Carbon Capture and Storage (CCS) refers to the process of injecting carbon dioxide into deep rock formations known as “Class VI wells” as a long-term underground storage option to reduce carbon dioxide emissions into the atmosphere. The Environmental Protection Agency (EPA) is authorized by the Safe Drinking Water Act to develop federal requirements for underground injection control programs, including Class VI wells, to protect public health and prevent injection wells from contaminating underground sources of drinking water. EPA also is authorized to delegate to states the authority to regulate and permit Class VI injection wells.
Federal and state regulations of Class VI wells can approach liability differently. The federal regulations vest liability with the owner or operator of the Class VI well in perpetuity while some states transfer ownership and liability to the state upon site closure. Both approaches may impact the future growth and development of the CCS industry.
CCS Facility Federal Regulations
Class VI wells are used to inject carbon dioxide for geologic sequestration. EPA regulates these wells through the Underground Injection Control (UIC) regulations that specify the construction, operation and closing procedures for injection wells. EPA promulgated the federal requirements for carbon dioxide sequestration wells, also known as the Class VI Rule, in December 2010.
Under the rule, Class VI permitting projects are divided into several phases: pre-permitting, pre-construction, pre-operation, injection and post-injection. The owner or operator of a Class VI well must prepare and comply with a plan for post-injection site care and site closure that satisfies the requirements of 40 C.F.R. § 146.93. The owner or operator must also monitor the site following the cessation of injection to ensure that any underground sources of drinking water are not endangered. The owner or operator must continue to monitor the site for at least 50 years or for the duration of an alternative approved timeframe. Once the owner or operator can demonstrate that the CCS facility no longer poses an endangerment to underground sources of drinking water, EPA may authorize site closure and an end to monitoring. Site closure is the final stage of the permitting process.
Federal Liability
Prior to site closure, owners or operators of Class VI injection wells must ensure protection of underground sources of drinking water from endangerment. Owners and operators are subject to liability under the enforcement program of the Safe Drinking Water Act for noncompliance with UIC requirements. The Safe Drinking Water Act permits EPA to commence civil action for failure to comply with the UIC program. A court can require compliance and may issue a civil penalty of up to $69,733 for each day of violation. If a violation is willful, the violator can also be imprisoned for up to three years.
Once site closure is approved, the owner/operator will generally not be subject to enforcement under the Safe Drinking Water Act for noncompliance with UIC requirements. However, an owner or operator may be subject to an order under section 1431 of the Safe Drinking Water Act if EPA deems such order necessary to protect the health of the public or if there is imminent and substantial endangerment to an underground source of drinking water. A 1431 order may include commencing a civil action for relief. If an owner or operator fails to comply, they may be subject to civil penalties for each day that the violation or failure to comply continues. An owner/operator may also still be liable under tort and other remedies, which will continue to be the responsibility of the owner or operator, subject to any statutes of limitation or repose.
State Liability
EPA delegates to states the authority to regulate and permit Class VI injection wells through a process called primacy. Only three states — North Dakota, Wyoming and Louisiana — have delegated primacy for Class VI wells. Other states are working toward primacy. In the application process, each state must promulgate its own Class VI regulations. These state regulations are generally consistent with federal regulations, but some deviations are permissible. One area is ownership and liability after site closure.
Wyoming requires that upon the issuance of a certificate of project completion “[i]n exchange for assuming responsibility and liability for the stored carbon dioxide as provided in this section, title to the stored or injected carbon dioxide, and any facilities used to inject or store the carbon dioxide, without payment of any compensation, shall be transferred to the state.” This transfer and title acquisition by the state also transfers all rights, interests in, and responsibilities associated with the stored or injected carbon dioxide. The liability for the project will also be transferred to the state, provided that “liability to the state shall not result in the payment of any damages in excess of the balance of the Wyoming geologic sequestration special revenue account created by Wyo. Stat. 35-11-320(a).” After the transfer, the owner or operator is released from regulatory requirements associated with the storage and maintenance of the carbon dioxide, and all bonds and financial assurances are released.
Louisiana also transfers ownership and responsibility of the project to the state. To close the site, the commissioner will issue a certificate of completion of injection operations. Upon the issuance of the certificate, the ownership of the project and the stored carbon dioxide transfers to Louisiana. The certificate rids the owner or operator of any future duties and “all liability associated with or related to [the] storage facility which arises after the issuance of the certificate of completion of injection operations.” Owners are not released from duties or obligations that arise from the owner’s noncompliance with underground injection control laws and regulations prior to the issuance of the certificate of completion. The release from liability does not apply if the “Carbon Dioxide Geologic Storage Trust Fund has been depleted of funds such that it contains inadequate funds to address or remediate any duty, obligation, or liability that may arise after issuance of the certificate of completion of injection operations.” In any civil liability action against the owner of the facility, the maximum amount recoverable as compensatory damages for noneconomic loss is $250,000 per occurrence, unless the damages were for wrongful death, permanent physical deformity, loss of a limb, or other similar injury, in which case the maximum is $500,000.
In contrast, North Dakota does not transfer ownership of the facility. The facility and any carbon dioxide remain the injector’s property and responsibility before and after site closure. North Dakota’s approach mirrors the liability under federal requirements.
Impact
Critics of the shift in ownership and liability claim that traditional liability rules encourage operators to perform high quality work. For carbon dioxide wells, the lifecycle could be hundreds of years long. Under the traditional liability rules under federal regulations, owners and operators have a strong incentive to do everything they can to ensure a project continues to function safely for its entire life cycle. Any failure to do so could result in significant financial liability for repair and damages. Critics believe that the state assumption of liability could encourage owners and operators to do incompetent work because they will not fear the long-term financial consequences.
Critics also argue that there is a possibility of EPA being reluctant to grant states primacy if they continue to adopt transfer of ownership and liability regulations. EPA may believe that the federal approach ensures a higher level of performance and safety and that EPA should be the primary party responsible for the permitting process to ensure states are not taking on significant liability.
On the other hand, supporters of the ownership and liability transfer approach claim that the state’s assumption of responsibility will encourage the growth of the carbon sequestration industry. They argue that the transfer of ownership provides more predictability for investors looking to back projects with concrete timelines and liability risks.
Proponents also believe that the state assumption of responsibility could ensure appropriate care over time. With the lifecycle of a carbon dioxide well lasting for hundreds of years, it may be difficult to hold owners and operators accountable after the well has closed because the responsible parties may no longer exist. State governments may be more reliable, longer lasting and have the tools to handle any issues arising down the road.
Critics and proponents agree that the transfer approach will have an impact on the growth and development of the CCS industry. Only time will tell exactly what those impacts may be.