Legal and Regulatory Issuesin Carbon Capture &
Sequestration
Michael B. Gerrard
Arnold & Porter LLP
February 14, 2008
Legal and Regulatory Issues
• Capture
• Transport
• Sequestration– On-shore– Off-shore
• Post-closure
• Incentives
• Other legal issues
Capture: Current law
• No requirement that new coal plants provide for capture– Under U.S. Clean Air Act, capture has not
been held required as “best available control technology” (new source review) or “lowest achievable emission rate” (prevention of significant deterioration)
– After Massachusetts v. EPA, new attempts likely
Capture: Emerging Laws
• November 2007 – Washington State Energy Facility Site Evaluation Council rejected application for 650 MW coal plant with IGCC that was “capture ready” because sequestration not yet technologically and economically feasible
• Proposals in both U.S. and E.U.:– New coal plants must be “capture ready”– Old coal plants must be retrofitted
– Emissions performance standards for CO2
Transport: Pipeline
U.S. models for regulation• Existing method for CO2 pipelines: State
law determines siting; Surface Transportation Board may review privately-set rates if third party complains
• Oil pipeline model: State law determines siting; FERC sets rates
• Natural gas pipeline model: FERC determines siting and rates
Transport: Pipelines
S. 2144 – Carbon Dioxide Pipeline Study Act of 2007
Would mandate study of feasibility of construction and operation of:
• Pipelines to transport CO2 for sequestration or enhanced oil recovery
• CO2 sequestration facilities
Storage: On-shore
Separate property rights to:• Surface (injection site)
• Subsurface (storage reservoir)
• Stored CO2
• Groundwater
Property Rights -- continued
• Relevance– Whose permission is needed?– Who is liable?– Who gets credits?
• Attributes– Title, lease or license– Covenants, easements to restrict future use– Transferability– Acquisition through eminent domain?– Adjust liability and credits via contract or law
Storage: On-shore
Existing comparable legal regimes• Injection of CO2 into underground
formations for enhanced oil recovery
• Storage of natural gas in geologic reservoirs
• Injecting acid gas into underground formations
Storage: On-shore
Waste vs. resource issueNational and international regulatory
requirements are far more onerous if:
• CO2 injection is treated as disposal rather than resource storage/use
• If CO2 is contaminated with mercury or other hazardous constituents
U.S. Safe Drinking Water ActUnderground Injection Control
• Regulates underground injection of fluids
• Purpose: Protect groundwater supplies
• Governs siting, construction, operation, closure of injection wells
• Primarily implemented by states (34 have primacy)
• Five classes of wells, each with its own rules
U.S. Safe Drinking Water ActRecent Developments re CCS
• March 1, 2007: U.S. EPA guidance document, “Using the Class V Experimental Technology Well Classification for Pilot Geologic Sequestration Projects”
• October 11, 2007: U.S. EPA announced plans to develop regulations under SDWA UIC program for CCS; proposal due summer 2008
Interstate Oil and Gas Compact Commission
Model legal and regulatory regime for geologic storage
However: Energy Independence and Security Act of 2007 explicitly authorizes EPA to preempt state rules on CCS; leaves open whether states or federal government will have authority to oversee long-term storage
EU CommissionJanuary 23, 2008 Proposed Directive
on CCS• Selection of storage
sites• Exploration permits• Storage permits• CO2 stream
acceptance criteria• Monitoring• Reporting• Inspections
• Corrective action if leakage occurs
• Closure and post-closure obligations
• Transfer of responsibility
• Financial security• Third party access to
transport and storage sites
Measurement, monitoring and verification
• Necessary for:– Safe operation– Determination of effective storage models– Allocation of liability and credits– Public acceptance
• Who is obligated to do what• Rights of government access to inspect• DOE General Guidelines for Voluntary Reporting
of GHGs (1605(b)) Program – Guidelines for monitoring options
Once Reservoir is Full
• Closure
• Decommissioning criteria
• Post-closure– Financial assurance– Proposals for federal- or state-administered
trust fund to pay for closure, post-closure; perhaps funded by fee on storage facility operators
Liability concerns
• Local– CO2 in atmosphere or shallow subsurface
• Harm to humans, animals or plants
– CO2 dissolved in subsurface• Contamination of underground drinking water• Interference with deep subsurface ecosystems• Corrosive to well materials
Liability concerns – Cont’d
• Local – cont’d– Pressure-based
• Ground heave or induced seismicity• Contamination of drinking water by displaced
brines• Damage to hydrocarbon resources• Subsurface trespass into pour space owned by
others
Liability concerns – cont’d
• Global – “climate risk”– Release of CO2 to atmosphere
Source: Jeffrey Logan et al., “Building Public Acceptability for Carbon Capture and Sequestration,” WRI Issue Brief No. 2, Oct. 2007, p. 2, citing E. J. Wilson et al., 2003, “Regulating the Ultimate Sink: Managing the Risks of Geologic CO2 Sequestration,” Environmental Science and Technology, 37: 3476-3483
Liability Issues
• How long will it persist? Statute of limitations?
