Transcript Carbon Sequestration Property and Regulatory Issues

Carbon Sequestration
Property and Regulatory Issues
Jerry R. Fish
Thomas R. Wood
Stoel Rives LLP
July 17, 2008
Rocky Mountain Mineral Law Institute
Outline of Presentation
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Scale of CO2 Sequestration Required.
How to Acquire Property Rights on that
Scale.
State/Federal Programs to Regulate and
Facilitate CO2 Sequestration.
Steps Needed to Make GCS Happen
CO2 Emissions
(IPCC SP4)
CO2 Emissions Trajectory
(IPCC SPM4)
CO2 Effect on Climate
(IPCC SPM4)
CO2 Sequestration “Wedge”
(Socolow and Pacala, Science 2004)
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Goal of leveling off at
500 ppm CO2
Each “wedge” equals
3.7 gigatons of CO2
mitigation per year
Geologic
sequestration may
yield 1 to 3 wedges
Global distribution of large stationary sources of CO2
SRCCS Figure TS-2a
Prospective areas in sedimentary basins where suitable saline
formations, oil or gas fields, or coal beds may be found.
Global distribution of large stationary sources of CO2
SRCCS Figure TS-2b
Sleipner Project – 1Mt/y
Sleipner
Sleipner Injects into Saline
Aquifer
Scale is the Challenge:
One 1000 MW coal-fired power plant:
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5-8 MMt CO2/y (Sleipner 1 MMt/y).
CO2 plume at 10y, ~10 km radius: at
50 yrs, ~30 km radius ~ 2,800 sq. km.
For Americans – about 1,100 sq. mi.
600 such projects needed – the area of
Alaska or 6 Colorados.
Indianapolis, For Example…
Indianapolis Utility:
 528 sq. mi. territory
 3,400 MW Coal
Power
 Needs about 4,000
sq. mi. for
sequestration
 36 mile radius
How to Deal With Property
Rights?
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Surface rights and mineral rights may
be owned separately.
Unclear if pore space owned by
surface owner or mineral owner.
No matter who owns pore space,
interference with mineral rights is
trespass, usually.
Cassinos v. Union Oil Company of
California,18 Cal. Rptr. 2d 574 (Ct. App.
1993).
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O&G Operator got state permit to inject
waste salt water.
Got permission from surface owner.
But injected salt water interfered with oil
and gas reserves, unexpectedly.
Court awarded $5 million damages to
mineral owner.
Analogy 1: Property Rights – Natural
Gas Storage Law
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Injection of natural gas into property you
don’t control is trespass.
Remedy: Injunction; damages (including
punitive damages).
Ownership of injected gas: stays with
injector by statute in most states.
Pore space purchased or leased.
Property Rights – Natural Gas Storage
Law Analogy
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By federal and state law, gas storage
companies have eminent domain rights.
Buffer zones are included – because gas
escape is trespass.
But property acquired for gas storage
covers only a few square miles, not
thousands – And there’s the problem.
Analogy 2: Property Rights for
EOR
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Oil and gas leases give rights to inject
CO2 - but only in aid of production.
Leases and state laws give right to
“unitize” for secondary recovery.
Holdouts cannot complain about water
or gas injections (usually).
EOR not designed to sequester CO2.
Analogy 3: Property Rights for
Hazardous Waste Injection
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Wells permitted by EPA or by State.
Pore space outside well owner’s
property is generally not purchased.
Ohio Supreme Court said if neighbors
have no reasonable and foreseeable
use for the pore space, they cannot
complain. Chance case.
Chance v. BP Chemicals, Inc.,
670 N.E.2d 985 (Ohio 1996).
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Same Formation as gas storage (sequestration
proposed there too).
Neighbors complain that hazardous waste
migration onto their property is trespass.
Ohio court says hazardous waste Injection is
NOT trespass unless it interferes with
reasonable foreseeable uses - Based on
United States v. Causby, 328 U.S. 256 (1946)
(intrusion of airplanes into air space over
property).
