CARBON CAPTURE AND STORAGE · Carbon Capture and Storage • Key barriers to CCS deployment: –...

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CARBON CAPTURE AND STORAGE

Kathy G. BeckettJackson Kelly PLLC

Charleston, West Virginia

November 20, 2008

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A Carbon Constrained Future

• Much climate change discussion is focused on coal

• However, many energy sources will be affected

• EPRI has assessed the potential for new technologies for power generation through 2030

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MIT conclusions about CCS

• scientifically feasible to store CO2 in saline aquifers

• an insurance system is needed to cover liability

• a regulatory framework must include criteria for site selection

The Future of Coal, Options For A Carbon-Constrained World, Massachusetts Institute of Technology, 2007, p. ix, http://web.mit.edu/coal/

Carbon Capture and Storage

• September 2008 GAO Report– Key barriers to CCS deployment:

• Technology barriers. – DOE limited results in lowering the cost of CO2 capture

from existing coal-fired power plants. A major reason is that the agency has focused on “Integrated Gasification Combined Cycle” (IGCC) technology, a promising technology for new coal power plants. The agency has only recently begun to shift toward an approach that also emphasized CCS technologies applicable to existing power plants.


• Key barriers to CCS deployment:– Legal and Regulatory Barriers.

• EPA issued a proposed rule in July 2008 concerning underground injection of CO2 for geologic sequestration, this proposed rule would apply to commercial-scale injections. The proposed rule was issued under the agency’s SDWA authority. However, some issues that fall outside of this authority are still unresolved, to include CERCLA, RCRA, and CAA applicability.


• Key barriers to CCS deployment:– Other considerations:

• Liability of the federal government if CO2 stored below public lands leaked onto adjoining nonfederal property.

• FERC, STB, DOT, DOE and EPA joint jurisdiction over pipelines and commercial scale CCS.

• CO2 trading issues


• September 3, 2008 BNA Publication, – “Climate Change Storing Carbon: Options for Liability

Risk Management Financial Responsibility by ChiaraTrabucchi and Lindene Patton

– Sets forth recommendations for a financial risk management mechanism designed to hedge risks arising from the operational, closure/post closure, and long-term stewardship phases of CCS systems, and specifically geologic sequestration.

Options for Liability Risk Management Financial Responsibility

• Create a new “federal government corporation” in combination with a suite of financial risk management mechanisms designed to ensure the deployment of CCS in an economically efficient, safe, and environmentally-balanced manner.

• Develop a prospective risk management system, rather than a reactive risk assumption or allocation mechanism.


• In the context of CCS, different risks are likely to present themselves at different stages during the facility’s life-cycle, resulting in a range of consequences the financial materiality of which will depend on the site-specific characteristics and location of each CCS project. For these reasons, different phases of the CCS process will warrant different financial (risk) management mechanisms.


• The design and application of financial risk management mechanisms for CCS must balance incentives that foster early deployment with the potential for adverse site selection due to moral hazard, particularly as commercial-scale deployment evolves.


• Financial risk management mechanisms assessment with an eye toward balancing the desire of stakeholders to reduce carbon dioxide emissions, while maintaining a safe, secure, reliable, and relatively inexpensive source of electric power.


• Appropriate analysis is needed of the expected value of financial consequences that may arise.

• The financial risk management framework should align with the CCS project lifecycle, whereby the CCS facility remains financially responsible for consequences arising during the operational phase from capture through post-closure. To assure sufficient participation and capital commitment for these risks from the financial services sector (through insurance, etc.) and the operating industry, a process similar to that followed with the advent of nuclear power risk management may be necessary, including antitrust waivers for participating parties.


• With respect to siting, operational oversight, and long-term stewardship of CCS facilities, a private/public government (mixed ownership) corporation (CCS Safety Board or CCSSB) should be chartered and vested with the authority to oversee the siting, design, and management of CCS facilities.


• The multimedia, cross jurisdictional nature of CCS technology results in diffuse authority spanning local, state, and federal agencies, including but not limited to DOE, EPA, DOI, and DOT. The CCSSB should be vesting with the authority to arbitrate permitting/operating issues spanning these myriad authorities, as well as be vested with the responsibility of instituting “go” or “no-go” decisions with respect to CCS projects, even if such decisions result after the CCS project is underway.


• A trust fund (CCS National Trust), managed by the CCSSB, should be established to pay long-term care expenses and delimited compensatory damages resulting after the CCS facility is released from post-closure, but not for financial assurance during the revenue generating operating period.


• Unless contributions to the trust map to the expected value of expenses/damages likely to be incurred over the long-term, there is little financial assurance that the balance of funds remaining at the time of site transfer will be appropriate to the long-term need for funds.


• Consideration should be given to the liability and financial responsibility implications of industry pooling of sites based on geographic region, or site characteristics.


