Late last month, EPA released a Notice of Data Availability and Request for Comment related to its 2008 proposed regulatory framework for underground injection and storage of carbon dioxide.  The Notice discusses three DOE-sponsored Regional Carbon Sequestration Partnership projects, reviews the results of recent studies evaluating the potential impacts of geological storage to groundwater integrity and proposes a waiver process that would provide regulators with more flexibility in setting the minimum injection depth for carbon sequestration projects.  The 12-page notice is an important opportunity for stakeholders seeking to supplement the administrative record or position themselves for post-promulgation litigation.  Issues addressed in the Notice include:

• EPA May Widen the Scope of the Rule. The agency received comments regarding the need to consider environmental and regulatory issues outside the scope of the Safe Drinking Water Act (SDWA) and “is currently evaluating the need for a more comprehensive regulatory framework.” EPA has indicated that any effort to expand the rulemaking beyond its SDWA authority will involve an additional notice and comment opportunity, structured within the current regulatory development schedule.

• EPA Considers Granting Local Siting Authorities More Discretion.  EPA is proposing to modify the July 2008 proposed rule, which restricts Class VI Injection Wells (the new class for carbon sequestration projects) to below the lowermost geological formation containing an underground source of drinking water.  The proposed modification would allow project applicants to seek a waiver of the injection depth restriction by demonstrating that a shallower depth would not pose contamination risks.  The state regulatory officials with primary permitting responsibility would make the final waiver determination.

• Update from DOE’s National Energy Technology Laboratory (NETL).  NETL is developing or operating approximately 30 geological sequestration projects to develop working geological sequestration approaches and to identify “the most suitable technologies, regulations and infrastructure needs for carbon capture sequestration and storage.”  The Notice provides examples from several of these projects.

• Update from DOE’s Lawrence Berkeley National Laboratory (LBNL).  LBNL is studying the potential risk to underground drinking water sources from improperly-sited geological sequestration projects.  Areas of study include the potential for changes in ground water quality as a result of CO₂ leakage, the risk that CO₂ will mobilize trace elements and the potential basin-scale hydrological impacts that large-volume underground injection and resulting pressure changes may have on aquifers. 

• CO₂ Transport Modeling will play Critical Role.  EPA researchers see a need for improved CO₂ sequestration modeling tools that can characterize CO₂ transport properties across a large range of temperatures and pressures and couple multiphase flow, reactive transport and geomechanical processes. 

The notice offers several insights into EPA’s ongoing rulemaking process.  First, the likely driver for EPA’s decision to reopen the comment period in this proceeding was EPA’s decision to propose an injection-depth waiver mechanism.  Without the additional notice and comment, a final rule that included a waiver option would have been vulnerable on judicial review.  Second, EPA’s lengthy discussion of the waiver proposal, combined with the mixed results of its ongoing LBNL research into the impacts of carbon sequestration on drinking water quality and basin integrity, illustrates EPA’ difficult balancing act in developing uniform nationwide CCS standards.  While deeper CO₂ sequestration depths may offer greater protection to some local underground drinking water sources, establishing a rigid depth requirement could prevent the adoption of any carbon sequestration project in regions of the country that lack the requisite hydrogeological characteristics to meet the standard.  If CCS is going to be one of the pillars of EPA’s climate change mitigation strategy, EPA will need to find ways to balance the goals of climate policy, energy policy and water policy.  Third, EPA finally acknowledged that it may need to expand the legal basis of its carbon sequestration rulemaking program beyond the SWDA.  If EPA intends to propose any such expansion within the current rulemaking schedule, it must act quickly. 

EPA will hold a public hearing on the Notice of Data Availability on September 17, 2009 in Chicago, Illinois.  Written comments on the Notice are due to EPA by October 15, 2009.  For stakeholders with an interest in shaping federal policy on carbon capture and sequestration, this open comment period provides an important opportunity to supplement the record that EPA (and the courts) will rely upon in the future. 

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

Last year, Swedish Company Vattenfall announced its plans to go on-line with a major pilot program to test carbon capture and sequestration at a coal-fired power plant.  The company recently acknowledged that permitting snags fueled by local opposition render it unable to commence geologic sequestration of captured CO2.  Vattenfall intended to begin capturing CO2 at its 30-megawatt Schwarze Pumpe facility, located in Spremberg, Germany, and sequestering it in the nearby Altmark depleted gas field by March or April 2009. Residents of the host-city, however, have expressed concerns about the safety of geological sequestration, preventing the final permitting approval for the site and creating questions about when - or if - the site could be available for any CCS operations. 

