CCS Legal Issues

Presentation to CWAG

August 5, 2009

Karl Moor

VP & Associate General Counsel

Southern Company Services

Prism Showing Potential for CO2 Reductions

AEO2008*(Early release)

AEO2008*(Ref)

Impact of efficiency measures in Energy Independence and Security Act of 2007 (EISA2007)

Advanced Coal Generation

DER

PHEV

CCS

Nuclear Generation

Renewables

Efficiency

EPRI used AEO 2007 as first reference, and then looked at what might be technically feasible by 2030. CCS is a crucial slice of action needed.

AEO2007*(Ref)

Why Does the U.S. Need CCS?• Some states have carbon dioxide emission restrictions now;

federal restrictions are on the horizon• Electricity production is roughly 40% of U.S. CO2 emissions• Coal provides 50% of U.S. electricity production; 80% of CO2

emissions from electricity production• CCS is the only technology for fossil fuels with the promise of

substantially reducing carbon emissions • Fuel switching carries other problems

– Natural gas – cost, price volatility– Nuclear – public acceptance, spent fuel disposal– Renewables – reliability, cost, availability

• 84,000 U.S. coal jobs (Source: National Mining Assn.)

• 2008 Stimulus Package– 10% tax credit for sequestering CO2 for enhanced oil recovery (EOR)– 20% tax credit for sequestering CO2 for permanent storage (non-EOR)

• 2009 Stimulus Package – $3.4 billion for clean coal, including

• $1 billion for fossil R&D• $800 million for CCPI Round III• $1.52 billion for industrial scale CCS projects and energy efficiency projects• $50 million for site characterization of geologic formations

– Advanced Energy Investment Tax Credit – 30% credit for manufacture of clean energy equipment, including CCS equipment

Congress is Promoting CCS

CCS Basics

COCO2 2 CaptureCapture

UndergroundUndergroundInjection & StorageInjection & Storage

PipelinePipelineTransportTransport

CompressionCompression

CO2CO2

cap rock

Power Plant

Saline Reservoir

Storage Capacity and Geology• Target storage formations

– Deep saline aquifers– Basalts– Depleted oil and gas reservoirs– Ultramafic formations (volcanic rock)– Shales– Deep sea deposition

• Key features for successful storage– Containment layer or layers– Porosity and permeability– Chemical composition may speed mineralization

Fossil Fuel Power Plants Near Favorable Sequestration Geology

Fossil fuel power plant

Favorable sequestration geology

Unfavorable sequestration geology

Emissions data from EPA. Geology data from DOE, USGS, and internal Southern Co. research. Formations considered were primarily saline, and oil and gas reservoirs.

Federal Statutes and CCS

• Safe Drinking Water Act Underground Injection Control Program (UIC)

Potentially Applicable• Resource Conservation and Recovery Act• Comprehensive Environmental Response, Compensation and

Liability Act (CERCLA or Superfund)• Clean Air Act and Potential GHG Regulation

State & Local Legal Issues• Property rights in geologic

formations– Clarifying rights for CCS– Unitization

• Pore space ownership– Mineral and surface interests– American rule and English rule– Water ownership issues and deep

saline formations• Five regimes: Absolute Dominion,

Reasonable Use, Correlative Rights, Prior Appropriation, Regulated Reasonable Use

• Torts– Trespass– Ownership of migrated CO2

– Nuisance suits– Negligence and strict liability– Breach of contract– Statutes of limitation and repose

CCS Pipeline Legal Issues

• Interstate CO2 pipelines– Surface Transportation Board rate

regulation– Pipeline and Hazardous Materials

Safety Administration safety regulation– No federal siting authority

• Intrastate CO2 pipelines• Eminent domain - Does

State eminent domain authority apply?

• CCS Pipelines on Federal Lands

• Who is applying to build the pipeline?