• Consideration should also be given in determining the degree to which financial contributions to the trust release the CCS facility from legal liability.– These recommendations are not dissimilar to

current provisions of the Oil Spill Liability Trust Fund (OSLTF) and the National Pollution Funds Center or the Presidio Trust

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G8 conclusions about CCS• Establish legal and regulatory framework by 2010• Property rights:

– define rights – allocate storage capacity

• Long term liability: – Government assumption of long term liability

• Permitting system should also address closure and post closure

• CO2 should not be classified as a waste • Insurance industry should be encouraged to develop

CCS products

G8–IEA-CSLF: 3rd Workshop, Near Term Opportunities For CCS; 11/27/07

Environmental Support

Environmental DefenseStatement of Scott Anderson, Environmental Defense, January 31, 2008, before U.S. Senate Committee on Energy and Natural Resources

Natural Resources Defense CouncilStatement of David D. Doniger, NRDC, February 28, 2008, before U.S. House of RepresentativesCommittee on Energy and Commerce

Boucher Bill

• June 2008– Chairman Rick Boucher to the House Energy

and Air Quality Subcommittee introduced legislation to invest billions of dollars in carbon capture and storage technology

– It would create a $1 billion annual fund paid into by utilities that use coal, natural gas, and oil.

Boucher Bill

• The bill creates an industry managed “Carbon Storage Research Corporation”that administers the fund through EPRI.

• The CSRC would distribute money through grants and contracts to governmental, academic, and private entities to help research, develop and commercialize CCS technologies.

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Anticipates carbon emissions regulation.Prefers CCS regulation by the states.Views CO2 as commodity not waste.

Focuses on regulatory framework, property rights acquisition and transfer of liability to the state.

Establishes trust fund for administration of program once transferred to the state.

(IOGCC)

IOGCC Model Program

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USEPA Position• EPA has filed comments that are largely

supportive of the IOGCC model program.• EPA has announced that it will be

proposing its own regulatory program under SDWA.

• EPA program may be more limited in scope than IOGCC program.

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IOGCC Model Program

On-going activityA. Open issues:

• tort liability transfer • property acquisition • pipelines

B. Schedule: uncertainC. State dilemma:

• wait ?• act now ?

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Status of State InitiativesActive Efforts Begun

– California– Illinois– Indiana– Kansas– Michigan– Montana– New Mexico– New York– Oklahoma

– Texas– Utah– Washington– West Virginia– Wyoming– Alberta– British Columbia– Saskatchewan

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Additional State ConsiderationsProperty AcquisitionA. Many tracts involved B. Administrative alternative C. Streamlined property acquisition

- utilization of tax records and public notice to determine ownership - allow compensation to be set (initially) by ALJs

D. Possible role for PSC

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Additional State Considerations

PipelinesA. Pipelines within storage facility approved

with overall projectB. Transmission lines might require PSC

approval

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Additional State ConsiderationsPermit programA. Pre-empt local regulation B. Allow for permitting in phases C. Allow injection into depleted coal and oil

and gas formations (or undepletedformations, if owned)

D. Enhanced oil and gas production would not be subject to the CCS program

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Additional State ConsiderationsTrust fundFee set based on cost to state A. Allow funds to be expended only for the

CCS project B. Review fee every ten years C. Suspend fee when trust is fully funded

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Additional State Considerations

User feeA. Base fee on actual cost of administration B. Review each year C. Allow funds to be expended only for

regulation of a specific CCS project

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Additional State ConsiderationsLiability Transfer after closureA. Transfer to State B. Extend liability release to operators and generators (absent fraud) C. Require state to acquire insurance D. Limit State liability

- cap on non-economic loss- no punitive damages- statute of limitations - no joint and several liability - allow consideration of collateral source payments - no medical monitoring absent present injury - no 3rd party bad faith actions

E. State retains sovereign immunity for matters not insured

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Additional State ConsiderationsLiability limitations during operationA. No release of liability B. Liability limitations

- cap on non-economic loss- cap on punitive damages- statute of limitations - no joint and several liability - allow consideration of collateral source payments - no medical monitoring absent present injury - no 3rd party bad faith actions

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CONCLUSION• States must adapt to new generation of energy• CCS may be the key element of a state

program to develop new energy projects based on fossil fuels

• IOGCC model is a good start• Significant new effort will need to be

undertaken at the state level to establish CCS programs

CONCLUSION• State exposure to liability would be minimal;

- no liability transfer until 10 years after completion and no leaks;- liability insurance to be purchased from trust fund;- trust fund would be used to pay for the maintenance of the facility;- exception to sovereign immunity only to the extent of insurance or money in the trust fund.

CARBON CAPTURE AND STORAGE · Carbon Capture and Storage • Key barriers to CCS deployment: –...

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