As states rush to pass rules and regulations for underground carbon dioxide storage, the key question is who will be responsible for long-term monitoring of projects that could take decades to monitor.
This question is becoming more important as a number of companies have proposed dozens upon dozens of projects that would remove climate-warming gases from the smokestacks at ethanol plants, fertilizer factories, and fossil-fueled power stations. If the projects move forward, they’ll need to pump millions of tons of captured carbon dioxide deep underground into depleted oil fields or saline aquifers, where the gas would need to be stored permanently.
Although the energy industry and others insist that the practice of dumping oil is safe, some companies, such as ExxonMobil, BP and others, have sought protections against long-term liability. State lawmakers are increasingly responding by placing governments on the hook, rather than the industry.
In the last year, at most four states have passed laws that allow companies and state governments to transfer responsibility for carbon storage project operations to them after they are closed. Three other states have similar statutes, which were enacted years ago.
The federal government is poised to spend billions to jumpstart a carbon storage and capture industry. Environmental advocates warn that this sets a dangerous precedent.
“Statutes that relieve operators of liability without due regard to existing legal principles create an incentive for sloppy management, leaks and public opposition,” said Scott Anderson, senior director of energy transition at the Environmental Defense Fund.
Anderson stated that poor management could increase the chance of carbon dioxide leaking through natural cracks or old wells, contaminating groundwater, or escaping into atmosphere.
Anderson cited a Wyoming law that was passed this year, stating that it lowers the incentive for companies to be responsible. Anderson’s organization is also studying laws passed in several other states over the last year, he said, including Nebraska and Indiana. West Virginia also passed this year a law allowing liability transfer.
Although the laws may differ, they all direct the state to assume at most certain responsibilities for carbon sequestration project once they are shut down. An operator can show that the carbon has been safely stored for at least 10 years. In certain cases, such Wyoming, the state might assume full ownership and responsibility. For years, North Dakota and Montana have had liability transfer statutes in place.
People familiar with the bills stated that the proposals seem to be dividing companies involved carbon storage. Some of the legislation was supported by oil companies, including BP and Denbury Resources in Wyoming. ExxonMobil claims to be a leader in carbon capture, storage and storage. However, there is no evidence that the company supported any of the bills. However, the company has also identified liability as an important concern regarding carbon storage.
Erik Oswald, vice president of strategy development and advocacy at Exxon’s low carbon business, told a meeting of state oil and gas regulators last year that “ultimately the big challenge is liability,” according to a recording of the presentation obtained by Inside Climate News. “We have to deal with liability once you put all this CO2 in the ground,” he said.
Internal Exxon documents, obtained by Inside Climate News in a public records request, also report that the company supports regulatory changes including “a mechanism to de-risk the long-term liability obligations for stored CO2,” tied to a carbon capture project it has proposed in Texas.
Todd Spitler, an Exxon spokesman, said in an email that “ExxonMobil supports a policy and regulatory framework that includes a mechanism to address long-term liability obligations for stored CO2,” but he declined to answer whether Exxon has supported the state legislation.
The bills’ supporters have said the liability limits are necessary to help attract investment and establish a clear framework for who will be responsible for storage projects decades after they’ve been shut. Matt Fry, senior policy manger at the Great Plains Institute (a non-profit that works with states and industry to create regulations for carbon storage), said that some companies will invariably go bankrupt or dissolve. Therefore, it makes sense for state governments and other entities to assume long-term responsibility. He said that financial institutions are reluctant to invest billions of dollars without such protections.
The bills establish funds that industry pays for to cover costs associated in repairing or replugging old injection wells when problems arise. As a result, Fry said, taxpayers won’t have to pay when things go wrong.
Anderson pointed out that this approach is incompatible with regulations that govern tens of thousands more types of injection wells across the country that store wastewater from oil and natural gas production. Even after the project is finished, many companies still have responsibility for any leakage from those wells.
The Environmental Defense Fund expressed concerns about the transfer in liability in comments it submitted to the White House Council on Environmental Quality. In February, the Council issued draft guidance for carbon storage and capture projects. The guidance is meant to help steer federal permitting and oversight of projects as the Department of Energy readies billions in grants, loans and other support that was allocated by last year’s infrastructure bill.