Vattenfall’s experience at this project is not an isolated incident.  Vattenfall reported delays in obtaining approvals for one of its Danish storage projects pointing, in part, to public opposition by local stakeholders.  In June, German news sources reported that activists were protesting plans by electric utility RWE to transport captured CO2 by pipeline from a powerplant near Cologne to a sequestration site on Germany’s North Sea Coast.  The Wall Street Journal also reported in April that Royal Dutch Shell had run into challenges siting a sequestration facility in Barendrecht, Netherlands, due to grass roots opposition from local residents. 

Public opposition is likely to be a critical strategic and legal consideration for US projects.  On Friday, August 21, Battelle, the lead partner in a Midwest Regional Carbon Sequestration Partnership project announced that it was abandoning plans to participate in a $92 million public-private demonstration project to site a geological sequestration project in Western Ohio.  While the partner cited only “business reasons” for its decision, the reported public opposition to the project could not have helped. 

These setbacks illustrate the significant challenges that the siting and permit-approval process can pose, particularly in the face of public opposition, to an otherwise promising project.  This will be particularly true during the early stages of a CCS deployment.  US policymakers and investors would do well to watch and learn from these early case studies, and to ensure that they devote the legal, political and community relations resources needed to ensure that proposed projects move forward in a realistic and timely fashion.

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

Hydrofracturing, also known as “hydraulic fracturing” or “fracking”, involves injecting specialized liquids down natural gas wells to create small fractures in the rock, increasing the rate at which gas flows into the well.  Hydrofracturing is also used as an Enhanced Oil Recovery (EOR) technique at depleted oil fields, where liquid CO₂ or other substances are injected into one well in order to sweep remaining oil towards an operating pump. (See here for diagrams explaining EOR techniques and the usefulness of hydrofracturing.) 

This technique for enhanced oil and gas recovery is receiving increasing scrutiny on Capitol Hill.  Most of the debate concerns the potential tradeoffs between promoting domestic oil and natural gas production and protecting drinking water sources.  While other forms of underground injection are regulated by EPA to protect groundwater resources, Congress exempted hydrofracturing from regulation under the Safe Drinking Water Act (SDWA) in the Energy Policy Act of 2005 (EPAct).  Adding a layer of complexity to this policy discussion is the role hydrofracturing techniques and previously-fracked oil and gas fields may play in providing United States’ geologic sequestration capacity  for captured carbon.

In recent days, complementary bills to regulate hydrofracturing under the SDWA have been introduced in both chambers.  Bill supporters argue that excess hydrofracturing fluid has the potential to contaminate underground water supplies and migrate to the surface.  Opponents respond by citing EPA’s 2004 study concluding that hydraulic fracturing posed little or no threat to drinking water sources and warning that the regulatory burden would reduce or prevent development of significant amounts of natural gas.

Viewed in the context of the wider climate debate, these issues could have broader implications.  First, natural gas, with its significantly lower carbon emissions per unit energy than coal or oil, is an important bridge to a low-carbon energy future.  Second, because oil and gas recovery sites provide many of the most promising and practical opportunities for CCS injection, particularly in the near term, the creation of any new regulatory hurdles could decrease or delay momentum for sequestration project deployment

Hydrofracturing — A Potential Role for CCS

While hydrofracturing  has been used for years to support natural gas and oil recovery, the technique has also become a potential tool in increasing the domestic geologic sequestration capacity.

• Sequestration in Unmineable Coal Seams: These seams, which are too deep or narrow to be cost-effectively mined, provide carbon storage potential in the pores of the coal itself. As carbon dioxide is pumped into these coal seams, it displaces methane previously stored in the pores of the coal, a process known as enhanced coalbed methane (ECBM) recovery. Hydrofracturing allows CO₂ to penetrate into these seams, providing complementary benefits - accessing previously unreachable pockets of methane, allowing for both increased natural gas production, and increasing CO₂ storage capacity. (See page 6 of this document for a diagram showing the role of fracking in ECBM.)
• Sequestration in Deep Saline Formations: These formations, of saltwater-saturated rock, hold the most promise for widespread carbon storage, as they are more extensive than other potential storage reservoirs and are located in areas with exisiting coal-fired power plants. These formations, however, have lower permeability, meaning that fracking of injection zones could improve injection rates and cost effectiveness.
• Sequestration in Depleted Oil and Gas Fields: The majority of carbon sequestration projects demonstrated to date have been conducted on former oil and gas fields. Many, if not most domestic oil and gas fields have been or will be subjected to hydraulic fracturing in the course of their operations (indeed, the federal government provides tax credits to companies that use enhanced oil recovery methods to maximize well productivity). This means that even if hydrofracturing activities were to stop today, policymakers would have to develop working methods for making CCS viable and safe in previously drilled (and fracked) areas.

