Uncertainty Persists as EPA Begins Carbon Sequestration Rulemaking

The Environmental Protection Agency (“EPA”) has announced that it will issue a draft rule this summer establishing a nationwide permitting program under the Safe Drinking Water Act (“SDWA”)[1] for storing carbon dioxide from fossil fuel power plants in underground geologic formations.[2] Geologic sequestration, the process of capturing carbon dioxide from emission sources and injecting it into deep underground formations, is one of the most promising options for significantly reducing carbon dioxide emissions from power plants that burn fossil fuels and will likely play a critical role in efforts to meet state and regional greenhouse gas emission reduction targets.[3]

Several states are already moving forward with legislative and regulatory proposals for carbon dioxide sequestration programs.[4] EPA’s new regulations will likely focus on siting, closure, and monitoring criteria for commercial-scale sequestration wells. While EPA’s rule will likely establish uniform technical requirements for sequestration wells, EPA has indicated that its current rulemaking is unlikely to address a concern that has prompted industry support for uniform federal regulation – long-term environmental liability for sequestered carbon dioxide.[5]

Carbon Sequestration

Approximately 71% of electricity in the United States is generated by facilities that combust coal, natural gas, or petroleum.[6] Carbon dioxide associated with generating electricity from fossil fuel combustion accounts for a significant portion of the United States’ greenhouse gas (“GHG”) emissions. In 2005, for example, the electrical power sector generated approximately 2,375 million metric tons (“MMT”) of carbon dioxide, which accounted for approximately 40% of total U.S. carbon dioxide emissions.[7]

The vast majority of fossil fuel power plants burn pulverized coal, and effluent flue emissions from these facilities contain approximately 10-15% carbon dioxide by volume.[8] Power plants burning fossil fuels can potentially capture carbon dioxide using pre- or post-combustion technologies. Post-combustion carbon capture controls can be installed on traditional pulverized coal plants. The costs of post-combustion carbon capture, however, are considerably higher than the costs of pre-combustion capture.[9]

Integrated gasification combined cycle (“IGCC”) technology allows for pre-combustion carbon dioxide capture suitable for geologic sequestration. In IGCC plants, coal is partially combusted and gasified into syngas. Carbon dioxide and other impurities are filtered from the syngas through absorption or membrane technologies, and the remaining hydrogen is fired in a combustion turbine that produces electricity.[10] Current carbon capture technologies can potentially reduce an IGCC facility’s carbon dioxide emissions by 95% if the emissions are properly sequestered.[11] Captured carbon dioxide can be sequestered in depleted or diminished oil and natural gas reservoirs, coal seams, saline aquifers, and other geologic formations. A Department of Energy geologic sequestration pilot program identified 3,000 billion MMTs of underground storage capacity in North America – sufficient to store over 1,000 years of carbon dioxide emissions.[12]

In an effort to meet state and regional greenhouse gas emission reduction targets, a number of states have established aggressive GHG emission limits (known as emission performance standards or EPS) for electrical generation facilities. For example, Washington and California utilities are prohibited from entering into long-term contracts with facilities that do not meet the EPS emission standards.[13] The practical effect of these requirements is that many utilities will no longer be able to generate or purchase energy from coal-fired plants unless the GHG emissions from the facilities can be reduced below the EPS using permanent sequestration or other emission reduction technologies.[14]

EPA’s Rulemaking

EPA is currently proceeding with an expedited rulemaking under the SDWA for permitting commercial-scale carbon dioxide sequestration facilities, and has said that it will publish draft regulations this summer. Although EPA has not defined the rulemaking’s precise scope, some commentators expect that EPA will establish a new category of storage wells under the SDWA underground injection control (“UIC”) program for carbon capture and sequestration facilities.

The SDWA, which is the primary federal regulation addressing drinking water quality, will likely provide the legal framework for carbon dioxide sequestration wells. In addition to setting health-based standards for drinking water, the SDWA establishes a permitting program (the UIC program) which governs siting, constructing, operating, maintaining, monitoring, testing, and closing underground injection wells. With a few exceptions, EPA has delegated its underground injection permitting authority to the states.[15]

SDWA regulations currently cover five types of underground injection wells, including enhanced oil and gas recovery wells (known as Class II wells). Carbon dioxide is regularly injected into Class II wells to enhance oil and natural gas production.[16] Thirty MMT of carbon dioxide is annually injected for enhanced oil and natural gas recovery in west Texas, Wyoming, and other locations.[17]

In March 2007, EPA issued a guidance document stating that regulations governing Class II oil and natural gas recovery wells were inadequate for addressing commercial-scale carbon sequestration due to the larger volumes of carbon dioxide and the very long storage times.[18] EPA indicated that state or federal regulators should permit pilot-scale carbon sequestration projects under the Class V experimental well regulations.