The comments warn that liability provisions in some states are inconsistent with requirements set by the Environmental Protection Agency and “will tend to encourage mediocre operations or worse.” The environmental advocacy group urged the EPA to deny states the ability to regulate their own carbon dioxide injection wells if they adopt such statutes, and to revoke that right if they have already received it. So far, only Wyoming and North Dakota have secured so-called “primacy” from the EPA to regulate their own carbon dioxide injection wells. Louisiana is currently applying.
The Environmental Defense Fund’s comments also recommend that the Energy Department “proceed cautiously if at all when making subsidies available to projects in states that take this approach.”
‘We Should Do Our Job Well or We Should Not Do It’
In several states including West Virginia and Indiana, provisions regarding long-term liability were included in larger bills establishing rules to carbon storage.
Wyoming passed the liability changes as a separate piece of legislation. Last year, two days after the U.S. Senate passed an infrastructure bill that included more than $12 billion in spending on capturing and storing carbon dioxide, state Rep. Mike Greear said during a hearing on the bill that the objective was to keep the state “out-front and in competition, and hopefully a leader in carbon sequestration.”
North Dakota had already ordered the state to assume responsibility for projects once companies had shown that the carbon dioxide stored was stable, Greear stated. Wyoming was now falling behind.
The bill received support from regulators, and eventually Denbury Resources. Denbury Resources, an energy company whose main focus is extracting oil from depleted reserves by injecting carbon dioxide into it, supported the bill. Greear said that the oil and natural gas industry did not have a position on the bill. However, he had spoken privately to companies that supported the bill as well as those that opposed it. March saw the legislation become law.
As in North Dakota, and other states, this bill created a fund paid for by fees to industry to cover state costs if a leak is repaired.
Shannon Anderson, the staff attorney of the Powder River Basin Resource Council (a Wyoming environmental group), said that although her organization did not endorse the bill, it addressed the problem regarding who will be responsible for projects in the event of a company going bankrupt or disappearing.
“You can’t expect a company to hang on forever,” she said. “It’s maybe not be the best solution, but at least it is a solution.”
Brad Whitmarsh, a Denbury spokesman, said Wyoming “has provided rigorous regulatory standards that must be followed for the development of a carbon storage site,” and noted that the transfer cannot take place until at least 20 years after a project is closed. The bill would help reduce the state’s carbon dioxide emissions, he added.
A bill in Indiana that contained a similar provision was supported by BP, which owns a refinery in the State.
Joshua Hicks, a BP spokesman, said the legislation included a “rigorous checklist of technical, regulatory and financial verifications that operators must complete before the state takes over stewardship of a carbon site.”
Nalin Gupta is a Wabash Valley Resources board member and has criticized the proposal in an interview.
“We don’t think Indiana citizens, Hoosiers, should be on the hook for long-term liability,” Gupta said. “We should do our job well or we should not do it.”
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Gupta’s company plans to produce hydrogen from crop residues or other solid waste while capturing and storing the emissions generated by the process. The project is currently being held pending approval from the EPA to inject carbon dioxide underground. In 2018, $10 million was donated to the Energy Department. It also received investment from Oil and Gas Climate Initiative (a consortium of oil companies including BP).
Gupta admitted that banks and private financiers might be reluctant to lend billions for carbon sequestration projects due to the possibility of being held liable for an accidental accident in the future. He said that liability protections are unnecessary. They could turn off the public from carbon storage, which he believes can be safely done safely.
Gupta claimed that his company told lawmakers privately it opposed the legislation but that his company was neutral on the bill.
“It’s hard to take a stand against your own investor,” he said, referring to the financing from the oil industry consortium. “I’ll just leave it at that.”
Anderson from the Environmental Defense Fund also stated that liability protections are unnecessary and warned that they remove incentives to companies to meet the highest standards for their projects.
He said it is not clear if specific companies have been pushing for the legislation across the various states. He also pointed out that the bills generally have not received any support or testimony other than from a few companies.
“Something tells me that the companies that are for liability shields are reluctant to identify themselves,” Anderson said.
Source: Inside Climate News