Reconciling Hydrofracturing Regulation and CCS Policy

In July 2008, pursuant to the SDWA, EPA released proposed Underground Injection Control (UIC) regulations governing carbon sequestration wells. The proposed regulations would prohibit various activities that could endanger sources of drinking water.  The proposed regulations would allow limited fracking “to improve wellbore injectivity” where the responsible EPA or state officials deems it permissible.  The proposed regulations also acknowledge the current statutory exemptions for unmineable coal seam sequestration and enhanced oil recovery, stating that “these hydraulic fracturing operations are used to enhance oil and gas recovery and for ECBM recovery, and in general are exceptions to the definition of underground injection under the SDWA.”  EPA nonetheless requested comments on “the extent and scope to which hydraulic fracturing should be allowed during GS injection, and whether the use of fracturing for the purposes of well stimulation is appropriate.” 

The impact of new hydrofracturing restrictions on CCS operations and capacity will vary from site to site.  Sequestration sites utilizing former-ECBM and deep saline formations typically occur at depths far below level of drinking water aquifers, making it unlikely that any associated fracturing activities would affect drinking water sources. The relationship between fracking at EOR sites and any sort of drinking water regulations are not addressed in the EPA’s proposed rule, even though many of the most promising domestic sequestration site locations are in pre-existing oil and gas fields.  If policymakers are to avoid a head-to-head standoff between developing CCS capacity and exploiting US energy reserves, they may have to find a way to resolve hydrofracturing’s role in oil and gas production with the potential that oil and gas fields have as future host-sites for geologic sequestration.

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

Current Administration and congressional climate proposals depend heavily on geological sequestration to reduce CO2 emissions from coal-fired power plants and other major sources and tend to presume that sources in every state will have access to nearby underground storage capacity.  This is the third post in a three-part series reviewing obstacles to a 50-state sequestration strategy and suggesting the need for a national infrastructure to support medium to long-range transport of CO2.

• Part 1: The Porosity Problem
• Part 2: Not Under My Back Yard (NUMBY)

Part 3: 50 States, 50 Hurdles

A fifty-state sequestration strategy will require not only state-by-state access to geologically-suitable subsurface storage capacity and some minimum level of buy-in from state residents and property owners , but also state and municipal governments to codify, fund and implement the supporting legal, regulatory and oversight infrastructure needed to regulate long-term underground injection and storage as an approved land use.  While many state and local governments are struggling to manage and maintain their existing portfolio of governmental functions (issues like healthcare, education and core environmental programs), some are likely to balk at advancing carbon capture and sequestration (CCS) policy to the front of their legislative and regulatory agendas.  At a May 2009 hearing by the Senate Energy and Natural Resources Committee, a  Wyoming state legislator, reflected some of the issues states face in regulating the carbon capture and sequestration industry.  These comments may be particularly trenchant given that Wyoming is one of the first states to codify a comprehensive CCS legislative framework—

• Ownership of pore space as a distinct property right.  Most states have well-established rules relating to allocation of ownership of surface rights versus mineral rights at a given site, a function of the country’s long history of extractive industry (mining, oil and gas production, etc.).  Geologic sequestration introduces a different and less common subsurface property interest-interest in underground pore space as a storage commodity.
• Dominance of surface, mineral, and pore space estates.  Just as the interests of surface property owners and mineral right owners can sometimes clash, the addition of a third form of property right creates the need for rules of priority- particularly between the interests of mineral right owners and pore-space owners
• Site Permitting and Regulation.  EPA is currently establishing federal regulations for underground injection and sequestration of CO2 under its Safe Drinking Water Act authority.   EPA has acknowledged, however, that it lacks authority to address all issues raised by CCS.  Moreover, even recent legislative proposals that would augment EPA’s authority may not address siting issues subject to state and local jurisdiction. 
• Long-term liability for sequestered carbon.  The issue of financial and legal liability for the site, particularly during the decades or centuries after a CCS project has ceased active operations, is currently unresolved.  EPA has ignored the issue in the context of its federal rulemaking, citing a lack of authority.  Given the long time horizon of sequestration storage (centuries to millennia absent development of new uses for sequestered CO2), the prospect of unlimited liability for future problems is a significant source of uncertainty and risk for project managers and host states. 
• Unitization standards or eminent domain.  Liquid CO2, once injected into subsurface pore space, does not respect legal boundaries and ownership divisions.  To address situations where site developers are unable to negotiate terms with other affected subsurface pore space owners to support a project, governments need to establish procedures for unitizing or pooling groups of properties and the associated property interests to accommodate the subsurface scope of a project-sometimes against the objection of some owners. 

