Carbon Sequestration – An Update on EPA Rulemaking
and Other Issues and Developments

For years natural sources of carbon dioxide have been piped to oil reservoirs and utilized for enhanced oil recovery (EOR). More than 50 EOR projects in the Permian Basin of west Texas and eastern New Mexico and others in the Piceance Basin of northwest Colorado use CO2 flood technologies through injection wells regulated as Class II wells under the federal Underground Injection Controls (UIC) program implemented by U.S. EPA. In Colorado, the Colorado Oil and Gas Conservation Commission (COGCC) permits and regulates fluid injection wells for EOR. By all accounts, COGCC regulation of producers and the use of CO2 injection wells has successfully enhanced oil production while protecting underground sources of drinking water supplies, the goal of the federal Safe Drinking Water Act (SDWA) under which the UIC program operates. 42 U.S.C. §§ 300f – 300j26.
 
With increasing focus on the role of CO2 emissions in climate change, EPA announced plans to regulate carbon storage (as distinguished from EOR) under the UIC program. In contrast to use of CO2 as a product or agent for EOR, EPA views CO2 injection as an essential technology for control of greenhouse gases generated by coal-fired and natural gas power plants. Two public workshops have been held by EPA to date to collect information from stakeholder groups and the public to formulate a proposed rule, anticipated for release in July 2008, with a goal of issuing a final rule by 2010-2011. A third workshop is planned to follow issuance of EPA’s proposed rule in Fall 2008, and will focus on “long-term liability” issues related to “carbon capture and sequestration” (CCS).

Through the workshop discussions, EPA has outlined the rule to cover permit requirements for CO2 injection wells, location of carbon storage reservoirs (site characterization, performance standards, closure / post-closure care), monitoring and financial assurance requirements. Until the new rule is in place, EPA (and authorized State programs) continue to accept applications and permit new CCS projects under its existing UIC program. In March 2007, EPA issued a Class V Experimental Technology Well Guidance for pilot projects using carbon sequestration technology. 

At the heart of industry’s ongoing dialogue with EPA is concern that EPA will regulate CCS in a manner similar to existing UIC regulations for hazardous waste disposal. Rather than attempt to lay out a stringent set of rules applicable to all projects, industry suggests EPA adopt a flexible approach that allows the regulations to adapt to changing scientific understanding of the process and risks posed by CO2 sequestration, as well as to the variety of geologic reservoirs that may be considered for projects across the country.

EPA appears to be receptive to industry’s concerns, but will propose a program EPA believes is necessary and appropriate to protect underground drinking water supplies from the corrosive properties of CO2. EPA has in at least one circumstance required a Class I permit for CO2  injection wells in Colorado, although Colorado generally regulates CO2  flooding for EOR under COGCC’s Class II UIC program authority . EPA’s belief that more stringent regulation of CO2 storage is appropriate arises from the potential for acidification of drinking water aquifers located above or adjacent to a CO2 storage project, given the huge amounts of CO2 that EPA expects will be sequestered long-term. Thus, EPA appears to be strongly considering creation of a new UIC well class, Class VI, for CCS. 

EPA’s comments at the workshops provide an overview of where EPA’s rulemaking is headed: 

• There is need for a federal program. EPA is committed to adoption of a national rule that may be enforced by approved State programs. Reasons offered in support of a federal program include: (a) geological sequestration reservoirs that cross state / international boundaries; and (b) the importance of protecting groundwater as a future drinking water supply. While EPA acknowledges the informational base for technical regulations is not fully developed, it will move forward with its rulemaking proposal as a mechanism to collect further data and refine its regulatory program following notice and comment.
  
  
• Role of state programs. State programs and authorities, such as the COGCC in Colorado should complement the federal program, and not be duplicative or redundant. In particular, EPA may look to state programs to take the lead on real property and other issues, including title issues and common law claims to storage rights, that are generally not covered under the UIC program. For example, Wyoming recently passed state legislation that specifies that surface owners own the underground areas where CO2 would be stored. EPA states that it is committed to work with state programs to “preserve the traditional role of state programs with a UIC overlay.” 
  
  
• Site characterization will be a key focus of the regulations. EPA and industry share the view that detailed site characterization is essential to successful location of CCS projects. Industry supports risk-based performance standards, as opposed to prescriptive rules for reservoirs. Variability in CCS reservoir characteristics – including depleted oil and gas fields, deep saline formations and coal seams – render a “one-size fits all” set of regulations unworkable.
  
  
• An “adaptive rule” without traditional permits. EPA appears wedded to a rule that would evolve as more information is collected through experience with pilot projects and full scale projects that come on line. In practice, this approach may increase project costs as permit conditions (e.g., monitoring, reservoir capacity limitations) would likely be subject to change over time as EPA’s regulations evolve.
  
  
• Public education and outreach. EOR projects, including wells and pipelines for transport of CO2, have been successfully permitted under state oil and gas authorities and are generally accepted by the public. Thus, EPA would be well-served to accept industry’s urging that the UIC regulations not approach carbon regulation as a form of waste disposal.  It remains to be seen where the proposal lands, as most of the options under consideration could create well requirements that are more stringent than any current UIC well class, such as those governing injection of hazardous waste.
  
  
• Financial Assurances. EPA is reportedly considering financial assurance requirements for well closure, post-closure monitoring, and remediation practices, a present requirement for Class I wells. Specific financial assurance and long-term monitoring requirements must conform to EPA’s authority under the SDWA, which does not comprehensively authorize EPA to impose long-term liability requirements in the context of permit conditions.

