South Dakota's Permit Rejection: A Crossroads for Carbon Capture and Investor Confidence

The South Dakota Department of Environment and Natural Resources (DENR) has dealt a significant blow to Summit Carbon Solutions’ $8.9 billion carbon capture pipeline project, rejecting its permit application. The decision, rooted in new state laws restricting eminent domain and environmental concerns, has thrown the project—and the investors behind it—into uncertainty. This analysis explores the implications of this regulatory setback, its financial ramifications, and the broader landscape shaping the future of carbon capture infrastructure.

The Project at a Crossroads

Summit’s pipeline aims to transport carbon dioxide (CO₂) from ethanol plants in five states to underground storage in North Dakota. The project is a linchpin for the ethanol industry’s efforts to reduce emissions and meet climate targets. However, South Dakota’s ban on using eminent domain for carbon infrastructure—passed in 2023—has become a major obstacle. The DENR’s rejection cites unresolved landowner disputes and concerns over groundwater contamination, forcing Summit to renegotiate agreements without the legal authority to compel participation.

Financial and Strategic Challenges

1. Cost Overruns and Delays
   Summit has already invested $150 million in South Dakota’s route, but the permit denial requires a revised plan. The company now faces the daunting task of securing voluntary agreements from landowners who have filed over 200 eminent domain lawsuits. This could delay the project by years and inflate costs.

2. Loss of Federal Tax Incentives
   The project qualifies for the 45Q tax credit under the Inflation Reduction Act, which offers up to $85/ton for CO₂ storage. Delays risk missing eligibility deadlines, reducing the project’s profitability. For context, the 45Q credit could have generated $500 million annually for Summit once operational.

3. Legal and Regulatory Uncertainty
   Summit has threatened legal action against South Dakota’s eminent domain ban, but litigation could divert resources and prolong uncertainty. Meanwhile, the state’s 2025 legislative elections brought in lawmakers opposed to the pipeline, signaling a prolonged political headwind.

Implications for Investors and Stakeholders

• Ethanol Producers: The pipeline is critical for ethanol plants seeking to market low-carbon fuels. Without it, their ability to compete in emerging markets—such as low-carbon aviation fuel—could diminish, hurting investor returns in ethanol companies like Green Plains or Valero.
• Landowners and Communities: The project’s reliance on voluntary agreements creates a power imbalance. Landowners demanding higher compensation or environmental safeguards could further escalate costs, while opposition from groups like the Cheyenne River Sioux Tribe raises reputational risks.
• ESG Considerations: The project’s association with aggressive legal tactics and landowner conflicts may deter ESG-conscious investors, who now view it as a flashpoint for environmental justice concerns.

Political and Policy Crosscurrents

South Dakota’s stance reflects a growing divide between state-level landowner rights advocacy and federal climate goals. While the Biden administration has prioritized carbon capture as a climate solution, the state’s Republican leadership has framed the pipeline as a threat to private property. This tension mirrors national debates over infrastructure and environmental policy, leaving investors in a holding pattern as federal support for carbon capture remains uncertain.

Conclusion: Navigating the Risks and Rewards

The South Dakota permit rejection underscores the fragility of large-scale carbon capture projects in today’s regulatory and political climate. For investors:
- Short-Term Risks: Summit’s stock could face downward pressure as delays and cost overruns materialize. The company’s revised route may now cost an additional $200–300 million, eating into projected returns.
- Long-Term Opportunities: If Summit can secure landowner agreements and navigate legal hurdles, the pipeline’s completion could still deliver on its $8.9 billion promise, particularly with rising demand for carbon-neutral fuels. However, this hinges on resolving the South Dakota impasse—a task that now looks Herculean.

Investors must weigh the project’s strategic importance to the ethanol industry against its execution risks. While Summit’s gamble on carbon capture aligns with global decarbonization trends, the political and regulatory roadblocks in South Dakota suggest a need for caution. As show, the window for financial incentives is narrowing—making Summit’s ability to adapt to this setback critical to its survival.

In conclusion, South Dakota’s decision has turned the carbon pipeline into a high-stakes test of resilience for both Summit and its investors. The path forward is fraught with uncertainty, but the project’s potential to reshape the ethanol industry—and the climate landscape—means eyes will remain fixed on this crossroads for years to come.