While Wyoming has been a leader in the development of CCS-related legislation, it is not the only state addressing these issues.  Recent studies by the National Conference of State Legislatures and the  Interstate Oil and Gas Commerce Commission  reported that at least 31 states were considering legislation addressing CCS issues.  To date, however, only a handful have put actual legislative or regulatory standards in place, including Kansas, Massachusetts, North Dakota, Oklahoma, Texas, Utah and Washington.  (Illinois, home to the recently reinstated FutureGen project, recently passed new CCS legislation that was sent to the governor for signature on June 26, 2009).

Oil and gas states have lead the effort to develop state sequestration policies.  States with well-developed oil and gas industries have numerous advantages when it comes to crafting state and local CCS policies.  Existing oil and gas laws provide policymakers with a starting point, if not a template, for sorting through complicated issues of property ownership, liability and land-use management raised by CCS.  Oil and gas states are more likely to have encountered and considered some of the unique policy associated with underground CO2 injection in the context of already-occurring enhanced oil or gas recovery activities or natural gas storage within their borders.  This experience and familiarity with subsurface property rights and responsibilities, at both the voter and policymaker level, may reduce the political complexities of introducing a new layer of rights and obligations.  Finally, oil and gas states, as natural homes for future geologic sequestration projects, likely see a greater value in developing the regulatory infrastructure needed to support what may become an important new industry, particularly as their oil and gas reserves dwindle.

The lack of CCS standards or experience with the types of issues faced in the other states shows a flaw in the assumption that each state will be ready to attend to its own geologic sequestration needs any time soon.   State lawmaking and regulatory processes can be time-intensive, especially where the public’s attitude is mixed regarding a potential policy.   Indeed,  states like California and New York may face particular challenges in developing legislation and in promulgating implementing regulations due to the extensive public participation and environmental review requirements established under state law.   

Moving Forward

Ultimately, the challenge in a 50-state sequestration strategy will not be spurring the first 10 to 20 states to action-that is already happening, in part because these states see economic benefits to being early movers.  The challenge will be in making the last10 to 20 states CCS ready.  The natural variability of carbon storage potential from one region to another, and the political and legal practicalities of siting and regulating CCS facilities, suggest that not all states will have local CO2 storage infrastructure, at least at a cost and/or a time-frame needed to meet proposed emissions reduction goals.  If policymakers want to rely on carbon capture and storage mandates as part of a nation-wide strategy to reduce CO2 emissions, medium to long-distance transport of the captured CO2 is certain to be a necessary component.  CO2 transport policy can no longer be ignored in the unfolding energy and climate debate. 

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

Current Administration and congressional climate proposals depend heavily on geological sequestration to reduce CO2 emissions from coal-fired power plants and other major sources and tend to presume that sources in every state will have access to nearby underground storage capacity.  This is the second post in a three-part series reviewing obstacles to a 50-state sequestration strategy and suggesting the need for a national infrastructure to support medium to long-range transport of CO2. 

Even if additional research and site characterization could resolve geological uncertainties regarding widespread local CO2 storage, companies also will have to overcome the public and political opposition that locally undesirable land use (LULU) energy projects engender.  While CO2 sequestration provides important global benefits, local communities are likely to balk at hosting a sequestration project injecting millions of tons of liquid CO2 as a waste product under or near their communities.

