Thought Leadership

Getting Ready for CCUS Take-off in the United States

Client Updates

At-scale deployment of carbon, capture, use, and storage (“CCUS”) in the United States is poised to, and getting ready for, take-off.  Drivers include tax incentives, opportunities for generating California low carbon fuel standard (“LCFS”) credits, federal policy support, environmental, social, governance (“ESG”) imperatives, and the broader embrace of corporate carbon neutrality goals.  Considerable effort and funding continue to be applied to the development of CCUS technology and projects. The states having the greatest potential capacity for CO2 storage are Texas, Louisiana, Mississippi, Montana, Alabama, Florida, California, Georgia,  New Mexico and North Dakota, in that order. Texas has an estimated capacity of 1,665 billion metric tons, over twice the projected capacity of Louisiana, the state with the second largest estimated capacity.

CCUS Legal Framework Remains Uncertain and Untested

Although CCUS appears closer to launch than at any time in the past decade, the permitting framework remains largely untested.  Thorny legal issues persist. Permitting and deployment of CCUS will require careful and strategic navigation of the legal framework while it is being tested and is still evolving. In addition to the regulatory framework governing siting, permitting, operation, closure and post-closure monitoring of geologic carbon sequestration facilities, the critical pieces of the CCUS legal framework that need to come into better focus to foster commercial scale deployment of CCUS in the United States relate to property rights, liability issues and the harmonisation of other subsurface interests and uses with CCUS.

CCUS Permitting is Evolving

The permitting program for carbon sequestration remains in its infancy, even though it was established circa 2010 at the federal level and has been advanced in some states such as Texas, Louisiana, North Dakota and Wyoming.  North Dakota and Wyoming are the only two states that have received primacy for the federal permitting program under the Safe Drinking Water Act for CO2 injection for geologic sequestration.  In other states, the U.S. Environmental Protection Agency (“EPA”) will be the permitting authority, and in states such as Louisiana and Texas a separate state permit will also be required until primacy under the federal program is obtained.  With only a handful of permits issued to date, the permitting process remains largely uncharted territory and pent-up demand for permits is building.  Identifying a suitable geologic formation that will satisfy the siting criteria for permitting will be critical.        

Securing Needed Real Property Rights May Be Complicated

Among the most vexing legal issues associated with carbon sequestration are those related to real property laws. From the threshold questions of what property rights are needed to inject carbon into subsurface formations, and who has those rights, to the process for and cost of securing and protecting the necessary rights, the property issues and associated financial implications relating to CCUS are complicated and remain largely unsettled across the United States. These questions have a number of facets, including: 

  • Who owns the geologic formation (depleted oil and gas fields, saline aquifers, or coal seams) into which the carbon will be injected for storage?
  • How will oil and gas reservoirs transition to permanent carbon storage formations?
  • Who will own the injected CO2?
  • What costs will be associated with acquiring pore space rights, and what other compensation and indemnity rights and obligations will be created?
  • How will a CCUS project developer be able to secure needed property rights from recalcitrant property rights owners?Beyond contractual agreements, what mechanisms will be available to acquire pore space rights?
  • What property rights holders will be required to be given notice of and/or consent to a proposed carbon storage facility?
  • What surface interests will a CCUS operator be required to secure?
  • What role, if any, will potentially affected water users have?
  • How will competing rights and interests of mineral interest holders and those holding the right to sequester carbon in mineral formations be reconciled?
  • What restrictions will be imposed on future surface/subsurface uses and activities that could impact sequestered carbon?

At this point, it is safe to say that there are far more questions than answers concerning the property rights aspects of geologic carbon sequestration. For sequestration that occurs under state or federal lands, or under the property of a single surface owner who also owns the mineral estate, the property rights issues will be far more straightforward.  Although there may be additional permitting complexities, dealing with property rights for offshore sequestration projects in state or federal water should also be fairly straightforward.

It has been said that a landowner’s interest in his property extends from the surface to “the centre of the Earth,” which would be over 3,900 miles. Whether the “centre of the Earth” theory is binding law or hyperbole remains to be seen. Despite some suggestions that much like the Supreme Court put a bound on a property owner’s airspace rights “up to the heavens” to make way for aviation, there should be a bound to the depth of subsurface ownership rights based on reasonable expectations to make way for carbon sequestration, no steps have been taken to change the expectation that pore space is a private property right, not a public resource.

Subsurface property ownership rights are generally a matter of state law. The states that have passed geologic carbon sequestration legislation and addressed the property rights issues have provided that, absent an express written agreement to the contrary, the surface owner is the owner of pore space in the candidate formations for carbon sequestration. This framework can require consent of multiple real property interest holders, with open issues in most states on how and whether the consent requirement would be satisfied for large-scale projects.

One key finding of the National Petroleum Council’s December 2019 report to the U.S. Department of Energy, intended to provide a road map to at-scale CCUS deployment, is that widespread CCUS deployment is essential to meeting the dual challenge of providing affordable, reliable energy while addressing the risks of climate change at the lowest cost.  In a recent speech to the Williston Basin Petroleum Conference in Bismarck, North Dakota, Energy Secretary Jennifer Granholm also emphasised the need to “deploy, deploy, deploy” CCUS and other clean energy space technologies.  But, so far, the lack of supportive or clear legal frameworks have delayed the launch.  Achieving successful deployment of CCUS will require careful planning and mapping and navigation of largely uncharted territory.

 

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