With carbon capture and storage infrastructure advancing unevenly across the Midwest, Iowa lawmakers are now testing whether fiscal policy should shape the state’s role as a CO2 transport corridor.
On February 4, 2026, a Senate subcommittee advanced Senate File 2069, legislation that would impose a severance-style tax on carbon dioxide transported through Iowa pipelines, introducing a new cost layer for projects that are not yet built but already politically contentious.
Under the bill, liquefied CO2 destined for enhanced oil recovery would be taxed at USD 1 per metric ton, while all other CO2 transported within or out of Iowa would face a higher USD 2.50 per metric ton rate. The structure immediately raised questions among lawmakers and stakeholders about both the policy rationale and market impact, particularly as the state debates whether carbon sequestration pipelines qualify as a public use eligible for eminent domain.
The timing is material. Summit Carbon Solutions’ proposed pipeline network, one of the largest CCS projects in the region, is designed to transport up to 18 million metric tons of CO2 per year from ethanol plants to underground sequestration sites. At the higher tax rate, that volume would translate into roughly USD 45 million in annual tax exposure, a nontrivial figure in a sector where margins already depend heavily on federal incentives such as the US 45Q tax credit.
Supporters of the bill framed the tax as a way to ensure the state captures some return from infrastructure that relies on Iowa’s geography and regulatory approvals. Senate Ways and Means Chair Dan Dawson pointed to the state’s long-standing financial support for the ethanol industry, arguing that new revenue-generating projects should not remain exempt indefinitely. From this perspective, the tax is less about carbon policy and more about fiscal symmetry, ensuring public investment is eventually matched by public revenue.
Critics, however, see the proposal as disconnected from the core issue facing carbon pipeline development in Iowa. Landowners and environmental groups, including the Sierra Club Iowa Chapter, described the bill as a distraction from unresolved property rights disputes. Only a week earlier, senators significantly amended House-passed legislation aimed at banning the use of eminent domain for carbon sequestration pipelines, underscoring that the legal foundation for such projects remains unsettled.
The differential tax rates also drew scrutiny. Lawmakers questioned why CO2 used for enhanced oil recovery would be taxed at a lower rate than CO2 transported solely for sequestration. From a climate policy standpoint, the distinction is difficult to justify, given that enhanced oil recovery is associated with additional fossil fuel production, even when paired with carbon injection. Jess Mazour of the Sierra Club Iowa Chapter argued that the bill’s structure weakens its environmental credibility while also misallocating revenue to the state’s taxpayer relief fund rather than local governments hosting the pipelines.
Industry opposition focused squarely on cost pass-through. Summit Carbon Solutions warned that the tax would raise the cost of service for ethanol producers, potentially undermining Iowa’s recently enacted sustainable aviation fuel tax credit. According to the company, higher transport costs would ultimately reduce the premium ethanol plants can pay to farmers for corn, shifting the economic burden upstream rather than achieving a neutral redistribution.
The debate exposes a broader policy tension. Iowa is simultaneously positioning itself as a hub for low-carbon fuels and signaling regulatory uncertainty for the infrastructure required to decarbonize ethanol. Senator Tony Bisignano characterized the bill as premature, noting that the pipeline itself has yet to clear legal and permitting hurdles. His argument reflects a sequencing concern shared by many developers: adding fiscal constraints before resolving eminent domain and siting rules compounds risk rather than clarifying investment conditions.
Despite these concerns, the subcommittee voted to advance the bill to the full Senate Ways and Means Committee. Senators Jason Schultz and Dan Dawson acknowledged flaws in the rate structure but expressed interest in continuing the discussion, particularly around whether CCS pipelines deliver sufficient public benefit to justify preferential treatment.
