Carbon capture loans could leave North Dakota taxpayers on the hook for $250M

BISMARCK — North Dakota taxpayers could wind up footing the bill for a $250 million loan program established by lawmakers this legislative session for the state’s flagship and unproven carbon capture venture.

Top Republican lawmakers have said the loan program, which was outlined in a bill passed this session , is intended for Project Tundra, the ambitious, billion-dollar venture to capture and store carbon emissions off of a coal plant in central North Dakota.

If it succeeds, Project Tundra would be the world’s largest carbon capture facility. A holy grail of clean energy innovation, the breakthrough would grant a new lease on life to North Dakota’s declining coal industry and provide a blueprint for the decarbonization of coal-fired power plants around the globe.

But when lawmakers approached the Bank of North Dakota, the country’s only state-owned bank, about taking on the loan program, bank officials declined, saying they would never approve a loan of its magnitude, subsidized interest rates or risk on their own balance sheet.

Instead, they wrote language for the bill that made up to $250 million available to the state for lending, with the condition that the Legislature or the state's top regulatory board provide a reimbursement so the bank wouldn’t assume liability.

That reimbursement would likely be covered with taxpayer dollars, Senate Majority Leader Rich Wardner, R-Dickinson, said, though there are numerous state funds the Legislature could pull from. Lawmakers hope federal carbon capture tax credits would cover the costs over a longer period.

Republican leadership, including Senate Appropriations Chair Ray Holmberg, of Grand Forks; House Appropriations Chair Jeff Delzer, of Underwood; and Wardner, said they couldn’t foresee the loans coming back to bite the state and noted Project Tundra may never need the state’s money at all.

Still, some critics see the loan program as a gift to a private industry darling that could leave taxpayers on the hook for hundreds of millions of dollars.

“The state is willing to put the taxpayers at risk,” said Bismarck Republican Rep. Rick Becker, a vocal opponent of state spending who was one of 15 House members to vote against the package that established the loan program. Becker added he wasn’t surprised to learn the state bank didn’t want to shoulder the risk itself.

“That's the reason why businesses go to government,” he said. “They get deals that would not happen in the free market. And the reason they wouldn't happen is because they’re too risky or not viable.”

Becker criticized the loans as a form of “corporate welfare” and noted the state’s approval process would likely meet a lower standard than that of private-sector lenders, who require higher interest rates and a long list of guarantees to ensure the recipient doesn’t default.

The Bank of North Dakota’s chief business development officer Todd Steinwand said, aside from the loan program’s fixed, low interest rates and size — which exceeds the bank’s legal cap for a single recipient — bank officials saw added risk in the outstanding questions around carbon capture technology, which is still in its early stages when it comes to coal power and unproven at Project Tundra’s massive scale.

Even though the Bank of North Dakota would not take on any of the risk, Steinwand said, the bank would help rigorously vet the recipient and its payment plan before anything is approved. He also noted some other large loan programs do not appear on the Bank of North Dakota’s balance sheet, including funds the bank provides for public school construction and infrastructure projects.

Carbon capture endeavors like Project Tundra, spearheaded by the utility company Minnkota Power Cooperative, are looking to retrofit coal-fired power plants to strip carbon dioxide molecules off gas emissions. That carbon dioxide would then be injected into the earth for permanent storage, preventing the greenhouse gas's warming effect on the atmosphere.

The technology is costly to develop, but a federal tax credit for carbon usage and storage helped spur several dozen projects around the country in recent years . Project Tundra hopes to cover its estimated $1 billion front-end costs over a longer period once systems are up and running, since the tax credits only pay out after the carbon dioxide has been stored or put to alternative use.

Minnkota spokeswoman Stacey Dahl said Project Tundra — which previously received a $10 million grant from the U.S. Department of Energy and $15 million from the state of North Dakota, all for research — is still finalizing its front-end cost estimates.

Minnkota leadership has previously noted the challenges of attracting private-sector capital to a project tied to coal power, though Dahl said they have so far drawn high-level interest from investors. The project expects to move into its fundraising stage by late summer or early fall, she said.

Top lawmakers emphasized the rigor of the Bank of North Dakota’s evaluation and vetting process, which Steinwand said has made the bank a successful independent state entity for more than 100 years. But North Dakota leadership has shown an eagerness to foster carbon capture development in the state, and some skeptics said the bank is not immune from those political winds.

“They're gonna feel pressure,” Becker said, adding he could see the Bank of North Dakota resisting a political push to help fund Project Tundra if they don’t think the loans are viable.

“But it's just like so many things. You know, the dominoes fall according to what the powers that be might want,” he said.

“It’s approved unless there’s evidence that it shouldn’t be,” said Dustin Gawrylow, the managing director of the North Dakota Watchdog Network, which keeps tabs on state spending. Though Bank of North Dakota officials operate independently, Gawrylow said, “they know they’re going to be hearing it from certain people” if they reject a loan application from such a high-priority project.

Though Republican leadership said making the $250 million available to Project Tundra was always a top objective of the recent legislative session, Gawrylow noted the funds didn’t show up in a bill until late March, after much of the formal hearing process had ended.

“They were trying to hide the ball,” Gawrylow said. He argued the loan program would have had trouble passing if it was introduced on its own, particularly on the House side where Democrats and libertarian conservatives make up a sizable voting block.

Wardner said he was not aware of any reservations about the loans at the Bank of North Dakota and added their resistance to putting the program on their balance sheet did not indicate to him that it would be overly risky. Still, he said, the bank likely took comfort in the provision guaranteeing a reimbursement from other state entities.

“If that clause wasn’t there, you bet they’d be concerned,” he said.

Though Wardner acknowledged the risk of the loans would fall on the state, he said he sees supporting Project Tundra and carbon capture development as needed steps to preserve the state’s coal industry.

“I know there’s some risk,” he said. “I’m just telling you that it’s important that we do it. I think it’s worth it.”

Readers can reach Forum reporter Adam Willis, a Report for America corps member, at awillis@forumcomm.com.