• Retroactive loss of trading credits, offsets?
• Who is liable – buyer or seller?
• Discount offsets/credits to account for expected leakage?
• Escape through bankruptcy or dissolution?
Liability issues – Cont’d
• Establishment of post-closure fund, perhaps through fee on income/credits?
• Process for resolution of liability? Adjudication, arbitration?
• Role of insurance?
• Government backstop?
United Nations Convention on Law of the Sea (UNCLOS)
• U.S. is not a party
• Recognizes coastal states’ sovereign rights to natural resources of their exclusive economic zones and continental shelf areas
• States must take measures to prevent, reduce and control pollution of the marine environment from land-based sources
London Convention (1972)
• Convention on the Prevention of Marine Pollution by Dumping Wastes and Other Matter
• U.S. is a party• Prohibits “dumping” of “industrial waste”• Excludes “[t]he disposal of wastes or other
matter directly arising from, or related to the … exploitation and associated offshore processing of sea-bed mineral resources”
London Protocol (1996)
• London Protocol to the Convention on the Prevention of Marine Pollution by Dumping of Wastes and Other Matter
• U.S. not a party
• November 2006, effective February 2007: Amended to allow sequestration of CO2 in subseabed geological formations
U.S. Ocean Dumping Act (1972)
• Marine Protection, Research and Sanctuaries Act
• Implements London Convention
• Prohibits “dumping” “industrial wastes” “into ocean waters”
• May not apply to subseabed
Incentives and Accounting for CCS
• National inventories under UNFCCC/Kyoto Protocol– IPCC 2006 Guidelines for National
Greenhouse Gas Inventories
Trading to meet mandatory GHG reduction targets
• European Union Emissions Trading System– EU Commission currently considering whether and
how to recognize CCS in the EU ETS for Phase III (2013- ); possibility exists for intermediate recognition of CCS activities in Phase II (2008-2012) under Article 24 of ETS
• U.S.: Lieberman-Warner Bill, S. 2191– Sets aside allowances as bonuses for implementing
CCS; incentives to be in operation before 2013
Offsets
• Regional Greenhouse Gas Initiative– Approved offsets include sequestration
through afforestation but not CCS
• State of Oregon– Sequestration in trees is permissible offset;
not CCS
Clean Development Mechanism, Joint Implementation
• CCS not yet recognized
• Concerns that, if recognized, could swamp CDM and JI with credits and dominate portfolio
Government subsidies
• Research and development• Cost sharing for demonstration projects• Tax exempt financing and other tax
incentives• Loan guarantees• Direct funding• Energy Independence and Security Act of
2007: major awards for R&D and demonstration programs
S. 2323, Carbon Capture and Storage Technology Act of 2007
• If enacted, it would:– Establish competitive grant program for 3-5
commercial demonstration projects on long-term effects of sequestration of CO2 in deep geological formations
– Establish 3-5 commercial demonstration projects for capture of CO2 from coal plants
– Establish interagency task force to develop regulations for CCS
– Require DOE to carry out R&D program– Require assessment of CO2 storage capacity
Voluntary incentives
• Chicago Climate Exchange– Allows carbon sequestration in U.S. forestry
projects, U.S. agricultural soils
• Public relations, marketing, “carbon neutrality”
Other legal issues with CCS
• Enhanced oil/gas recovery resulting from CO2 injection
– Economic benefit from recovery– Accounting for GHG emissions from
recovered oil/gas
• Intellectual property rights– Protection and enforcement of patents,
trademarks, etc. important for technology transfer to developing countries
Other legal issues – Cont’d
• Labor rules– Energy Independence and Security Act of
2007 – Davis-Bacon Act (prevailing wage rates) applies to construction of CCS projects funded under this enactment
• Rate recovery– Can regulated electric utilities recover cost of
carbon capture from the rate base, if not legally required?
Decision-making processes
• Environmental impact assessment (NEPA, etc.)
• Degree of public participation
• Supranational, national, state, local control
• Transparency of information
• Availability of judicial, arbitral forums for dispute resolution
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