The saga of Used Nuclear Fuel Storage at Yucca Mountain in Nevada illustrates the challenge of siting even one nationally-important, but locally-opposed, facility.  First identified as the nation’s prospective high-level nuclear waste storage site in 1987 and approved by Congress in 1994, the Yucca Mountain high-level nuclear waste storage facility received over 9 billion dollars in funding through 2008 despite vociferous opposition from local stakeholders and, in some cases, key federal constituencies.  In early 2009, the Obama Administration proposed to defund the project.  While only Congress can cancel the project, Senate Majority Leader Harry Reid (D-NV) has committed to doing just that.  Irrespective of the merits of the decision to defund Yucca, it is a significant setback for the domestic nuclear energy industry, as the reversal leaves the nation twenty years behind in developing a long-term disposal strategy for high-level nuclear waste.

Even relatively innocuous renewable energy projects  face siting difficulties.  Indeed, the U.S. Chamber of Commerce recently initiated a campaign to document the wide variety of energy projects that have been stopped or delayed across the nation by local opposition.  The siting challenge illustrates an important reality check for policymakers and investors:  a prospective site may contain optimal subsurface geologic characteristics, but if developers cannot negotiate the local siting process, the technical feasibility of a location is irrelevant.

Siting CCS facilities on federal lands may be one way to reduce the ability of local opposition to stop a project.  The Department of Interior has estimated that 5.5 percent of the onshore U.S. CO2 storage capacity is beneath potentially leasable Federal lands.  But, federal lands bring limitations of their own.  First, federal lands are not uniformly distributed across regions and states, and many areas of the country (e.g., the northeast, southeast and midwest) lack large swaths of federal lands on which facilities could be sited.  The disconnect is even more significant when major emissions sources are considered.  According to a recent DOE Report, while 65% of emissions come from east of the Mississippi River, 83% to 86% of storage capacity on federal lands lies west of the Mississippi River.   In other words, a siting strategy that relies on federal lands for citing will require investment on CO2 transport to match source generation to sequestration capacity.

Read the rest of this entry »

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

Current Administration and congressional climate proposals depend heavily on geological sequestration to reduce CO2 emissions from coal-fired power plants and other major sources and tend to presume that sources in every state will have access to nearby underground storage capacity.  While some federal agencies and studies consider widespread localized sequestration to be viable, a nationwide rollout faces significant obstacles.  In areas where local sequestration is impractical, emissions sources will be forced to transport captured CO2, by pipeline, ship or other mode, to a viable sequestration site.  To date, however, federal climate proposals have given limited attention to developing the CO2 transport infrastructure. 

This series reviews three obstacles to a 50-state sequestration strategy and discusses the need for a national infrastructure to support medium to long-range transport of CO2.

Part 1: The Porosity Problem (below)
Part 2: Not Under My Back Yard
Part 3: 50-States, 50 Hurdles

Recognizing these obstacles and honestly confronting them is a critical step to making geological sequestration work.  And, without a successful geologic sequestration program, the United States’ ability to achieve emissions reduction targets is astronomically more difficult.

Part 1: The Porosity Problem

While there are many different factors that determine the suitability of a geological formation to store liquefied carbon, one important threshold consideration is porosity.  An effective sequestration site must contain deep layers of porous rock, capable of absorbing and retaining injected CO2 within its void spaces, much like a sponge that absorbs and holds water.  This porous rock must be covered by an upper layer of dense and highly impermeable cap rock that will prevent upward migration of CO2 toward drinking water aquifers or the surface.  

Citing private and public studies conducted to date, the Environmental Protection Agency (EPA) and the Department of Energy (DOE) have estimated that 95% of all coal-fired plants are within 50 miles of an “ideal” candidate sequestration site.  Other government analyses, however, suggest that not all regions and states are geologically equal when it comes to underground storage capacity.  Indeed, federal researchers have had mixed success in identifying viable sequestration sites with the proper geological characteristics based on theory and scientific testing alone. 

EPA and DOE are working to demonstrate the feasibility of geological sequestration at a wide range of host geological sites nationally, but to date, most successful CCS projects have been sited at current or former oil and gas fields.  For decades, the oil and gas industry has injected liquid CO2 underground to promote enhanced oil recovery.  If CCS storage potential is tied to oil and gas production potential, however, there are likely to be significant disparities in storage potential from one region to another.  DOE’s own website acknowledges that “there is a mismatch between largest [CO2 emission sources] and the largest oil and gas traps.”  A 50-state sequestration strategy will force the CCS industry to diversify its portfolio of storage sites.  Federal studies indicate that unmineable coal seams and deep saline formations offer promising storage potential, but the practicality of such formations remains untested in many parts of the country, despite considerable efforts at regional characterization.

