Legal Issues Associated with the Development of Carbon Dioxide Sequestration Technology
Congressional research reportMar 19, 2010
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Legal Issues Associated with the
Development of Carbon Dioxide
Sequestration Technology
Adam Vann
Legislative Attorney
James E. Nichols
Law Clerk
Paul W. Parfomak
Specialist in Energy and Infrastructure Policy
March 19, 2010
Congressional Research Service
7-5700
www.crs.gov
R41130
CRS Report for Congress
Prepared for Members and Committees of Congress
Legal Issues Associated with the Development of CO2 Sequestration Technology
Summary
In the last few years there has been a surge in interest in the geologic sequestration of carbon
dioxide (CO2), a process often referred to as carbon capture and storage, or carbon capture and
sequestration (CCS), as a way to mitigate man-made CO2 emissions and thereby help address
climate change concerns. The Energy Independence and Security Act of 2007 (EISA; P.L. 110140) contains measures to promote research and development of CCS technology, to assess
sequestration capacity, and to clarify the framework for issuance of CO2 pipeline rights-of-way on
public land. Other legislative proposals have also sought to encourage the development of CO2
sequestration, capture, and transportation technology. A number of measures have been
introduced in the 111th Congress that could further development and deployment of CCS
technology, including H.R. 2454, the American Clean Energy and Security Act of 2009 (ACES),
which was passed by the House in June of 2009.
This report discusses the myriad legal issues associated with the development of CCS technology.
These issues include, but are not limited to: determinations of ownership and control of the
underground pore space where the CO2 would be “sequestered” under most of the contemplated
technology; the question of which federal and state agencies would permit and regulate CO2
pipelines transporting the gas to the sequestration site; a lack of clarity concerning the status of
CO2 for purposes of environmental regulation; and concerns over liability exposure that may
hinder the development of CCS technology.
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Legal Issues Associated with the Development of CO2 Sequestration Technology
Contents
Introduction ................................................................................................................................1
Background ................................................................................................................................1
Discussion ..................................................................................................................................2
Ownership and Control of Underground Pore Space..............................................................2
Overview of Judicial Decisions on “Pore Space”.............................................................2
Statutory Approaches ......................................................................................................6
Interstate CO2 Pipeline Jurisdiction .......................................................................................8
Prior CO2 Pipeline Regulation: Cortez Pipeline ...............................................................9
Implications of the Possible Regulatory “Gap”.............................................................. 12
The Status of CO2 as a Pollutant Under the Clean Air Act .................................................... 13
Massachusetts v. EPA .................................................................................................... 14
EPA’s CO2 Endangerment Finding................................................................................. 14
Implications of EPA’s Endangerment Finding for Stationary Sources Covered by
the Clean Air Act........................................................................................................ 15
Liability Concerns Associated with CCS Technology .......................................................... 16
The EPA Proposed Rule ................................................................................................ 17
The Price-Anderson Model ........................................................................................... 18
Financial Assurance Requirements in Legislative Proposals .......................................... 19
Contacts
Author Contact Information ...................................................................................................... 20
Congressional Research Service
Legal Issues Associated with the Development of CO2 Sequestration Technology
Introduction
The last few years have seen a surge in interest in geologic carbon sequestration, also referred to
commonly as carbon capture and sequestration or carbon capture and storage (CCS), as a way to
reduce carbon dioxide (CO2) emissions, and thereby help to address concerns about climate
change. The Energy Independence and Security Act of 2007 (EISA; P.L. 110-140) contained
measures to promote research and development of CCS technology and assess sequestration
capacity, including a measure to clarify the framework for issuance of CO2 pipeline rights-of-way
on public land. Legislative proposals introduced in the 111th Congress have sought to further
encourage the development of CO2 capture, transportation, and storage technology.
The increased discussion of CCS technology has given rise to consideration of a number of
potential legal issues related to the technology as it is currently envisioned. Among these issues
are questions about legal control of the underground “pore space” used for CO2 storage in most
CCS models, questions about regulation of CO2 pipelines, issues related to the status of CO2 as a
pollutant and other environmental concerns, and liability concerns associated with CCS. This
report addresses these issues and presents a picture of some of the legal hurdles that may need to
be addressed if CCS technology is developed and employed.
