• Climate Change
• Environmental

Carbon Capture and Storage

Beveridge & Diamond, P.C. has expertise and experience in the key areas of law and policy relevant to the geologic sequestration of carbon dioxide (CO₂).  We know how carbon capture and storage (CCS) issues are developing and being handled under the various climate change programs at the state, regional, national and international levels. We also have experience handling the kind of legal issues that will be raised at each stage of the CCS business, from separating and capturing CO₂ from industrial and energy-related emission sources, compressing and transporting it to a storage location, and trapping or sequestering it in long-term isolation from the atmosphere by injection into underground or into sub-seabed geologic formations. 

The following materials address our capabilities relating to the spectrum of legal issues with which CCS-related businesses will have to deal. The Firm is prepared to offer advice and assistance to entities involved in all aspects of the emerging CCS economy, including electricity generators, companies involved in oil and gas extraction, companies developing the infrastructure for capturing, transporting and storing CO₂, and companies investing in sequestration projects for purposes of selling offset credits into the voluntary and emerging regulatory carbon markets. 

The Evolving Climate Change Framework

We follow and provide legal, policy and technical analyses for our clients regarding relevant federal and state legislative climate change developments and related energy law. Many of the cap-and-trade bills pending in Congress have provisions that relate to geologic sequestration, including provisions for significant incentives for CCS. The best example of this is the Lieberman-Warner America’s Climate Security Act of 2007, S. 2191. The emerging federal framework is likely to have important implications for CCS-related interests. We have a thorough understanding of these developments and can provide advice on the likely timing and implications of the various bills under consideration.

We are also tracking important developments on the state level. In California, for example, where the most ambitious construction of a climate change regulatory framework is underway, CCS issues are in play under AB 32. The California agency charged with implementing AB 32, the California Air Resources Board (CARB), factored CCS as an early action mitigation measure into the economic analysis that supported CARB’s development of a low-carbon fuel standard.  Also, earlier this year, a leading legislator introduced a bill to develop regulations for CCS (AB 705). The bill was supported by mainstream environmental NGOs but it was killed in committee due largely to the organized opposition of environmental justice NGOs. Many of these same organizations, with the support of California Attorney General Jerry Brown, have brought CEQA and NEPA lawsuits to challenge development projects that they contend do not include adequate climate change mitigation measures. It seems likely, therefore, that any major CCS project will be the subject of similar court challenges. We have significant experience handling such suits.

Regulation of Underground Injection Control Activities

Although the Department of Energy (DOE) and a consortium of states have been involved in research in this field for many years, and DOE recently awarded $197 million to three large-scale geologic sequestration projects, the federal and state governments are only now turning their attention to regulating this technology in both research and industrial-scale settings at the same time that they are evaluating its efficacy.

The regulation of geologic sequestration of CO₂ is not subject to a uniform, comprehensive framework in the United States, and is currently in flux. To date the states have taken the lead on this issue. At least one state (Kansas) has passed legislation to establish a regulatory framework for the geologic sequestration of CO₂ and there are federal legislative proposals pending as well. The Interstate Oil and Gas Compact Commission recently published a report concluding that states are best suited to regulate geologic sequestration of CO₂ and proposing a model state statute and regulations. Many of the petroleum-producing states have regulations that address enhanced oil recovery, natural gas storage, and acid gas disposal, that cover many of the same issues that will arise in the context of long-term storage of CO₂.

Federal authorities have recently increased their attention to CCS issues.  In March 2007, EPA issued draft guidance to state regulators on issuing permits to pilot geologic sequestration projects as Class V Experimental Technology Wells under the Safe Drinking Water Act, through the underground injection control (UIC) program.  On October 11, 2007, EPA announced its plans to develop regulations for the geologic sequestration of carbon dioxide.  EPA’s announcement reflects the agency’s intent to address the regulation of geologic sequestration of CO₂ under this existing statutory authority.

EPA will face significant hurdles in any effort to comprehensively regulate long-term storage of CO₂ under the UIC program. That program is designed to address the potential contamination of drinking water. As such, there are serious questions about whether it can provide a framework to address many of the more complex issues that long-term storage of CO₂ will raise, such as underground property rights, commodity rights to the stored CO₂, long-term liability from a carbon trading perspective, and long-term liability for other potential environmental impacts (other than potential ground water contamination). Furthermore, regulating stored CO₂ under the UIC program as a “waste” fails to recognize its potential as a resource for enhanced oil recovery. Given the awkward fit between the UIC program and the legal and regulatory issues that need to be addressed for geologic sequestration projects, it is likely that interested parties will push for a more suitable and comprehensive regulatory structure involving DOE and state agencies.

Beveridge & Diamond is one the few law firms in the country with an established practice under the Safe Drinking Water Act and EPA’s UIC program. Our experience in this area extends to enforcement, compliance, litigation and rulemakings. We have an excellent professional relationship with key personnel in EPA’s Office of Drinking Water who have responsibility for the UIC program and the forthcoming rulemaking that will govern geologic sequestration. Over the last several years, we have represented many clients on significant UIC issues in proceedings at EPA, in litigation at the Agency’s Environmental Appeals Board, in federal district and appeals courts, and in several state courts.