For example, there are large numbers of CO2 emitting sources in the Appalachian Basin, making it an important test area for the viability of DOE’s localized sequestration strategy.  In a recent report on progress at a small-scale sequestration field test in the Appalachian Basin of Ohio, researchers found that “porosity, void space and permeability of the target formations were lower than expected.”  DOE’s difficulty in pinpointing a viable sequestration site location for a small regional pilot project illustrates the uncertainties that remain when it comes to siting at the local level.  

DOE is addressing this nationwide site characterization challenge aggressively, investing department resources and grant funding into projects to improve understanding of sequestration capacity in different geological settings.  Earlier this month, DOE announced its intent to offer an additional $50 million in grants to support site characterization work. 

Missing from both Congress and DOE is a serious Plan B in the event that localized geologic sequestration is not feasible in major portions of the country.  Federal policymakers will need a plan to transport captured CO2 from “pore-locked” emissions sources to areas where high-volume sequestration is practicable. 

The prevailing hope of widespread access to local sequestration capacity could become reality within the timeframes policymakers will need to support U.S. climate mitigation plans.  The U.S. experience with project siting on the basis of geology alone suggests strongly that this hope is a dim one.  Geologic sequestration is critical to U.S. climate policy and Congress and the Administration need to address the available alternatives should the local sequestration strategy prove untenable. 

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

This is the first of a two-part series reviewing recent Congressional efforts to encourage development of the carbon capture and sequestration (CCS) industry in the United States.  The first post focuses on the CCS provisions in the recently-released House Climate Bill, H.R. 2545, the American Clean Energy and Security Act of 2009.  The second post will focus on the recently introduced Department of Energy (DOE) Carbon Capture and Sequestration Program Amendments Act of 2009, S.1013, and the recent hearing on the bill conducted by the Senate Energy and Natural Resources Committee.

In the recent surge of activity on comprehensive climate change legislation, carbon capture and sequestration (CCS) policy is taking a prominent position in both the House and Senate.  Both Houses have put the spotlight on fundamental legal, economic and policy issues that will drive the success or failure of geological sequestration as a carbon-mitigation strategy and shape the development of the CCS industry.  While the stimulus funding for CCS authorized under the American Recovery and Reinvestment Act (ARRA) and 2009 Omnibus Bill will provide a much-needed capital investment boost to the CCS industry, more than a one-time economic stimulus will be necessary to move CCS from a model technology to a national standard.

In the House

On Friday, May 15, 2009, Congressmen Henry Waxman (D-CA) and Ed Markey (D-MA) released an expanded revision to their earlier comprehensive climate change bill.  No longer a mere “discussion draft,” the 932-page “American Clean Energy and Security Act of 2009,” H.R. 2454, includes a prominently-placed 48-page subtitle on Carbon Capture and Sequestration.  The CCS provisions of the bill would-

• Revise the Clean Air Act and Safe Drinking Water Act to expand EPA’s authority to regulate siting, construction, operation and closure of CCS facilities and to require operators to demonstrate the financial resources needed to operate the facility safely from construction through closure (Section 112)
• Create a ten-year, billion-dollar annual funding stream generated by a per kilowatt hour assessment on carbon-intensive power generation, to support early investment in CCS construction at major fossil-fuel-fired power plants and industrial facilities (Section 114)
• Subsidize the day-to-day operation of CCS equipment at early-mover facilities by rewarding high-efficiency CCS operations with tradable emissions allowances created under the bill’s cap-and-trade framework (Section 115)
• Impose performance standards on newly-permitted fossil-fuel power plants, requiring 50 to 65 percent reductions in CO₂ emissions as the industry matures (Section 116). 

The CCS portions of the bill track closely with the approach from the original “Discussion Draft” with a few notable exceptions.  First, the revised bill also provides more detail on how EPA would finance its incentive program for day-to-day operation of CCS equipment at CCS-equipped facilities.  The operational incentive in Section 115 is critical because not only are CCS facilities capital intensive, they also present significant operational challenges.  DOE estimates that operation of currently-available carbon capture technologies can increase the cost of power production by 30 to 80 percent and reduce the power generated by 20 to 30 percent.  This “parasitic loss” of power remains a disincentive to day-to-day operation of CCS equipment well after capital expenditures are recovered.  The initial Waxman/Markey discussion draft proposed a per-ton operational incentive for successful, large-scale sequestration.  The revised bill adds important details, authorizing EPA to allocate emission allowances to eligible operators using a formula that ensures between $50 to $100 dollars in allowance market value for each ton of carbon sequestered.  See Table 1.