Analogy 4: Property Rights for Fresh
Water Storage
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States Law: water a public resource.
Imposes “servitude” on the pore space.
Water authorities can inject water for later
withdrawal.
No payment for pore space.
Board of County Commissioners v. Park
County Sportsmen’s Ranch, LLP, 45 P.3d
693 (Colo. 2002) (Citing Chance).
Which Law Analogy “Works” for CO2
Sequestration?
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IOGCC & Wyo. suggest using gas storage law.
But affected landowners will number in the
thousands. 20,000 in Chance case.
Mineral lands off limits except EOR.
Negotiation or condemnation imposes high
costs and long acquisition times.
Condemnation laws would have to be
amended. Politically sensitive.
Which Law Analogy “Works” for CO2
Sequestration?
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Water storage law may be better suited to
rapid deployment of CO2 sequestration.
No purchase of pore space required.
A well permitting program similar to state laws
for water injection may be appropriate.
Liability for mineral (or other property) damage
remains (Cassinos).
Conclusions About Property
Rights
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New laws are needed to govern
ownership and use of pore space for
sequestration.
CO2 sequestration projects will be large
affecting thousands of landowners.
Best to avoid mineral strata.
System modeled on Chance rule
avoids delay and transaction cost.
Project Approval
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Assuming property rights are worked
out, how do you permit?
• 2 F Class turbines in an IGCC plant:
• ~5.4 million tons CO2 per year
• 1,650 lb/MW
• 85% availability
• Western states imposing 1,100 lb/MW EPS
• Roughly 2 million tons/year sequestered just
to sell baseload
Timing gap
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IGCC plant with sequestration:
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Financing requires permitting certainty
Newness of technology creates risk of
capital
Clear permitting track becomes critical
path item
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• $3-4 billion
Permitting Approaches
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State
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Federal
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Common theme: CO2 as waste
• Address as EOR
• Address through state wastewater permit
• Address as separate UIC type
Threshold Issue:
Is CO2 a Waste?
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Tough argument: CO2 permitted as
waste for years
Seeking to permanently dispose
Need legislative interpretation to
consider other than waste
EPA position is that whether CO2 is a
waste is irrelevant
Threshold Issue:
Is CO2 a Hazardous Waste?
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Normally no
Federal hazardous waste definitions
don’t fit
• Not listed hazardous waste
• Corrosive hazardous wastes only include
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aqueous or liquid
Gaseous or supercritical CO2 don’t meet
definition
Underground Injection Control
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Closest existing fit for GCS permitting is
UIC program
• But…no existing program anticipated GCS
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Currently five well classes, but only three
with potential GCS relevance:
• Class I
• Class II
• Class V
Underground Injection
Control
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Class I:
• Inject:
• Hazardous waste
• Non-hazardous industrial waste
• Municipal wastewater disposal
• Inject under drinking water aquifers
• Permit to retain for 10,000 years
• Closure, post-closure and financial
responsibility requirements
Underground Injection
Control
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Class II:
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Oil & gas industry
144,000 wells operating nationwide
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Primarily Enhanced Oil Recovery (EOR)
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• 33 million tonnes CO2 injected annually
• Heavy existing use of CO2
Focus: Drinking water protection
Not focused on permanence of injection
States can seek delegation based on
equivalence determination
Underground Injection Control
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Class V:
• Catch-all category
• Includes experimental wells
• Not focused on permanence of injection
State Models
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States have proceeded in absence of
federal action
• Guided by IOGCC
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Key actors:
• Wyoming
• Oklahoma
• Kansas
• Washington
IOGCC Model Rules (2007)
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Key concepts:
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CO2 slated for injection not a waste
• Long term liability proposal:
• Industry funded trust fund
• 10 years post-closure, operator demonstrates
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reasonable expectation of well integrity
Financial assurance mechanism terminated and liability
transferred to state
Recognized need for “necessary and
sufficient” property rights
Wyoming
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HB 90 (Effective: July 1, 2008)
• Mandates UIC permit for GCS