– Will it serve customers in the State?– What facilities are being constructed?– Will the facilities be for public use?– Result: In many States it will be easier for a

regulated entity to build a pipeline than a non-regulated entity

• General environmental, cultural, historical siting issues

Concerns About CCSPotential for effects on the environment, property, and human health, including:

• Groundwater contamination• Subsurface resource damage• Surface leakage• Trespass

History with enhanced oil recovery (EOR) in U.S., and experience with CCS internationally, suggests risks should be minimal with proper siting

Multi-Stakeholder Discussions Participants• American Petroleum Institute• American Public Power Association • American Water Works Association• Carbon Sequestration Council• CCS Alliance• Clean Air Task Force• Clean Water Action• Edison Electric Institute• Environmental Defense Fund• Ground Water Protection Council • Interstate Oil and Gas Compact

Commission• National Mining Association• National Ground Water Association

• Natural Resources Defense Council• North American Carbon Capture and

Storage Association• The Sierra Club• Texas Carbon Capture and Storage

Association• Anadarko Petroleum Corporation • Blue Source LLC • BP Alternative Energy North America

Inc. • BP America Inc. • Denbury Resources Inc. • Hydrogen Energy International LLC• Occidental Petroleum Corporation• Salt River Project • Southern Company

Source: Bob Van Voorhees, Counsel to the Carbon Sequestration Council

Specific Areas of Agreement• Definitions for transmissive faults and fractures, carbon dioxide stream,

confining zone, and area of review;• Bases for injection pressure limitations;• GS in basalts, coal seams, salt caverns, and shales; • Coverage for area of review and corrective action requirements; • How to address potential for interference between GS projects; • Well construction requirements; • Annulus pressure; • Shut-off valves; • Emergency response requirements; • Closure standards; and• Need for adequate implementation resources.

Source: Bob Van Voorhees, Counsel to the Carbon Sequestration Council

Theoretical Risk Profile for CO2 Storage

Key Issue: Long-Term Site Responsibility• Risks endure longer and may be larger than the market

currently can address• Government risk management role is needed

– Beyond market coverage amount– Beyond a reasonable closure period– Potential roles for States and federal government

• Examples of government liability limitations to promote public benefits: Price-Anderson, Terrorism Risk Insurance Act, National Flood Insurance Program, many others

• Goal: Adequately and cost effectively cover potential risk and encourage growing private sector risk management role

Legislative Solutions: S. 1013 (Bingaman)

• Provides indemnification through DOE for up to 10 commercial deployment sized carbon dioxide storage projects

• Indemnity covers liability for personal, property, and environmental damages in excess of their insurance coverage or other financial protection

• Indemnification only provided after meeting specified closure requirements

• States are considering similar or broader indemnity

Legislative Solutions: Casey/Enzi Bill• Carbon Storage Stewardship Trust Fund Act (S. 1502)• States that DOE is responsible for long-term stewardship of

CCS facilities after issuance of closure certificate• Civil claims may not be brought against operators, generators

of CO2, or CO2 pipeline owners after facility closure• Stewardship may be transferred to states• Establishes trust fund through fees on storage facility operators

per ton of CO2 injected for payments of civil claims against storage facility after closure

• Requires operators to maintain liability assurance during active project period

Legislative Solutions: Waxman-Markey

• No provision addressing long-term liability • Section 112 – Rulemakings under UIC program and Clean Air

Act (atmospheric emissions)• Section 113 – Study of CCS Legal Framework: EPA to establish

a task force of experts to study: • Federal and state law applicable to geologic storage sites• Remedies for damages at closed EOR sites • Liability and financial responsibility models for closed sites• Private sector risk management for closed sites• Property rights

Addressing the State and Federal Legal Issues: Legislation Needed

Key elements:• Government liability backstop will be required beyond a defined

time and perhaps a defined amount• Clarify property rights ownership

– Eminent domain for CCS injection and infrastructure• Provide for a clear and streamlined regulatory and liability

structure