Central to the long-term liability issue is post-closure care of CO2 storage reservoirs after active injection ceases. A report authored by the Interstate Oil and Gas Compact Commission (September 2007) recommends a state-based program funded by operators that would, under defined conditions, assume liability for post-closure monitoring and care, including any emergency response and mitigation responsibilities. Those conditions are not yet defined, and potential liability for future consequences of injection upon water supply aquifers, whether under a common law framework or strict liability regime, will be a key component of the future debate. Related to the funding issue, is the potential role of traditional risk-transfer mechanisms such as insurance and bonding for post-closure risks that will exist in perpetuity. Responding to these concerns, industry points to the non-hazardous nature of carbon injection and declining risk as reservoirs mature and chemically stabilize after injection ceases.

Key Technical Issues. Many technical issues are under review as part of EPA’s rulemaking. Among the more significant are the following:

1. Area of Influence. How large an area should be studied in review of a specific project? There is general consensus that the number of injection well points will depend upon the geologic properties of a proposed storage reservoir, and could be hundreds of wells over a large area to handle emissions from a large power plant.
   
   
2. Cumulative Effects. If more than one operator proposes storage within a single geologic formation, this will raise issues related to pressure gradients, the optimum location for injection, project-specific monitoring and finite capacity to name a few that were raised in the discussion.
   
   
3. Brine Displacement. The focus of the UIC program is protection of underground drinking water supplies. By definition under the UIC regulations, a potential water supply is one that contains less than 10,000 ppm total dissolved solids. There were comments that water sources that exceed this limit may in the future be viewed as a potential water supply as desalination technology improves and demand for supplemental sources increases. Because CO2 is more buoyant than water, there is concern that it will tend to move vertically upward and contaminate overlying water supply aquifers.
   
   
4. Monitoring. This topic includes frequency of monitoring, identification of contaminants of concern to be monitored, and methods of monitoring. CO2 is a weak acid and will decrease pH in water systems, potentially mobilizing metals and other trace elements.
   
   
5. Risk-based Performance Standards. Industry is urging EPA to adopt a regulatory scheme that will tailor project requirements to specific risks posed by a particular project. EPA appears receptive in concept, but there is little agreement with industry upon those risks that should drive the site characterization analysis, and appropriate risk assessment methodologies.
   
   
6. Benefits of Sequestration. Industry is urging EPA not to forget why CO2 storage is being pursued – to remove greenhouse gases from the atmosphere. The economics of carbon sequestration are not favorable, significant energy is consumed in collecting and transporting post-combustion gases into a storage reservoir. Thus, industry is looking to EPA to adopt a balanced programmatic approach that is not cost prohibitive given the relatively lesser risks posed by underground storage versus atmospheric emissions.

Technology Update

Broad application of carbon sequestration is considered essential to allow the United States and the world to utilize vast resources of coal for power generation and other purposes. Pre-combustion gasification of coal and capture of CO2 evolved in the process is a promising technology, however, that has not yet been demonstrated on a commercial scale. First funded in 2003, the U.S. Department of Energy (DOE) recently announced it would no longer financially participate in the FutureGen project, scrapping plans to build the first U.S. coal-fired power plant using coal gasification technology to capture and store 90% of its CO2 emissions. Nonetheless, other pilot projects, including ones established and funded by DOE, are underway to refine both capture and sequestration technologies.

One such project is DOE’s CO2 Sequestration Regional Partnership program, established to evaluate storage locations and technology with a goal of creating large-scale storage areas throughout the United States. DOE initiated Phase I of this project in 2003 to characterize promising storage areas, Phase II has involved field testing storage methods in such locations, and Phase III will conclude in 2017 with large volume deployment of technology.  The Southwest Regional Partnership is made up of Colorado and 7 other southwestern states and numerous other public and private participants, and consists of several CO2 storage and injection test projects in Texas, Colorado and Utah. One such project is a hybrid project that takes advantage of existing EOR infrastructure in the San Juan Basin in southwest Colorado, and includes enhanced coal bed methane recovery and CO2 storage in deep coal formations in that Basin. An additional CO2 storage project is scheduled to begin in 2009 in the Raton Basin in southeast Colorado.

Summary

Development of natural carbon dioxide resources has been ongoing for years. Fluid injection for EOR has been safely practiced across the west, and the technology developed by industry should provide EPA with a framework for fashioning a regulatory program for CO2 storage projects. Certainly, there are legitimate practical concerns that arise from injection of the huge volumes of CO2 that must be thoughtfully considered by EPA in its UIC rulemaking. However, EPA would be well served by adopting a flexible approach to regulation that builds upon industry’s experience and incorporates new information from ongoing pilot and future commercial projects.

Additional Information Sources

Additional information can be found on the following websites:

U.S. EPA, Office of Ground Water and Drinking Water, UIC Program

U.S. EPA, Climate Change Program

U.S. EPA, Class V Experimental Technology Well Guidance for pilot projects

U.S. Dept. of Energy, Fossil Energy, Carbon Sequestration Program              

Colorado Climate Action Plan     

Colorado Geologic Survey: CO2 Sequestration Potential in Colorado, Report (495 pp.),

CDPHE Report: Colorado Greenhouse Gas Emissions Inventory & Forecast   

AUTHORS:

William Duffy
Steve Marlin
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Davis Graham & Stubbs LLP
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