Background
In recent years, concerns over global climate change have been at the forefront of many policy
discussions. Some have suggested that recent increases in the global temperature, as well as
future anticipated increases, are the result, at least in part, of emissions of large quantities of CO2
from man-made sources. While most proposals related to climate change have focused on
limiting emissions, one of the more prominent ideas to address these climate change concerns is
the capture and direct sequestration of CO2 emissions (CCS). CCS is a process whereby CO2
emissions would be “captured” at their source and then stored or “sequestered” either
underground or elsewhere, rather than being released into the atmosphere.1 In most models, this
storage/sequestration would take place underground.2
CCS technology is still in the early stages of development. Therefore, there are a number of
operational questions to be answered before we can fully understand all the legal issues that may
arise. However, because the development of CCS technology could well depend in part upon the
resolution of some of these legal issues, it is important to understand them as the discussion of
implementation CCS technology continues. Among the emerging legal issues associated with
CCS technology are:
1. determinations of ownership and control of the underground pore space where
the CO2 would be “sequestered” under many of the CCS facility models
proposed to date;
2. the question of which federal and state agencies would permit and regulate CO2
pipelines transporting the gas from the point of emission to the sequestration site;
1
For a detailed discussion of CCS technology, see CRS Report RL33801, Carbon Capture and Sequestration (CCS),
by Peter Folger.
2
Id.
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3. the status of CO2 as a “pollutant” for purposes of environmental regulation, and
how such a classification might impact development of CCS technology; and
4. concerns over liability exposure that may hinder development of CCS
technology.
Discussion
Ownership and Control of Underground Pore Space
A preliminary question that likely must be resolved prior to implementation of CCS technology
on a commercial scale is the question of who controls the property interest in the sort of geologic
formations, often referred to as “pore space,”3 that would be employed by the CCS facilities.
Generally, a dispute about such control over property interests would take place between parties
possessing the right to make use of the “surface” of the property in question and parties
possessing the right to exploit the subsurface assets of the property in question, often referred to
as the “mineral estate.” One possible method of resolution is to enact new legislation addressing
issues related to the ownership and control of this subsurface pore space. In the absence of such
legislation, the courts would be called on to resolve this issue, in many instances with guidance
from prior judicial opinions.
Property rights related to surface and mineral estates are typically determined by state law, not
federal law. Accordingly, state law (including the interpretation of any relevant contractual terms)
would likely determine whether the owner of the surface estate or the mineral estate to a
particular area controls the pore space where CO2 would be sequestered in most of the proposed
CCS technology to date. Clarifying control of pore space is of particular significance to the
development and implementation of CCS because entities (public and private) seeking to use a
given pore space for CCS must possess the right to use the pore space. For the vast majority of
states, ownership and control of the pore space would be determined by the state’s courts, often
with guidance from previous judicial decisions on related matters. This is known as the
application of “common law.” Wyoming and North Dakota, however, have enacted legislation to
clarify the law that would govern control of the “pore space” that would be used in most
emerging CCS technologies. 4
Overview of Judicial Decisions on “Pore Space”
Under common law, the owner of an unfettered interest in a parcel of land generally has a right to
use both the surface of the land (surface estate) and the land beneath the surface (mineral estate)
unless the mineral rights are severed from the surface rights by some means.
The cases discussed below represent the decisions of several states clarifying the respective rights
of surface and mineral owners over use of the pore space under the applicable common law of the
3
For purposes of this discussion, “pore space” refers to any subsurface geological formation in which the sequestration
of CO2 has been contemplated. These pore spaces often contain some mixture of minerals, gases, water or saline
solutions in varying amounts and concentrations. For further information, see Folger, supra note 1.
4
See infra “Statutory Approaches” for an overview of North Dakota’s and Wyoming’s pore space statutes.
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state. Although these cases reached similar conclusions, many jurisdictions have not yet
addressed the issue of pore space control, so the issue has not yet been definitively resolved.
Tate v. United Fuel Gas Co.
In Tate v. United Fuel Gas Company,5 the Supreme Court of Appeals of West Virginia was tasked
with ascertaining who had title to the pore space beneath a 244-acre tract of land in West Virginia
once the minerals contained therein had been extracted. The owner of the land (“O”) owned the
land in fee simple. “O” deeded the land to another man (“A”) but reserved to himself the “oil, gas
... and all minerals ... underlying the surface of the land.”6 “A” later deeded the land to the
plaintiff, Virgil Tate, subject to the same exceptions contained in the original deed from “O” to
“A.” After extracting all of the oil from the pore space beneath the surface of the 244-acre tract of
land, “O” eventually leased his mineral rights to the defendant, United Fuel Gas Company.
United Fuel Gas Company used this property interest to store gas produced elsewhere in the
empty pore space.
