South Dakota Supreme Court rules that carbon pipeline is not a public transportation facility and cannot be subject to expropriation

The South Dakota Supreme Court ruled on August 21, 2024, that Summit Carbon Solutions had not proven that it was a public transportation operation or transporting a commodity.

This means that South Dakota-based Summit Carbon Solutions, a company planning to build a carbon sequestration pipeline through Iowa, Nebraska, Minnesota, South Dakota and North Dakota, will not be allowed to exercise expropriation rights to force landowners to sign easements to build the pipeline.

The court ruling also defends the plaintiff’s conservative interpretation of the concept of surveying. According to a district court ruling, Summit had surveyed land without a permit in several cases and in some cases had caused significant damage by digging trenches, drilling deep holes, etc.

Summit’s proposal calls for capturing carbon from ethanol plants and storing it underground in North Dakota. The company would be eligible for a 45Q tax credit for the pipeline project.

Many South Dakota lawmakers and agricultural organizations like the South Dakota Corngrowers have supported the pipeline. They say it is necessary to reduce the carbon footprint of ethanol plants and make ethanol more marketable in regions like the West Coast that may demand a more climate-friendly product. Some of the pipeline’s supporters have supported the use of expropriation law, which would allow Summit to expropriate land against the will of landowners.

Other lawmakers, agricultural associations and property rights advocacy groups, including the South Dakota Stockgrowers Association, opposed the use of the right of expropriation by a private company such as Summit Carbon Solutions, and numerous legislative battles ensued.

McPherson County farmer Mike Klipfel was the plaintiff in the case.

PROTECT PROPERTY

Klipfel said he was present on Jared Bossley’s property when Summit investigated without permission. “If anyone thinks that wasn’t a traumatic experience, they must have been there. Summit had the roads blocked off, the sheriff was there, keeping Bossley quarantined … District Court Judge Sommers essentially said in his ruling that Jared couldn’t protect his own property,” Klipfel said.

A state Supreme Court ruling this week said surveys without the landowner’s consent should be limited to minimally invasive, superficial inspections that cause only minor disturbance to the ground.

Klipfel is grateful that the ruling strips Summit Carbon Solutions of its perceived right to expropriation. “Under this ruling, they are not a public transport company and they are not transporting goods,” he said.

After repeatedly rejecting Summit’s offer of an easement, the Sheriff of Klipfel presented him with expropriation papers for his property, prompting him to seek legal advice.

“The expropriation law is an aggressive law. It says: ‘We are expropriating your property and taking it as our property.’ It’s a frightening thing to see,” he said.

Summit told Klipfel that 70 percent of landowners in the state have already signed easements. In fact, 67 percent of affected landowners in McPherson County have not signed voluntary easements and have been served with expropriation papers, Klipfel said.

A great victory

Karla Lems, 16th District Representative and Canton business and property owner, said this is a big victory for property owners in South Dakota.

“We didn’t win the war, but we won a big battle this week,” she said. Summit has asked Lems to sign an easement allowing the pipeline to be built on her land, but so far she has not agreed to the proposal.

Summit claims that 70 percent of the land needed for the pipeline in South Dakota is already covered by voluntary easements.

Lems said the Supreme Court justices found in their decision that Summit had not established itself as a public transportation agency and therefore could not invoke expropriation rights to force landowners to sign easements. In addition, Summit must conduct surveys respectfully and only with permission.

Lems said she doesn’t know if Summit will take the case to the Supreme Court. She believes Summit could come back with more information to prove it is a common transporter of a commodity. She believes that to do so, they may need to discuss the possibility of using the carbon dioxide for enhanced oil recovery, an option the company has not disclosed. At this point, the company says the carbon dioxide will be stored underground and not used for any other purpose.

If the carbon dioxide is to be used for enhanced oil recovery, the company would be eligible for a smaller tax credit – $60 per ton of CO2 compared to $85 per ton for carbon sequestration under the Inflation Reduction Act.

Lems voted for several bills related to landowners’ rights during the 2024 legislative session that ultimately did not pass.

Klipfel has spent thousands of dollars and countless hours of his time defending himself and his property.

“It’s hard on your personal life too. They try to wear you down,” he said. “But yesterday’s ruling by the state Supreme Court has given us a boost,” he said.

South Dakota state lawmakers are working on bills to strengthen property owners’ rights, Klipfel said.

“The current law is bad. Summit just needed a website identifying them as a pipeline company. They didn’t need approval from the Public Utilities Commission to file an expropriation against me,” he said.

“It’s pretty exciting to be here and to make property rights one of the most important issues in our state,” Klipfel said.