Ethanol carbon: Pipeline survey law, carbon as public commodity argued at SD Supreme Court

Catching up with ethanol carbon pipeline news. From the South Dakota Searchlight:

Pipeline survey law, carbon as a public commodity argued at state Supreme Court
By John Hult

Landowners say carbon stored underground doesn’t count as public good

Summit Carbons Solutions would move something of value from one place to another for a fee, and as such is entitled to survey private land and use eminent domain for its proposed pipeline. 

Either that, or Summit would merely move its own product to be buried underground, thereby making it ineligible to conduct surveys and use eminent domain. 

Questions that will define where the carbon dioxide pipeline company lands, legally speaking, between those two polarities are now in the hands of the South Dakota Supreme Court. 

The justices heard oral arguments on the controversial pipeline project Tuesday on the Aberdeen campus of Northern State University in Brown County, one of the counties through which the pipeline would pass.

The $8 billion Summit pipeline would collect the CO2 that would otherwise be emitted from 57 ethanol plants in multiple states and transport it to North Dakota for underground storage. Carbon dioxide in the atmosphere contributes to climate change, and federal tax credits are available to encourage its sequestration.

Not all landowners along the route are interested in taking Summit’s money in exchange for access to their property, though. They’ve argued in public forums, at the state Capitol and in courtrooms that Summit ought not be allowed to use eminent domain – the legal mechanism by which it would be allowed to use private property regardless of the owner’s feelings about it – to build its pipeline.

Tuesday’s Supreme Court challenge from landowners folded several landowner lawsuits into one to decide three questions:

• Is the state’s law allowing pre-project access for surveys constitutional?
• Is carbon gas a commodity?
• Does Summit qualify as a “common carrier” of a commodity?

If the high court rules for landowners on the last two questions, Summit would be unable to use eminent domain to force the construction of its pipeline. 

If the court says “no” on the first, state law might need to be adjusted, though it’s unclear how. The law in question was already amended this legislative session through House Bill 1185, which was signed this month by Gov. Kristi Noem.

It requires $500 and advance notice to landowners before a pipeline company is allowed to survey property, and affords the right to challenge survey access in court. That rewritten version of the law is set to take effect on July 1. 

Landowners: Carbon is waste, not a commodity

Brian Jorde, the lawyer for the landowners, told the justices that South Dakota’s survey law is baldly unconstitutional in the face of a 2021 ruling from the U.S. Supreme Court called Cedar Point Nursery v. Hassid. 

Chief Justice John Roberts wrote in that case that letting labor unions onto farmland in the interest of organizing constituted a “taking” of private property, inasmuch as it forced the farmland’s owner to let someone do something with their property it otherwise would not. 

Under the U.S. Constitution, property can’t be taken without “just compensation.”

In that case, union organizers showed up a few times a week for specified periods of time, and the owners had to let them, per California law.

In light of that set of facts, Jorde argued, the survey law adjusted through the passage of HB 1185 is an even broader swipe at property rights. 

Under the survey law’s current language – the language being challenged by the landowner lawsuit – a company that applies for a siting permit and issues a 30-day notice is allowed to send representatives to survey land, drill and collect soil samples and return to the property as often as they’d like. 

Justice Mark Salter challenged Jorde on that issue, noting that Cedar Point involved a state law and a specific set of facts wholly unrelated to eminent domain. 

On the eminent domain question, Jorde told the justices that only a “common carrier” of commodities is allowed to use the survey law. His clients do not believe Summit fits the bill.

According to its agreements, Jorde said, the carbon becomes Summit’s property the moment it enters the pipeline, and therefore no longer comports with laws used for things like the construction of rail lines that transport corn or soybeans.

Justice Janine Kern challenged that argument.

“They’re saying, ‘We’re advertising to potential customers. We’re holding this open season, where we’re reserving future pipeline capacity, and we’re holding ourselves out to the general public,” Kern said. “Isn’t that sufficient?”

Jorde disagreed. The carbon itself isn’t a commodity, he said, at least not in the way Summit plans to use it. He said no court in the nation has pondered whether pumping a “commodity” underground, rather than using it, changes its status as a commodity. 

Summit, he argues, is a “private, for-profit carrier,” that aims to transport something it owns to somewhere it will do nothing for the public. 

As such, he said, it ought not be protected by the survey access law in the first place.

“The test isn’t ‘Can carbon dioxide somewhere on planet earth be used for pop?’” he said, referring to the potential use of carbon for fizzy beverages. “It’s ‘What are you transporting it for? You are claiming you’re a common carrier, you tell us how the CO2 that you’re moving is a commodity.’”

Summit: Carbon market proves commodity status

Summit lawyer Bret Dublinske told the justices there is a market for CO2, underground or otherwise. 

“This carbon has a value, whether it’s tradable as credits, or whether it’s the federal government’s willingness to pay for that to happen through tax credits,” Dublinske said. He conceded that no court has addressed the question of whether underground storage changes a commodity to something else for purposes of eminent domain.

But the CO2 doesn’t disappear from the market because it’s buried underground, he said.

“This is, in fact, moving in commerce,” Dublinske said.

When it comes to Summit’s ownership of the CO2, Dublinske called that argument a “red herring,” meaning a distraction. 

“If I am extracting oil, or if I am growing wheat, and I’m providing the railcar the pipeline to move that, there is nobody other than me in that transaction,” he said. “That is not true here. (Summit) doesn’t create any carbon dioxide, it doesn’t have any carbon dioxide of its own. There is an agreement to ship the carbon dioxide created by the ethanol plants for the benefit of the ethanol plants.”

He also said ethanol plants pay a fee to connect to the pipeline – something Jorde would later call “new information” that wasn’t part of the court record. But Dublinske said the existence of such a fee clearly points to its project as a transporter of a commodity, regardless of which company has title to the CO2.

As for the pipeline law dubbed unconstitutional by the landowners, Dublinske said that a constitutional challenge is a high bar. That pipeline surveys would be characterized as an invasive taking of land, he argued, is predicated on the notion that surveys are unconnected to the longer-term process of staking an eminent domain claim. Eminent domain would ultimately result in a landowner receiving their legally required compensation for the “taking” of their property.

Without surveys, he said, no such claim can be staked.

“This is for an underground pipeline,” Dublinske said. “It isn’t useful, necessarily, for its intended purpose, unless you can, in some cases, figure out what’s going on below the soil.”

Justice Kern asked Dublinske if Summit is amenable to offering a copy of its agreements with ethanol companies to the high court for review. It did not object to a private review at the trial court level, he said, and would offer it to the justices, as well. 

Summit has objected to adding the agreements to public court files, or to allowing the landowners to review them. Dublinske said there are commercial secrets embedded in them.

The justices gave Summit 10 days to offer those agreements under seal. Jorde requested that the agreements be reviewable by his team, as well.

“Otherwise, there could be an opinion referencing evidence that was never part of the record,” Jorde said.

Chief Justice Steven Jensen said the justices would consider the matter and decide later. 

“If we think we need further supplemental briefing or argument, we’ll let the parties know,” Jensen said.

Bluestem will let readers know what the court decides.

This South Dakota Searchlight article is republished online under Creative Commons license CC BY-NC-ND 4.0.

Photo: Members of the South Dakota Supreme Court hear oral arguments on March 19, 2024, in Aberdeen on a carbon pipeline case. From left are Justices Scott Myren, Janine Kern, Steven Jensen and Mark Salter. Judge Jane Wipf Pfeifle, at right, sat in for Justice Patricia DeVaney, who disqualified herself from the case. (Dave Bordewyk/South Dakota NewsMedia Association/via South Dakota Searchlight).

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