On November 24, the comment period on EPA’s proposed framework for regulating commercial-scale carbon capture and sequestration (CCS) projects under the Safe Drinking Water Act (SDWA) will close.  To date, only 20 stakeholders have commented on the draft rule.  While it is common to submit comments on regulatory proceedings on the deadline, the relatively low stakeholder participation so far is somewhat surprising given the significant role CCS is expected to play in any U.S. effort to reduce carbon emissions - particularly for traditionally coal-driven sectors of the US economy. In light of this surprising occurrence, ClimateIntel will run a three-part analysis of the issues of critical importance to project developers and investors, for which EPA fails to propose serious resolution - even signaling in some cases that decisions will be made through informal guidance. The posts that follow highlight issues that the EPA should address further with stakeholders before issuing its final rule.

Example #1:  Financial Assurance Requirements for CCS Projects

EPA proposes to impose a “general duty” on owners or operators of CCS projects to “demonstrate and maintain financial responsibility and resources” sufficient to cover costs associated with closure and post-closure activities.  73 Fed. Reg. 43537 (proposed as 40 C.F.R. § 146.84(a)).  The costs of financial assurance will depend both on the size and scope of the proposed project and on which financial assurance instruments and options are available to owners or operators under the regulation.  The proposal states only that the Agency “will provide guidance to be developed at a later date that describes the recommended types of financial mechanisms that owners or operators can use to meet this amendment.”  Id. at 43520.

EPA’s failure to clarify its financial assurance policy is notable for two reasons.  First, although EPA already administers financial assurance regulatory requirements governing closure and post-closure of underground injection wells for hazardous waste, hazardous waste treatment, storage, and disposal facilities, and underground storage tanks, EPA’s CCS proposal eschews such precedents, stating:

The [EPA’s Office of the Inspector General]  and [U.S. Government Accountability Office] suggest that EPA may need to update or provide additional guidance in the following areas: Cost estimation methodology; pay-in period for trust funds; the type of insurance provider that may be used; requirements for acceptable surety bonds and/or their providers; and the way by which corporations demonstrate financial strength/credit worthiness…  EPA is considering updating mechanisms for demonstrating financial responsibility for GS projects.

The financial assurance regime established for the CCS facilities is likely to be markedly different from that which investors and industry apply under current business models.

The proposal compounds this uncertainty by suggesting EPA will issue CCS-specific financial assurance standards using mere guidance.  Of even greater concern may be the risk that poorly vetted guidance could hobble US efforts to commercialize CCS when aggressive action is needed to meet US commitments.

To submit comments on EPA’s CCS framework, follow directions provided in the proposed rule.

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Click here to read the next blog post in the three-part series on the proposed rule’s treatment of post-closure monitoring requirements at CCS facilities. 

For further information about this topic, please contact Akin Gump.