Plaintiff Tate, the owner of the land subject to the underground property interest leased to United
Fuel Gas Company, asserted that the lease between “O” and United Fuel Gas Company was
invalid since “O” only had a right to the contents of the pore space and not the pore space itself.
The Supreme Court of West Virginia agreed with Tate and held that the express reservation of
mineral rights by “O” only grants to “O” (and his lessee, United Fuel Gas Company) a right to
exploit the gas and minerals contained within the pore space but no right to use the pore space
itself for the storage of gas produced elsewhere. 7
According to Tate, the owner of the mineral rights in West Virginia likely would not have the
right to the use or lease the pore space for CO2 capture and sequestration (unless the owner of the
surface estate expressly allows the owner of mineral rights to use the pore space). In West
Virginia and any jurisdiction that follows the logic of the court’s ruling in Tate, a party seeking to
obtain the right would have to ensure that it obtains title from the owner of the pore space, which
appears to be a property interest that would likely remain with the owner of property even after
transfer of the mineral rights associated with the property. Of course, the property owner could
transfer the rights to the pore space while retaining interest in the remainder of the property, but
such a transfer would likely have to refer directly to the subsurface asset in question.
Emeny v. U.S.
Emeny v. United States8 presents another scenario in which a court was required to determine
whether certain subsurface property rights captured the sort of pore space that would likely be
used for CO2 sequestration in CCS technology. In Emeny, the United States Court of Claims9 was
5
71 S.E.2d 65 (1952) (Tate).
The pertinent language of the deed stated that “[t]he oil, gas and all minerals ... underlying the surface of the land
hereby conveyed are expressly excepted and reserved from the operation of this deed ... it being under-stood [sic] that
the term ‘mineral’ as used herein does not include clay, sand, stone, or surface minerals except such as may be
necessary for the operation for the oil and gas and other minerals.” Tate at 67-68.
7
Id. at 72.
8
412 F.2d 1319 (1969) (Emeny).
9
The U.S. Court of Claims was the original court in which claims against the United States were tried. The U.S. Court
of Claims was abolished in 1982. The court’s trial-level jurisdiction was transferred to the U.S. Court of Federal Claims
(continued...)
6
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tasked with deciding whether the United States had acquired the right to store helium gas within a
pore space formation on a certain property when the terms of the government’s lease with the
owner of the pore space were limited to the sole purpose of mining and operating for oil and gas.
The plaintiffs in Emeny owned a tract of land in Texas which contained significant deposits of
helium gas. The plaintiffs granted to a private gas company “oil and gas leases covering a total of
approximately 217,000 acres of land, including the area which contains the Bush Dome.”10 The
United States eventually obtained these oil and gas leases from the private oil company, along
with the remaining mineral rights that had been reserved by the plaintiffs, and compensated the
respective parties accordingly. 11 However, in the lease with the United States, the plaintiffs
expressly reserved for themselves the surface of the leased lands, “including any such structure
that might be suitable for the underground storage of ‘foreign’ or ‘extraneous’ gas produced
elsewhere.”12
Pursuant to the lease agreement, the United States commenced operations to extract the helium
contained within the Bush Dome, and continued to do so for approximately three decades until
the Bush Dome was empty. After the Bush Dome was emptied, the United States sought to store
helium gas produced elsewhere inside of the now empty pore space.13 The plaintiffs argued that
they were entitled to just compensation for the government’s use of the Bush Dome as a helium
storage facility because pursuant the language of the lease agreement, the government only had a
right to extract the gas contained within the pore space and no right to use the pore space for
storage of helium gas produced elsewhere.
After a consideration of Texas common law, the court in Emeny agreed with the plaintiffs that the
government’s property interest did not include the right to use the pore space for gas storage, and
ordered the United States to pay the plaintiffs just compensation for its use of the Bush Dome as a
helium storage facility. According to the court, “[t]here is no reasonable basis on which the rights
granted to the [United States] in the ... oil and gas leases could be construed as including the right
to bring to the premises and store there gas produced elsewhere.”14 Accordingly, Emeny is
instructive in instances where a party obtains mineral rights pursuant to state common law
because a court may find that the owner of the surface rights may be entitled to compensation if
the party uses the pore space for storage. The case also offers guidance for those wishing to enter
into real estate transactions to acquire (or to reserve) the property interests needed to install a
CCS facility.
(...continued)
and its appellate jurisdiction to the U.S. Court of Appeals for the Federal Circuit.