Similar to the initial “Discussion Draft,” the revised bill establishes CO₂ performance standards for newly-permitted coal-fueled power plants.  The revised bill also switches from a numerical emissions limitation (800 to 1,100 pounds of CO₂ per megawatt-hour) to a percentage reduction requirement (50 to 65 percent reductions from the facility’s uncontrolled baseline).  This change in methodology could influence the design of future coal-fired facilities, reducing one inherent advantage that Integrated Gasification Combined Cycle (IGCC) facilities and other advanced coal technologies have had over conventional pulverized coal technology.  Newly constructed IGCC facilities tend to have lower uncontrolled emissions than their pulverized coal counterparts, making adherence to a single, numerical emissions standard easier to reach for an IGGC plant than a pulverized coal plant.  Under a percentage-reduction-from-baseline standard, however, the IGCC facility would start with a lower emissions baseline and end with a more stringent post-control reduction requirement.  It is unclear how this single variable would change the net competitiveness of new pulverized coal facility construction relative to an IGCC facility, but it is likely to be an issue of study for advocates for both technologies going forward. 

The revised bill also eliminates the requirement that DOE and related agencies prepare a report to Congress on the technical, legal and regulatory challenges associated with constructing the network of pipelines to transport captured CO₂ from sources to sequestration sites.  While the USGS and Department of Energy have ongoing programs to study aspects of the facility siting and transportation issue, questions remain regarding whether the infrastructure needed to transport CCS from cradle to grave will develop organically in the timeframe needed to support widespread adoption of CCS.  A congressional mandate to address these issues early on would help to ensure that policymakers and investors recognize that how carbon is transported may be just as important as how it is captured or ultimately stored.

An Important Start

On balance, the revised bill would improve the climate for long-term CCS investment.  The additional regulatory authority given to EPA should provide greater regulatory certainty to industry and help all stakeholders assess and manage the risks of CCS facility siting, design, construction, operation, and closure.  The capital and operational funding incentives in the revised bill would build on the funding already in the pipeline, reducing the economic risks and uncertainty with investing in CCS technology.  The stringent performance standards for new coal facilities suggest that even the most advanced pre-combustion, clean-coal technologies would have to adopt CCS.  Perhaps most importantly, the establishment of a cap-and-trade regime would create a market incentive for companies to mitigate their carbon emissions.

While the revised bill would be a step forward, it does not address all of the potential obstacles to commercial scale CCS implementation.  The revised bill does nothing to address issues such as long-term liability; allocation of subsurface property rights; or the regulatory, legal and technical challenges of linking major sources of carbon across the US to viable geologic sequestration sites.  While addressing so many complicated issues at once may be a tall order, policymakers need to consider these issues now if they are going to rely on CCS to play a critical role in US carbon-mitigation strategy. 

In the Senate

The second article in this series will look at recent legislative activity in the Senate and how it could potentially address some of these remaining CCS implementation issues.

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

Notwithstanding the financial tumult that has characterized early 2009, industries and investors with an interest in carbon capture and sequestration (CCS) technology have received positive news from Washington.  CCS investment played a prominent role in last month’s American Recovery and Reinvestment Act (ARRA) and could be expanded further in the Omnibus spending bill, which passed in the House and is expected to reach the Senate floor for a vote tomorrow.  These bills provide a range of CCS investment incentives, covering both coal and non-coal industrial CCS applications. 

ARRA:  The economic stimulus bill signed by the President last month appropriated $3.4 billion for various fossil-fuel programs, most with either express or potential application to the CCS industry, including:

• $1,000,000,000 for unspecified fossil energy research and development programs (While the final bill is silent as to what programs would qualify for these funds, members of the Illinois Congressional delegation have already argued that the $1 billion appropriation for unspecified “fossil energy research program” activities should be directed to rejuvenating the Futuregen project in Mattoon, IL);
• $800,000,000 for the Department of Energy’s Clean Coal Power Initiative (CPPI) Round III Funding Opportunity Announcement (FOA);
• $1,520,000,000 for industrial carbon capture and energy efficiency improvement projects, including a small allocation for innovative concepts for beneficial CO2 reuse;
• $50,000,000 for a competitive solicitation for site characterization activities in geologic formations; and
• $20,000,000 for geologic sequestration training and research grants. 

