Midwestern landowners, concerned about eminent domain, and climate activists, who denounce the projects as a tax scam. Both groups question the safety of CO₂ pipelines, which currently exist on a relatively small scale of about 5,000 miles in the US.

"What we're facing is a new risk, and needs to be treated as such, and not just more of what we already have," Steven Feit, a senior attorney with the Center for International Environmental Law, which advocates for environmental protections and human rights, told federal pipeline regulators at a public meeting May 31.

Summit and Navigator have repeated in statements to the press and written materials, including fact sheets on both of their websites outlining intended precautionary measures, that they are committed to safety.

"Navigator's priorities have been and always will be listening to landowners and the community to develop the most safe and responsible project possible," spokesperson Andy Bates told S&P Global Commodity Insights in 2022.

Clean energy advocates said judging the decarbonization value of the projects is complicated. The issue lies not just within the use of carbon capture technology, a debate that has divided environmentalists, but whether the ethanol industry is worth decarbonizing in the first place.

"If you go back over my work in the last 10, 15 years, I've been a strong critic of using corn ethanol as a decarbonization strategy in the on-road sector," Jonathan Lewis, director of transportation decarbonization at the Clean Air Task Force, said in an interview. "But we've nonetheless built out this huge corn ethanol supply system."

A conveyor piles corn beside an ethanol refinery in the US Midwest. Source: iStock/Getty Images Plus via Getty Images

In theory, growing corn to make fuel and then burning it is a process with net-zero greenhouse gas emissions, with whatever CO₂ coming out of the tailpipe offset by photosynthesis, Lewis said.

But corn cultivation is carbon-intensive, primarily due to the arable land that the industry takes up. The offsetting of farmland sets in motion a "domino effect" that eventually leads to the clearing of more forest for food production, Lewis continued.

The other major source of CO₂ comes from the ethanol refining process, which the CO₂ pipeline developers aim to offload.

Meanwhile, electric vehicles have supplanted ethanol-fueled internal combustion engines as the strategy of choice of both policymakers and the private sector for decarbonizing light-duty vehicles.

Despite this, Lewis said the Clean Air Task Force supports investment in applying carbon capture infrastructure to ethanol plants. The impetus is to help decarbonize a far harder-to-abate sector: aviation.

"There's an opportunity for us to take the corn that's no longer needed for cars and trucks and give that to aviation," Lewis said. "And as the share of battery electric vehicles picks up, we'll have more of the corn to redirect."

A new standard for bioenergy

The responsible use of biofuels will require careful carbon accounting to ensure ethanol producers are limiting land use while taking other measures, such as using zero-carbon hydrogen to make fertilizer, Lewis said. But clean energy advocates hope that the upcoming 2023 farm bill will provide an opportunity to set standards for ethanol and other forms of bioenergy.

On June 27, the Energy Futures Initiative and Resources for the Future unveiled one such "policy blueprint," specifically for bioenergy with carbon capture and storage (BECCS), at a launch event in Washington, DC.

BECCS refers to zero- or even negative-emissions projects that use biomass as a carbon sink, either to be buried or converted into fuel or electricity. The blueprint suggests BECCS has the scalability potential to remove half of the six gigatons of CO₂ from the atmosphere that the latest United Nations climate report prescribes on an annual basis, in addition to producing energy through products like ethanol.

To date, however, BECCS is still in its infancy in the US, the report noted, with the current project pipeline expected to capture 21 million metric tons of CO2 annually once completed. Most of those projects are retrofits of ethanol plants in the Midwest.

Panelists at the event acknowledged that securing local buy-in will be a challenge to deploying BECCS at scale but insisted that it is a surmountable one.

"I think that the engagement with communities that live around facilities needs to be much more intentional, much more two-way and happen in an earlier stage in the project process," Sasha Mackler, who heads the Bipartisan Policy Center's energy program, said at the event. Before joining the think tank, Mackler spent about a decade as a developer of carbon capture and biomass projects.

"I do think it's solvable," Mackler continued. "I don't think this will be the constraint to get to scale BECCS or any other technology."

One recurring mistake, according to panelists, is that clean energy developers are waiting too long in the planning stages of a product to conduct local outreach.

"Unfortunately, there have been too many examples of that," Energy Futures Initiative President and CEO Ernest Moniz, a US energy secretary during the Obama administration, said in an interview after the event. "They go through everything — getting permits, all kinds of stuff — and then they say 'Oh, let's talk.' And then, 'Gee, why's this taking so long?' It can literally be the end of a project."

But a precedent exists for a CCS project getting completed. Moniz cited ADM's first CO₂ injection facility in Decatur, Ill., conceived of in 2009 with the help of $141 million in financial assistance from the US Energy Department. The ethanol producer said that as of 2022, it had buried more than 3.5 million metric tons of CO₂ in Illinois' Mt. Simon Sandstone formation.

Moniz cited the project as an example of community outreach done right, through early discussion between the developers and the state and the construction of an education center at the injection site.

The Decatur project was not without some delay. Nearly three years passed between ADM's groundbreaking ceremony in 2011 and receipt of a permit from the US Environmental Protection Agency to inject CO₂ underground. Another three years passed before the permit, called a Class VI well permit, went into effect.

The EPA has still permitted only two Class VI wells to date, both for ADM's Decatur project. The ethanol producer has since applied for a third permit at the same location to offtake CO₂ emissions from its latest project with Wolf Carbon Solutions.

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