10
Emeny at 1321. According to the court’s opinion, the Bush Dome “is a closed geological structure, or underground
dome, in which gaseous substances can be stored ... The potential storage capacity of the Bush Dome is in excess of 52
billion standard cubic feet of gas.” Id. at 1321.
11
Id. at 1321-1322.
12
Id. at 1323.
13
Pursuant to the Helium Act Amendments of 1960, 50 U.S.C. § 167 et seq.
14
Emeny at 1323.
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U.S. v. 43.42 Acres of Land
In U.S. v. 43.42 Acres of Land,15 a federal district court had to determine whether the surface
owners, mineral owners, or both should receive compensation from the government for land
acquired for the construction of an underground crude oil storage tank.16 One defendant owned
the land under which a crude oil storage tank was to be constructed. The other defendant owned
the rights to the minerals that needed to be extracted to construct the underground storage tank.
The United States intended to construct this storage tank by extracting the salt contained inside of
the subterranean geological structure and then using the evacuated underground formation as a
storage area.17 Both defendants claimed an exclusive right to be compensated by the United States
for its taking of the property pursuant to the Energy Policy and Conservation Act.18
Since Acres was a case of first impression under Louisiana law, the court considered common law
authority from other jurisdictions to inform its opinion, and concluded that “... the general rule in
common law ... provides that, after the removal of minerals, the opening left by the mining
operations belongs to the land owner by operation of law.”19 Since the minerals had not yet been
removed from the pore space by the United States and since the resulting pore space needed to be
used by the United States for crude oil storage, the court ordered the United States to compensate
both the land owner and the mineral rights owner.20
As Acres illustrates, in some instances both the surface and the mineral estate owners hold
property interests relevant to the use of pore space that must be acquired in order to store or
sequester gas underground. If taken by eminent domain, it is possible that in some instances, both
parties would need to be justly compensated pursuant to the “Takings” clause of the Fifth
Amendment to the U.S. Constitution.21
15
520 F. Supp. 1042 (1981) (Acres).
In his opinion, Judge Veron writes, “Simply stated, the issue to be decided by this court is: who is entitled to be
compensated for the value of the hole in the ground to be created by construction of the underground storage cavern[:]
the land owners or the mineral owners?” Acres at 1043.
17
The process by which crude oil reservoirs are created was described in Acres:
To utilize the subsurface for the extraction of brine and the creation of storage facilities[,] a well is
drilled so as to penetrate the salt formation. Water is forced into the formation through the well, the
salt is withdrawn as brine, and a cavity is left in the salt mass because of gradual dissolving of the
salt and a resulting erosion by the leaching process. The jug shaped cavity, or ‘jug[,]’ formed by
this leaching is used for the storage of hydrocarbons. A jug is 100 feet or more in depth, with
capacity for storing over a million barrels of one of the various hydrocarbons. A thick barrier of salt
must be retained around each jug to form a satisfactory wall for the containment of the stored
product.
Acres at 1043.
18
42 U.S.C. § 6249(a)-(f).
19
Acres at 1045.
16
20
“[Owners of a mineral servitude] have no right to claim compensation for the value of the cavern to be created by
removal of the salt. They should be compensated only for the value of the right to explore for and reduce to possession
the minerals on the land in question. [The] land owners ... own all remaining rights in the land, and they are entitled to
be compensated for the underground storage value of the land.” Id. at 1046.
21
The use of eminent domain to seize property for public purposes, and the requirement that property owners be justly
compensated for such a taking, is explored in detail in CRS Report RS20741, The Constitutional Law of Property
Rights “Takings”: An Introduction, by Robert Meltz.
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Mapco, Inc. v. Carter
Mapco, Inc. v. Carter22 illustrates some of the problems that can arise in instances where the
mineral rights are divided among co-owners. In Mapco, multiple parties had interests in the
surface and mineral rights of a parcel of land in Texas. As a result of a previous court-ordered
partition, the surface and mineral rights were divided among the various co-owners. Although the
minerals were located beneath one party’s tract of the partitioned parcel of land, the mineral rights
were divided among the various co-owners. Accordingly, each co-owner of the partitioned surface
rights possessed an interest in the minerals even though the minerals were located beneath a
single tract of the partitioned land.