The tax provisions of ARRA provide billions more in tax incentives for CCS and other clean energy investments, including:

• $2.4 billion to expand the qualified energy conservation bond program (tax credit bonds allocated to states and large local governments to finance clean energy projects, including projects incorporating CCS technology); and
• $2.3 billion for an advanced energy property investment credit, providing a 30 percent credit for investment in property designed to capture and sequester carbon dioxide as part of qualified advanced energy manufacturing projects.”

The Department of Energy, on March 4, 2008, issued “Notices of Intent” to issue funding announcements in four areas, including:

• Geologic Sequestration Training and Research            
• CCS from Industrial Sources           
• Site Characterization of Promising Geologic Formations for CO2 Storage            
• An Amended FOA for Round 3 of the Clean Coal Power Initiative.

Omnibus Bill:  The proposed Omnibus spending bill that passed in the House and is now under consideration in the Senate would make hundreds of millions more available for CCS projects.  Specifically, the “statement accompanying the Bill” describes proposed appropriations to include:

• $288,174,000 in additional funding for CPPI;
• $73,000,000 in funding for Futuregen;
• $404,235,850 to support research and development into “Fuels and Power Systems,” including funding for a pre-feasibility analysis of the technical, economic and environmental aspects of a clean coal biomass polygeneration plant equipped with carbon capture using a range of coals to produce chemicals, fuels and power at diverse locations; and
• $43,864,150 for Congressionally-directed projects, many of which are related either directly or indirectly to the development of CCS technology for power generation and industrial systems.

Between the stimulus bill and the proposed Omnibus bill, power producers, manufacturers, investors and related industries should have a variety of opportunities to obtain federal support for CCS research, development and commercialization efforts.

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

On Wednesday, January 28, the US House of Representatives passed the American Recovery and Reinvestment Act (H.R. 1), a high-profile economic stimulus package that has dominated the Presidential and Congressional agenda since the beginning of the year.  The House bill appropriates $2.4 billion for research, development, and demonstration projects addressing: 1) Fundamental science and engineering research related to carbon capture and storage (CCS); 2) Field validation testing activities (in a variety of candidate geologic settings, including operating and depleted oil and gas fields); and 3) Large-scale carbon dioxide sequestration testing. In addition, the House bill establishes an enhanced tax credit for research expenses related to carbon capture and sequestration.

With the House Bill approved, attention now shifts to the Senate where, on Tuesday, the Appropriations Committee reported out the funding portion of the Senate stimulus package, including $2 billion for one or more near-zero emissions fossil-fuel powerplants, $1 billion for the Department of Energy’s Clean Coal Power Initiative, and $1.6 billion for projects that demonstrate carbon capture from industrial sources.  The $2 billion for near-zero emissions fossil-fuel power plants is likely a nod to FutureGen, which has been a priority project for Illinois Senator and Appropriations Committee member  Dick Durbin.  That same day, the Senate Finance Committee reported out tax provisions for the Senate stimulus bill that included an “Enhanced Research Tax Credit” similar to that passed in the House and an additional “Advanced Energy Investment Credit,” establishing a new 30 percent investment tax credit for facilities engaged in the manufacture of CCS equipment and a number of other advanced energy technologies.

The dueling stimulus packages have a ways to go before CCS advocates can start counting on the new funding, but based on what we have seen from the House and Senate so far, 2009 could be a very productive year for CCS infrastructure development in the US.

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

 Update:  EPA has extended the comment deadline on its proposed regulatory framework for underground injection control of carbon dioxide to December 24, 2008.

This is the third of a three-part series discussing select legal or policy aspects of EPA’s proposed rule for regulating commercial scale carbon and capture and sequestration (CCS) projects, now scheduled to close for public comment on December 24, 2008.  The first post analyzed the proposal’s treatment of financial assurance requirements for project owners and operators.  The second post analyzed the proposed standards for care and monitoring of a CCS injection site following closure of the facility.  This post analyzes the proposal’s treatment of long-term liability associated with CCS projects.

Example 3 - Long-Term Liability

EPA’s failure to resolve long-term liability issues at CCS facilities remains a significant weakness in the proposed framework.  While underground injection of carbon dioxide has been used for decades in oil and gas production, the science supporting long-term geologic sequestration of large quantities of carbon dioxide is still in the demonstration phase.  CCS projects face lingering uncertainties  associated with unintended release, migration or chemical reaction of substances injected into geologic formations.  Managing these risks facilitates commercialization of CCS. 

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