Corn Ethanol Investors Poised to Profit From Inflation Reduction Act

Source: By Lee Harris, The American Prospect • Posted: Sunday, August 14, 2022

The ethanol industry will be first in line for carbon capture tax credits, even though that’s not really who the program was designed for.

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A sign opposing proposed carbon capture pipelines is seen on the farm owned by Raymond and Kathy Stockdale in Iowa Falls, Iowa, April 26, 2022. Two of the proposed pipelines would run though the Stockdales’ property.  Francis Chung/E&E News/POLITICO via AP Images

The Inflation Reduction Act (IRA), which recently cleared the Senate and is set to pass the House later this week, dramatically increases existing subsidies for carbon capture and sequestration (CCS), in a boost to a controversial cluster of emerging technologies that have so far failed to scale up. Climate activists have long argued that carbon capture is a ploy to extend the life span of dirty energy.

Multiple industries could draw on the expanded 45Q tax credit, which would be raised from $50 to $85 per ton of sequestered carbon, provided a project meets certain labor standards. The least contentious form of carbon capture would go to manufacturers in heavy industries such as steel, cement, and glass—sectors which account for a quarter of U.S. emissions but have made little progress toward decarbonization.

The subsidies would also be available to the power sector, including coal-fired plants, which have tried and failed for years to deploy carbon capture. (Power-sector CCS has been weakened since it appeared in the now-defunct Build Back Better legislation, which required plants to capture 75 percent of emissions. The language in IRA says they only need to install equipment with a “capture design capacity” of that amount—in other words, plant operators are only asked to make an earnest effort.)

The IRA also bets on promising new technology to suck carbon directly out of the air. Along with CCS for sectors that are tougher to decarbonize, direct air capture could be necessary to lower emissions at the pace recommended by scientists.

But the hefty tax credit, designed to help jump-start technologies that remain prohibitively expensive, is likely to also flow to a sector where CCS is already financially viable and has been commercially deployed. Corn ethanol, an industry that exists due to a government mandate to blend biofuel into gas, is poised to capture outsize profits.

The lucrative subsidy is set to reward corn ethanol investors, including the asset manager BlackRock and a private equity venture led by the son of USDA Secretary Tom Vilsack, which are proposing to build thousands of miles of new carbon pipelines through the Midwest conveying carbon from bioethanol refineries into underground fields.

Building out this new infrastructure could extend the life of an industry that has decimated the environment, raised the global price of food, and driven the Midwest into monocropping. And it could sink corn grain farmers deeper into subsidies that are not just ecologically hazardous but also financially unsustainable.

THE BIOFUELS INDUSTRY, which uses huge swaths of Midwestern farmland to produce corn grain, was once billed as environmentally sound. During the Obama administration, Secretary Vilsack argued that the Renewable Fuel Standard (RFS), which set required levels of biofuel to be blended with gasoline, would reduce dependence on foreign oil while producing “clean, renewable energy.”

The RFS mandate helped the corn industry take off. The new consumer market increased the price of corn by around 30 percent, putting more cropland and fertilizer into use. Roughly 40 percent of corn grown in the U.S. goes into ethanol production. But it had disastrous environmental consequences. A recent study in the Proceedings of the National Academy of Sciences estimates that corn ethanol is at least 24 percent more carbon-intensive than gasoline—and that study only looked at domestic emissions.

Some of the biggest environmental impacts of the RFS have come from direct and indirect land use changes. With more U.S. cropland going to corn production, other food production shifted overseas. As biodiesel production surged, the food industry replaced soy oil with palm oil imported from Malaysia and Indonesia, at devastating cost to tropical rain forests and peatlands, which keep much of the Earth’s carbon trapped in the soil.

Now, the industry is proposing to address one node in this long chain of emissions: pollution at biorefineries, where corn is fermented into fuel. It’s been done before. With the Department of Energy shouldering most of the financing cost, the commodities firm Archer-Daniels-Midland opened a plant in Illinois that captured carbon from ethanol production and injected it into underground sandstone.

Compared with other sources of emissions, it is relatively cheap and easy to capture CO2 at biofuel refineries, since the stream of CO2 they emit is highly concentrated. In fact, the carbon capture component of CCS was economically viable even before the latest, more generous version of 45Q, said Emily Grubert, an energy policy professor at Notre Dame. “An increase to the subsidy would be theoretically entirely profit for ethanol,” she said.

But while capture is straightforward, transport and storage is tougher. Captured carbon needs to be stored in a “sink,” typically an underground storage site. During the ethanol boom, ethanol refineries sprouted up across the Great Plains states, but they were not deliberately clustered or sited near underground carbon storage sites. The availability of storage has likely limited the ethanol carbon capture rollout. As Grubert said, “The incentive to get the storage or other issues worked out certainly increases with the credit.”