• Clear distinction from EOR
• Tells WDEQ to develop rules
Oklahoma
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SB 1765 (May 2008)
• Proposal was groundbreaking
• Required development of GCS permitting regime
• Transferred ownership of wells to state & released
owners from liability 10 years after closure
• Bill passed relatively disappointing
• Mandated task force to report to Governor with
GCS permitting recommendations by December
2008
Kansas
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HB 2419 (2007)
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GCS rules supposed to be developed by July 2008
• Draft in progress
State GCS fund to pay long-term GCS-related
monitoring and remedial activities
Exempts GCS property and any electric
generation unit utilizing GCS from
all property taxes for 5 years
Allows for accelerated depreciation
of GCS equipment
Washington
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Biggest sleeper of group
ESSB 6001 passed May 3, 2007
• 1,100 lb/MW CO2 standard on all baseload
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generation
“Permanent” GCS as means of compliance
Two IGCC projects seeking permits at time
GCS rules as result of emission limit
Washington
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Developed GCS permitting program
• Rules promulgated June 16, 2008
• Primary focus was deep basalt sequestration
Washington
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UIC based, sort of……
National involvement by environmental groups
EPA: Begrudging participation
Focus on “permanence”
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Substantially 99% of GHGs remain for at least 1,000
years
Long term operator post-closure liability:
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“little or no risk of future environmental impacts and
there is high confidence in the effectiveness of the
containment system and related trapping mechanisms
“
EPA UIC Rulemaking
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Proposed rules signed July 15, 2008
New type of UIC well: Class VI
• Class VI for dedicated GCS projects
• Class II for projects involving EOR so long as
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field producing
Class II operators wanting Class VI would
require repermitting
EPA GCS Proposal
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Expressly avoids determining injected
CO2 is waste or product
Ambiguity on degree of preemption
Applicant must demonstrate CO2 is nonhazardous
Key theme: Not regulating permanence
or holding ability of GCS systems—only
protecting drinking water
EPA GCS Proposal
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Secondary containment zones not required
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Floated concept of requiring secondary containment
formations
Must be identified if present
Area of Review (AoR)
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Rejects set radius around well
Applicant must model to establish AoR
Reevaluation at least every 10 years
Corrective action “surfing” allowed
EPA GCS Proposal
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Open issues:
• Minimum depth
• Mandate depth (800 m) to maintain supercritical
state?
• Below lowest drinking water aquifer
• Is this necessary?
• Will this eliminate too many good sites?
• e.g., Powder River Basin
• Could issue “aquifer exemptions”
EPA GCS Proposal
Post-injection monitoring period
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50 year presumptive minimum time frame
Regulatory authority could lengthen or shorten based
on threat of endangerment to potable aquifers
Final report as condition to closure
Mandatory recorded notice on title of sequestration
Financial assurance required through end of
post-injection period
Reject IOGCC transfer of liability concept
EPA GCS Proposal
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Does not address:
• Hazardous v. non-hazardous waste
• Hazardous substance
• Important for CERCLA liability
• Permanence
• Property rights
• Releases to atmosphere
GCS: What Will It Take?
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Three existing CO2 cap and trade
programs:
• EU Emission Trading Scheme (ETS)
• Regional Greenhouse Gas Initiative (RGGI)
• Alberta Cap & Trade
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Developing cap and trade program:
• Western Climate Initiative
• Midwestern Regional GHG Accord
GCS: What Will It Take?
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All CO2 cap and trade programs:
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Require massive reductions
Involve offset provisions
• Offsets moderate price and reward good behavior
• Offsets traditionally prohibited for capped sectors
Fundamental tension: Do you prohibit first
movers for GCS technology from generating
offsets
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Even Lieberman-Warner allocated bonus emission
allowances to GCS
Bottom Line Requirements
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Develop legislative fix to property rights
questions
Develop clear and intelligent permitting program
Develop clear sunset to GCS post-closure
liability upon reasonable showing
Allow first mover GCS plants to generate offsets
Allow monetary incentives to first mover GCS
from allowance sales
• But don’t rely solely on government funding