We are also familiar with Department of Energy guidance on carbon sequestration.  We have represented clients in the existing DOE 1605(b) voluntary emissions program and in that capacity have provided counsel and analysis with respect to the evolution and application of the various carbon sequestration programs recognized by DOE, including geologic sequestration.

Minerals Development Issues and Offshore Sequestration

For at least two reasons, much of the attention on CCS will involve federally managed lands and resources. First, one of the largest sources of CO₂ emissions is the production of natural gas. Almost 40 percent of domestic natural gas production occurs on federally-managed lands onshore and on the Outer Continental Shelf (OCS). Second, federally managed lands, particularly offshore, may provide a preferred location for carbon storage because of their proximity to the emission sources, thereby reducing the need for transportation, and because of the potential benefits of government versus private management of major carbon storage resources.

We bring unique experience to issues associated with injection activities both on the OCS and on federal lands onshore. For example, Peter Schaumberg, former Deputy Associate Solicitor for Mineral Resources at the Department of Interior before he joined our Firm, served for many years as the senior career official responsible for federal onshore and offshore mineral development matters. He advised both the Minerals Management Service and the Bureau of Land Management on mineral development, storage, and injection issues, including a range of issues regarding enhanced oil and natural gas production through carbon dioxide injection under Section 354 of the Energy Policy Act of 2005. He has a breadth of experience in drafting and reviewing legislation and regulations for oil & gas and mineral-related activities on federal lands. We expect that the CCS issue will generate the need for new legislation and regulations as the issue develops.

Any sequestration project proposed for federal lands either onshore or offshore also will require evaluation under the National Environmental Policy Act, the Coastal Zone Management Act, and several other federal laws and regulations. Our attorneys have years of experience working with these laws and navigating the federal agency labyrinth to facilitate project approval.  We also have the kind of long-standing relationships with all levels of personnel in these federal agencies that often helps to avoid or resolve problems during the agency review process.

Negotiations and Risk Management in the Carbon Credits and Carbon Markets

Since we began our practice in 1974, we have handled many kinds of contract negotiations and risk allocation issues in complex commercial, environmental and public health matters. We have experience with the kind of issues that will arise with CCS projects, including the development of contractual agreements, protocols and templates for the sale, retention and acquisition of emission reduction credits from CCS. For example, we represent the Carbon Offset Providers Coalition, the principal coalition of offset project developers, on the full range of policy and legal issues presented in developing carbon trading and regulatory structures in the United States.

We also are working with our significant contacts within the business and project developer community to develop carbon-limited business strategies, drawing upon our experience with the voluntary carbon markets. We have worked with a major manufacturer of consumer products, which is one of the largest commercial purchasers of carbon offset credits, to analyze market and transactional risks and to develop transactional documents for use in this evolving marketplace. We are also working with Fortune 50 companies in the transportation sector to develop and implement corporate sustainability programs with a focus on reducing their carbon footprint through emission reductions, offsets and market trading mechanisms.

We are equipped to help companies identify and allocate the risks and potential liabilities associated with CCS projects, including risks relating to:

• permanence, given that CO₂ is potentially susceptible to seepage from storage facilities, including potential risk mitigation, insurance or trust fund approaches;

• “additionality,” i.e., how credits may be required to be discounted for the incentives that already exist for CCS activities in light of their role in enhanced oil recovery operations;

• liability for unintended releases of CO₂ from CCS operations, including for environmental and other damages, and personal injuries associated with CO₂ storage or transport;

• monitoring challenges;

• determining project boundaries, given the size, scale and location of proposed underground facilities or formations;

• leakage (as distinct from “seepage”), meaning the treatment of additional greenhouse gas emissions associated with additional upstream or downstream activities connected with CCS, including indirect emissions from additional oil recovered as a result of CCS-related enhanced oil recovery; and

• ownership and property rights questions associated with geological formations and their use for sequestration.

The International Context

CCS issues are in play not only in the United States but also overseas.  Given the impact that international developments may have on U.S. domestic climate policy, even U.S.-focused firms will likely have an interest in international CCS developments. The Intergovernmental Panel on Climate Change released a special report on CCS in September 2005 that largely supported the mitigation potential of CCS. The international community, however, remains at an early stage of assessing how CCS reductions will be measured and credited for those Parties to the Kyoto Protocol with emissions limitations under the Protocol. These issues are also under review in the context of whether CCS projects in developing country Parties should be eligible for credit under the Kyoto Protocol’s Clean Development Mechanism (CDM).

Beveridge & Diamond is well-placed to continue to monitor and also to influence these international developments. Attorneys at the Firm have been deeply involved in the negotiation and implementation of rules under the Kyoto Protocol, including prior experience as the U.S. State Department negotiator on the CDM rules. We have also followed the treatment of sub-seabed sequestration under the 1996 Protocol to the London Convention on Ocean Dumping. Last year an amendment to the Protocol to permit such activities was adopted, and the development of guidelines to govern the activity is ongoing. We represent clients with other interests in these agreements and have participated in these proceedings; we also have good relationships with the key officials who are involved, at both the State Department and EPA.