It’s hard for project developers to pitch billion-dollar pipelines at breakeven cost. Investors want to be sure they will make money through fluctuations in fuel prices, like the volatility in gas markets currently on display. So while ethanol pipeline producers would have turned a profit under the old tax credit, this greater cushion could push investment to take off.

Investors were already waiting in the wings for these credits following the bipartisan infrastructure bill, which gave the Department of Energy a multibillion-dollar loan authority for CO2 pipelines. Now, the Inflation Reduction Act’s additional outlays sweeten the deal.

THREE PIPELINES ARE CURRENTLY seeking approval before the Iowa Utilities Board. Wolf Carbon Solutions, which built a pipeline in Alberta sourcing CO2from a fertilizer plant for enhanced oil recovery, is proposing a line in partnership with Archer-Daniels-Midland. BlackRock’s Global Energy & Power Infrastructure Fund is backing another line, the “Heartland Greenway” project, with Navigator Energy Services.

And Summit Carbon Solutions, a new private equity arm of a private agricultural conglomerate, is proposing a 2,000-mile pipeline, the “Midwest Carbon Express,” that would run through Nebraska, South Dakota, Minnesota, and Iowa to bury CO2 underground in North Dakota. Former Iowa Gov. Terry Branstad, who served as President Trump’s ambassador to China, is selling the proposal to Iowans on TV as an “adviser” to the project. And the general counsel is Jess Vilsack, the son of USDA Secretary Tom Vilsack.

Farmers and homeowners in the projected path of the pipelines are irate. Dan Tronchetti, 66, a soy and corn farmer in Paton, Iowa, has been battling Summit’s proposal to run a six-inch line of pressurized carbon through half a mile of his prime farmland. Tronchetti is passionately “pro-ethanol.” He grows and sells corn grain to ethanol plants, owns cars that run on E85 fuel, and told the Prospect that “during the recent gas price surge, I was burning E15 whenever I could.”

But Tronchetti has become a staunch opponent of the pipeline, despite the private equity firm’s claim that it will help his industry stay afloat. He thinks it will damage local cropland and worries about a rupture that could put his family and local ecology at risk. (Forty-nine people were hospitalized in 2020 following a carbon pipeline rupture in Mississippi.) Most of all, Tronchetti thinks the whole venture is based on a misbegotten premise: the continued viability of the corn ethanol industry.

“The only reason these pipelines have been proposed is so they can collect the 45Q federal income tax credits,” Tronchetti told the Prospect in an interview. He thinks that in the long run, ethanol is on its way out, but he is also skeptical of the need for the subsidies, he said: “I also don’t think ethanol’s going to close their doors if we don’t get CO2 pipelines. It’s all public relations spin.”

Along with farmers who own land in the path of the pipelines, county farm bureaus have mobilized. The Linn County Farm Bureau submitted an objectionto the Navigator pipeline. But the state farm bureau in Iowa has remained largely silent, said Jess Mazour, a Sierra Club organizer who has been working with local farm groups.

Meanwhile, on top of the 45Q update in the Inflation Reduction Act, another factor could further boost the corn ethanol CCS market. A new rule from the California Air Resources Board (CARB) is set to strengthen the credit market for the Low Carbon Fuel Standard, paying as much as $200 per ton of CO2. That’s “even more generous than 45Q, and you better believe the industry knows that,” said Danny Cullenward, a climate economist who tracks the carbon credits market. “There’s a huge sugar rush.”

California’s friendliness to the growing carbon capture sector is linked to the growing lobby for biofuels, reporting from the Energy and Policy Institute’s Joe Smyth has shown. A national lab overseen by the Department of Energy wrote a report in favor of carbon capture, and then heavily promoted that report to influence the scoping plan of CARB, with funding from a utility that owns biomass power plants in California. Until March 2021, Virgil Welch, the executive director of the California Carbon Capture Coalition, was chief adviser to CARB Chair Mary Nichols. Welch’s consulting firm, Caliber Strategies, also lobbied CARB on behalf of POET LLC, the world’s largest producer of biofuels.

At the Iowa Utilities Board, which is considering the pipeline proposals, hundreds of Iowans have submitted comments opposing the projects. “Our state already overproduces corn to produce ethanol when we should be developing actual solutions that won’t destroy farmland and risk our health,” wrote one commenter from Ankeny, Iowa.

“Iowa is an ag state and when pipelines go in, productivity goes down. The only reason is because there is ‘free’ government money for this unproven technology,” wrote another commenter in Huxley. “This is almost a casebook example of a boondoggle.”