Despite the fact that Mapco only possessed a minority interest in the mineral rights, Mapco
nevertheless decided to extract and sell the salt contained beneath its portion of the partitioned
land without the consent of the co-owners.23 Further, when the salt was completely extracted,
Mapco, Inc. “plugged” the empty cavern with concrete and abandoned it, thereby rendering it
unusable as storage space for gas or petroleum products.24
Ultimately, the Court of Appeals of Texas ordered Mapco to compensate the co-owners of the
mineral estate because, as mineral owners, they were also entitled to an amount of the proceeds
from Mapco’s sale of the salt equal to their respective interests in the partitioned land.25 Mapco
provides an illustration of the types of conflicts that can cloud title to a particular pore space that
could be used for CCS. Similar to the other cases described supra, the court concluded that the
owner of the mineral estate does not necessarily have a property interest sufficient to control the
pore space.
Statutory Approaches
In the cases described above, the courts struggled to resolve issues of ownership and control of
underground areas in the absence of legislative guidance. However, in recognition of the potential
legal issues related to subsurface pore space ownership that may arise under the common law if
CCS technology is developed and implemented, the legislatures of Wyoming and North Dakota
have enacted statutes to clarify issues of ownership and control over pore space, as well as the
rights and obligations between surface and mineral owners.26 The Wyoming and North Dakota
statutes are examples of another approach to resolving issues related to pore space ownership.27
22
808 S.W.2d 262 (1991) (Mapco).
Mapco at 267.
24
Id. at 268-269.
25
Mapco at 278-279.
23
26
Wyo. Stat. §§ 34 -1-152 and 34-1-153 (2009); N.D. Cent. Code § 47-31-02 et seq (2009). A note following Wyo.
Stat. § 34-1-152 provides: “It is the intent of the legislature to clarify the ownership of pore space underlying the
surface of the lands and waters of this state.” Similarly, N.D. Cent. Code § 47-31-01 provides: “Undivided estates in
land and clarity in land titles reduce litigation, enhance comprehensive management, and promote security and stability
useful for economic development, environmental protection, and government operations.”
27
Several states have enacted legislation that could regulate other aspects of CCS. Those statutes are not discussed in
this Report because they do not expressly address pore space ownership and control.
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The Wyoming Statute
Wyoming’s pore space statute defines the term “pore space” as “subsurface space which can be
used as storage space for carbon dioxide or other substances.”28 Wyoming’s statute makes it
expressly clear that the owner(s) of the surface rights are entitled to “ownership of all pore space
in all strata below the surface.”29 Additionally, under the Wyoming statute, a conveyance of
surface rights automatically conveys ownership of any pore space below the surface.30 Finally, the
Wyoming statute clarifies the status of mineral rights with respect to the pore space by providing
that “[n]o agreement conveying mineral or other interests underlying the surface shall act to
convey ownership of any pore space in the stratum unless the agreement explicitly conveys that
ownership interest.”31
Wyoming has also created a statutory framework to provide for the “unitization” of a single pore
space that is located beneath multiple tracts of real property. 32 Specifically, under Wyoming state
law, no CCS activities within a particular pore space shall commence “until the plan of unitization
has been signed or in writing ratified or approved by those persons who own at least eighty
percent (80%) of the pore space storage capacity.”33
With respect to the issue of potential liability resulting from CO2 sequestration within pore
spaces, Wyoming’s pore space statute provides:
All carbon dioxide, and other substances incidental to the injection of carbon dioxide
injected into any [pore space] for the purpose of [CO2 sequestration] shall be presumed to be
owned by the injector of such material, and all rights, benefits, burdens, and liabilities of
such ownership shall belong to the injector.34
Additionally, the Wyoming statute shields pore space owners from liability for “the effects of
injecting carbon dioxide for geologic sequestration purposes” if the pore space owners consent to
the use of pore space for CO2 sequestration. 35
28
Wyo. Stat. § 34-1-152(d).
Id. § 34-1-152(a).
30
Id. at § 34-1-152(b).
31
Wyo. Stat. § 34-1-152(b). In its entirety, § 34-1-152(b) provides:
A conveyance of the surface ownership of real property shall be a conveyance of the pore space in
all strata below the surface of such real property unless the ownership interest in such pore space
previously has been severed from the surface ownership or is explicitly excluded in the
conveyance. The ownership of any pore space in strata may be conveyed in the manner provided by
law for the transfer of mineral interests in real property. No agreement conveying mineral or other
interests underlying the surface shall act to convey ownership of any pore space in the stratum
unless the agreement explicitly conveys that ownership interest.
32
See generally id. at §§ 35-11-314; 35-11-315; 35-11-316; and 35-11-317.
33
Id. at § 35-11-316(c).
34
Wyo. Stat. § 34-1-153(a) (2009).