In the absence of federal regulations, a number of states are developing regulatory frameworks for permitting, closing, and monitoring commercial-scale carbon sequestration facilities. The Washington Department of Ecology, for example, has proposed rules that would amend its UIC regulations to support geologic carbon sequestration.[19] A recent report by the Interstate Oil and Gas Compact Commission (“IOGCC”) concluded that states are best suited to regulate geologic sequestration based on their experience with enhanced oil and gas recovery wells.[20] It is unclear, however, whether states will maintain a role in regulating carbon dioxide sequestration facilities, or whether EPA’s new rules will preempt state-level regulations.

Technological, Economic, and Liability Concerns Remain

EPA’s new rules will likely clarify technical aspects of carbon dioxide sequestration, but technological, economic, and liability concerns may still pose hurdles for the near-term development of carbon capture and storage infrastructure. While three industrial-scale sequestration demonstration projects are currently operating in Europe, Canada, and Africa, Department of Energy Deputy Director Clay Sell has indicated that “[s]ignificant technological development has to occur, significant planning for infrastructure has to occur, significant development of a regulatory and legal framework has to occur before we can effectively require or implement programs for coal-based carbon capture and sequestration.”[21]

Adding further to the uncertainty, EPA’s present rulemaking is unlikely to resolve industry concerns over long-term environmental liability for sequestered carbon dioxide. Commercial-scale sequestration poses numerous potential environmental liabilities for entities that own or operate sequestration facilities, or transport carbon dioxide to such facilities, including accidental carbon dioxide releases to groundwater or the atmosphere.[22] The uncertainty surrounding if, and when, EPA may regulate carbon dioxide as a pollutant or hazardous waste subject to regulation under existing environmental laws has further confounded the liability debate, which has generally focused on what parties should maintain long-term responsibility for sequestered carbon dioxide. In efforts to address industry liability concerns and encourage the development of sequestration infrastructure, legislation enacted in Texas and pending in Illinois transfers liability for post-injection carbon dioxide to the state.[23]

The technological, economic, and regulatory uncertainty surrounding carbon sequestration has thwarted plans for proposed capture-ready IGCC facilities. In November 2007, the Washington State Energy Facility Site Evaluation Council (“EFSEC”) rejected Energy Northwest’s application for a proposed 650-megawatt IGCC “capture-ready” facility in Kalama, Washington. In its application, Energy Northwest argued that meeting Washington’s emission performance standard was impracticable because carbon dioxide sequestration was not “technically and economically feasible.” Energy Northwest proposed to purchase carbon offsets and then develop a specific sequestration plan “when geological sequestration becomes a proven technology for use by power plants and a number of asserted technological, engineering and legal questions have been answered.” EFSEC rejected Energy Northwest’s proposal, concluding that it was “not a plan … it does not identify specific steps it will take to implement sequestration.” Energy Northwest subsequently scrapped its plans for the Kalama facility.

The regulatory uncertainty surrounding carbon sequestration has not derailed all IGCC investment and carbon dioxide sequestration research. EPA announced plans to invest $197 million in three large-scale regional carbon sequestration demonstration projects over the next ten years. These projects are expected to double the amount of commercial-scale carbon sequestration projects worldwide.[24] Additionally, the Port of Walla Walla, Washington recently announced plans to construct a 915 MW IGCC facility that would permanently sequester carbon dioxide in basalt formations over 1.3 miles underground. On October 9, 2007, the Wallula Energy Resource Company submitted a request for a potential site study to Washington’s EFSEC.[25]

Conclusion

The emergence of state-level GHG caps has increased interest in clean coal technologies such as IGCC and the need for regulatory certainty regarding the permitting process and liabilities associated with carbon sequestration. The need for answers to these difficult questions will likely only increase once the federal government establishes nationwide carbon dioxide limits, a carbon trading regime, or a carbon tax. While EPA’s forthcoming regulations should clarify certain technical issues regarding selecting, constructing, and monitoring sequestration facilities, further regulation or legislation will likely be necessary to address industry concerns about long-term environmental liability.

For more information on the carbon sequestration rules, please contact Dustin Till or any member of Marten Law Group’s Climate Change/Sustainability Practice Group.