Carbon, Capture, and Storage: History, Current State, and Obstacles for the Future (Part 2)

Monday, January 3, 2022

Part 1 of this two-part blog series explored the history and current use of carbon, capture, and storage (CCS). Part 2 discusses the policy challenges that limit CCS use and how these policies can be improved to expand it.

The biggest question is: if CCS can reduce carbon dioxide emissions so drastically, why isn’t everyone implementing it?

The primary downside to CCS technology is the additional expense it adds to energy production and the unknown impacts of storage in the long term. Transportation of captured and compressed carbon requires specially designed pipes that are expensive to build. Producers that seek to compete with cheap natural gas prices—produced by companies that don’t use CCS technology—are reluctant to add this expense, especially without stronger policy incentives.

The limited regulatory framework governing CCS also creates uncertainty. While EPA’s Underground Injection Control (UIC) program regulates the underground storage of captured emissions and obtaining one is considered a burdensome process (a Class VI permit is needed both to drill and actually inject gases beneath the ground), there are currently no federal regulations specific to CCS projects or pipelines. Instead, they are primarily regulated by the states. At least 21 states have promulgated regulations specific to CCS. These regulations relate to liability (six states), storage funds (six states), pore-space (three states), carbon dioxide ownership (six states), the percentage of pore-space owners that must consent to a project (three states) and interstate issues (three states). State legislatures have created storage funds for the long-term management of carbon storage facilities. The minimum percentage of landowners that must agree to a project range from 60 to 80% by state.

The UIC program also requires owners to set aside money to maintain, plug, and abandon wells consistent with approved closure plans, another barrier to development.

Furthermore, the UIC Class VI permit sets a 50-year post-injection period in which the site must be maintained. This long period disincentivizes development of carbon storage facilities, since the maintenance and liability costs are uncertain. No estimates have been made of the cost to repair failing storage facilities. There are also environmental and health risks associated with carbon storage facilities, such as the escape of the carbon dioxide from the site, the displacement of groundwater, and seismic activity. Carbon dioxide can leak through permeable substances or man-made routes like abandoned drilling wells. However, best practices are expected to contain 98% of stored carbon after 10,000 years more than half the time. Over the same period under best practices, maximum leakage of 6.3% of stored carbon is expected to occur, but in fewer than 5% of cases. To further minimize risks to developers, some states (for example, Montana and Texas) will assume liability after a given time period if the project meets certain requirements. This could promote CCS development.

Oil Industry

Complexity in property rights also complicates CCS development. Many property documents do not directly address “pore-space” rights, the spaces underneath the surface of land into which gases can be stored. An oil drilling company might be the mineral owner, owning just the underground substances but not the pore-space or the surface. Under the “American Rule,” which most states in the United States follow, pore-space rights are reserved to the surface owner. As a result, an oil drilling company that has only mineral rights may not be able to use the space for carbon storage once it exhausts all mineral reserves in an area. In other jurisdictions, pore-space rights have been awarded to the mineral owner. This inconsistency can cause complications for developers seeking pore-right ownership. CCS proponents argue that state legislatures must more clearly define property rights to promote CCS development.

In summary, for CCS development to play a key role in preventing climate change, the Class VI permitting process must become more efficient, liability for storage must be clarified, and property rights must be consistently interpreted. To promote CCS development, liability may be reduced as some states have already done. To learn more about CCS regulation, check out the Law of Environmental Protection’s new chapter on Oil and Gas.

What is the government doing about CCS?

Some CCS-promoting policies already exist. Tax credits of up to about $32 per metric ton of carbon dioxide are currently awarded through Section 45Q of the Internal Revenue Code. State tax credits and other crediting mechanisms also incentivize CCS development in California, Louisiana, Montana, North Dakota, and Texas.

The “Build Back Better” Act allocates about $12 billion to CCS and increases the CCS tax credit to up to $85 per metric ton of carbon dioxide. In early October, the U.S. Department of Energy announced it plans to invest $45 million to support CCS projects and to provide $20 million to states for CCS. CCS technology has support from both parties, since it decarbonizes energy while creating a pathway for the fossil fuel industry to extend its lifetime. Indeed, state carbon emission reduction goals have aided oil and gas companies in promoting CCS technology.

Some of these efforts may have paid off. Carbon capture project plans surged 50% in the first nine months of 2021 with a total planned capacity of 122 million tons per year.

One thing is clear: if CCS is to play a large role in decarbonization, policy must advance to support a rapid increase in capacity.