35
Id. at § 34-1-153(b). In its entirety, § 34-1-153(b) provides:
No owner of pore space, other person holding any right to control pore space or other surface or
subsurface interest holder, shall be liable for the effects of injecting carbon dioxide for geologic
sequestration purposes, or for the effects of injecting other substances for the purpose of geologic
sequestration which substances are injected incidental to the injection of carbon dioxide, solely by
virtue of their interest or by their having given consent to the injection.
29
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The North Dakota Statute
North Dakota’s pore space statute defines “pore space” as “a cavity or void, whether natural or
artificially created, in a subsurface sedimentary stratum.”36 Similar to Wyoming’s pore space
statute, North Dakota’s statute provides that “[t]itle to pore space in all strata underlying the
surface of lands and waters is vested in the owner of the overlying surface estate.”37 Additionally,
under the North Dakota statute, a conveyance of surface rights automatically conveys ownership
of any pore space below the surface.38 The primary difference between the Wyoming and North
Dakota statutes with respect to ownership of the pore space is that under the North Dakota statute,
the pore space cannot be severed from the surface estate. 39
Similar to Wyoming’s statutory approach to CCS, North Dakota requires the “consent of persons
who own at least sixty percent [60%] of … the pore space” as a precondition for CO2
sequestration.
By defining exactly what pore space is, who owns it, and who has the right to convey it,
Wyoming and North Dakota have eliminated some of the potential ambiguity that might be found
in the common law. The statutes make clear that the owner of the surface estate owns the pore
space as well, and any entity that wishes to use the pore space must negotiate directly with the
owner of the surface estate. Additionally, both states’ unitization requirements are intended to
reduce conflicts between owners of a single pore space over the use of that particular pore space
for CCS purposes.
Interstate CO2 Pipeline Jurisdiction
Another issue relates to the authority to regulate the movement of CO2 from the point of
production/emission to the CCS facility. One possibility is that the transportation will be entirely
local in nature, with CCS facilities located in the same state as the source of the CO2 that is to be
sequestered. In that case, the federal government can choose to step in if it chooses via new
legislation, but the default jurisdiction would likely remain with the state governments, similar to
their current exercise of jurisdiction over intrastate natural gas pipelines.
However, if an interstate pipeline system for CCS is to be developed, questions arise as to who
will regulate pipeline siting and the rates to be charged for transporting CO2 from the point of
emission to the sequestration location. Based on their current regulatory roles, two of the more
likely candidates to have jurisdiction over interstate pipelines transporting CO2 for purposes of
CCS are the Federal Energy Regulatory Commission (FERC) and the Surface Transportation
Board (STB).
The Natural Gas Act of 1938 (NGA) vests in FERC the authority to issue “certificates of public
convenience and necessity” for the construction and operation of interstate natural gas pipeline
36
N.D. Cent. Code § 47-31-02.
Id. at § 47-31-03.
38
Id. at § 47-31-04.
37
39
N.D. Cent. Code § 47-31-05. In its entirety, § 47-31-05 provides: “Title to pore space may not be severed from title
to the surface of the real property overlying the pore space. An instrument or arrangement that seeks to sever title to
pore space from the title to the surface is void as to the severance of the pore space from the surface interest.”
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facilities.40 FERC is also charged with extensive regulatory authority over the siting of natural gas
import and export facilities, as well as rates for transportation of natural gas and other elements of
transportation service. FERC also has jurisdiction over regulation of oil pipelines pursuant to the
Interstate Commerce Act (ICA).41 The ICA, as amended by the Hepburn Act of 1905, provided
that the Interstate Commerce Commission (ICC) was to have jurisdiction over rates and certain
other activities related to interstate oil pipelines, as these pipelines were considered to be
“common carriers.”42 This jurisdiction was transferred to FERC in the Department of Energy
Organization Act of 1977.43 FERC’s jurisdiction over oil pipelines is not as extensive as its
jurisdiction over natural gas pipelines. FERC is not involved in the oil pipeline siting process.
However, as with natural gas, FERC does regulate transportation rates and capacity allocation for
oil pipelines. 44
Jurisdiction over rates for the transportation via pipeline of commodities other than oil and natural
gas resides with the STB. The STB is an independent regulatory agency (administratively
affiliated with the Department of Transportation) charged by Congress with the primary mission
of resolving railroad disputes pursuant to the ICA. It is the successor agency to the ICC.
Pipelines, like railroads, are “common carriers” used by more than one company for the
transportation of goods. Therefore, the ICA also assigned the ICC (and thus the STB) oversight
authority over pipelines transporting a commodity other than “water, gas or oil.”45 However,
unlike FERC, the STB does not require pipeline companies to file tariffs and justify their rates.
Instead, the STB acts as a forum to resolve disputes related to pipelines within its jurisdiction.
Parties who wish to challenge a rate or another aspect of a pipeline’s common carrier service may
petition the STB for a hearing; there is no ongoing regulatory oversight.
Thus, there are two federal regulatory agencies that, generally speaking, have jurisdiction over
interstate pipeline rate and capacity allocation matters. However, as explained below, both of
these agencies appear to have explicitly rejected jurisdiction over CO2 siting and rates, and there
is no legislative or judicial history indicating that their rejections were improper. These decisions,
the reasoning behind them, and the status of federal jurisdiction over CO2 pipelines are covered in
the next section.
Prior CO2 Pipeline Regulation: Cortez Pipeline
Carbon dioxide is sometimes used for a process referred to as enhanced oil recovery (EOR). In
EOR, a gas is injected into a well under high pressure in order to aid in extraction. In some cases
companies have used pipelines to transport CO2 over state lines (i.e., in interstate commerce) for
EOR purposes. One such pipeline is the Cortez Pipeline, which runs through Colorado, New
Mexico, and Texas. The Cortez Pipeline was the subject of an instructive regulatory dispute over
CO2 pipeline jurisdiction.
40
15 U.S.C. § 717f(c).
49 App. U.S.C. § 1.
42
Id. at 1(1), 1(4), and 1(7).
43
P.L. 95-224.
41
44
Section 1801 of the Energy Policy Act of 1992 directed FERC to “promulgate regulations establishing a simplified
and generally applicable ratemaking methodology” for oil pipeline transportation.
45
49 U.S.C. § 1-501(a)(1)(c).
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FERC Decision
In December 1978, the Cortez Pipeline Company (Cortez) sought a declaratory order from FERC
that the construction and operation of a proposed interstate pipeline transporting a gas comprised
of 98% CO2 and 2% methane would not be within the commission’s jurisdiction. Cortez argued
that the gas in question was not “natural gas” as the term is defined in Section 2(5) of the NGA, 46
so a proposed pipeline to transport this gas was not under FERC’s NGA jurisdiction. FERC
agreed with Cortez and issued a declaratory order disclaiming jurisdiction over the proposed
pipeline. 47 In its decision, FERC explored the inherent ambiguity in the term “natural gas,”
explaining that it has two very different definitions. FERC recognized that in the terminology of
chemistry, “natural gas” refers to any substance that is gaseous in its natural state, including
carbon dioxide. 48 However, according to FERC, the more common usage of the term “natural
gas” refers to a gaseous mixture of hydrocarbons. 49 FERC held that it was this more common
meaning of “natural gas” that applied to the term as it was used in the NGA. FERC pointed to the
goals and purposes of the NGA, which are primarily to regulate a specific “natural gas”
industry.50 Thus, the term “natural gas” as used in the statute referred to a gaseous mixture of
hydrocarbons.51 As a result, FERC held that the proposed Cortez Pipeline was not within the
NGA jurisdiction of the commission.52
ICC Decision
In 1980, after FERC issued its CO2 ruling, the owners of the proposed Cortez Pipeline petitioned
the ICC for a similar declaratory order that the pipeline would not be subject to the ICC’s
jurisdiction either. As the ICC recognized at the outset of its decision, there was no controversy
concerning whether ICC approval was necessary for construction or expansion of pipeline
facilities—the statute and previous case law plainly state that the ICC has no pipeline siting
jurisdiction whatsoever. 53 Furthermore, the ICC noted that the U.S. Department of Transportation
would exercise jurisdiction over the pipeline’s compliance with applicable safety standards.54
Instead, the decision emphasized the ICC’s regulation of other aspects of pipeline service (i.e.,
rates), and whether the statutory exception from ICC regulation for pipelines that transport
“water, gas or oil” covers CO2 pipelines.55
Relying on the legislative history of previous versions of the statutory language in the ICA (which
excluded “natural or artificial gas”) as well as the plain language of the current statute, the ICC
concluded that Congress intended to exclude all types of gas, including CO2, from ICC
regulation. The ICC recognized that its initial ruling in this matter, in concert with FERC’s order
46
15 U.S.C. § 717(a)(5).
Cortez Pipeline Company, 7 FERC ¶ 61,024 (1979).
48
Id. at 61,041.
49
Id.
50
Id.
51
Id.
52
Id. at 61,042.
53
Cortez Pipeline Company—Petition for Declaratory Order—Commission Jurisdiction Over Transportation of
Carbon Dioxide by Pipeline, 45 Fed. Reg. 85177 (December 24, 1980).
54
Id.
55
49 U.S.C. § 1-501(a)(1)(c).
47
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disavowing jurisdiction over the proposed Cortez Pipeline, created a regulatory gap of sorts. The
ICC noted that generally, “[t]he opinion of a sister agency should be given weight, if possible, so
that related statutes can be coordinated.”56 However, the ICC found that “in this case the FERC
decision is not helpful to us because it did not construe or interpret the terms natural and artificial
gas [under the ICA]. Its decision was based on other grounds.”57 Although the ICC found in this
initial decision that it likely did not have jurisdiction over CO2 pipelines, it did conclude that “the
issue is important enough to institute a proceeding and accept comments on the petition and our
view on it.”58 After the comment period, the ICC confirmed its view that CO2 pipelines were
excluded from the ICC’s jurisdiction.59
Potential Issues Related to ICC Disclaimer of Jurisdiction
Notwithstanding the ICC’s 1980 disclaimer of jurisdiction over CO2 pipelines in the Cortez
Pipeline case, other evidence indirectly suggests the possibility that interstate CO2 pipelines could
still be considered subject to the jurisdiction of the STB. For example, an April 1998 report by the
General Accounting Office (GAO)60 stated that interstate CO2 pipelines, as well as pipelines
transporting other gases, are subject to the board’s oversight authority. The report stated that GAO
had identified five products carried by 21 pipelines subject to the STB’s jurisdiction. 61 One of the
five identified products was CO2 (another was hydrogen—also a gas). In fact, the report lists 14
different pipelines transporting CO2 for purposes of EOR, including the Cortez Pipeline, which
are said to be subject to the jurisdiction of the STB.62 The GAO states that the STB reviewed its
analysis and, presumably, did not object to this jurisdictional classification.63
It should also be noted that the Cortez Pipeline decision was issued by the ICC, not the STB.
Although the STB is the successor to the now-defunct ICC and the statutory language regarding
the STB’s jurisdiction is virtually identical to the language at issue in the Cortez decision, they
are not the same agency. The STB conceivably could determine that its jurisdiction is not
governed by the ICC’s decision in the Cortez Pipeline matter. Indeed, the Supreme Court has
ruled that federal agencies are not precluded from changing their positions on the issue of
regulatory jurisdiction. According to the Court, “an initial agency interpretation is not instantly
carved in stone. On the contrary, the agency, to engage in informed rulemaking, must consider
varying interpretations and the wisdom of its policy on a continuing basis.”64 Accordingly,
56
Cortez Pipeline Co., 45 Fed. Reg. at 85178.
Id. at 85178.
58
Id.
59
Cortez Pipeline Company—Petition for Declaratory Order—Commission Jurisdiction Over Transportation of
Carbon Dioxide by Pipeline, 46 Fed. Reg. 18805 (March 26, 1981).
60
Now known as the Government Accountability Office.
61
GAO Report: SURFACE TRANSPORTATION: Issues Associated With Pipeline Regulation by the Surface
Transportation Board, April 1998.
62
Id. at 27.
57
63
STB, personal communication (December 2007). The STB Office of Governmental and Public Affairs informed
CRS that the board recognizes the conflict between this GAO report and the ICC decision (as well as the wording of 49
C.F.R. § 15301 governing STB jurisdiction over pipelines other than those transporting “water, gas or oil”). However,
the office declined to state an opinion as to the current extent of STB jurisdiction over CO2 pipelines and suggested that
the STB would likely not act to resolve this conflict unless a CO2 pipeline dispute comes before it.
64
Chevron U.S.A. v. Nat. Res. Def. Council, 467 U.S. 837, at 863-64 (1984).
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regulation of CO2 pipelines for CCS purposes by the STB (or by FERC, for that matter) under
existing statutes remains a possibility.
Implications of the Possible Regulatory “Gap”
If CCS technology develops to the point where interstate CO2 pipelines become more common,
and if FERC and the STB continue to disclaim jurisdiction over CO2 pipelines, then the potential
regulatory “gap” discussed above may receive attention. This gap does not necessarily demand
resolution. As commentators have noted, state laws and contractual arrangements among
interested parties established under the EOR model would also apply to CO2 pipelines for CCS.65
Interstate CO2 pipelines would still be required to meet the safety requirements of the Department
of Transportation. Also, although there would be no federal rate regulation, any anti-competitive
behavior by the owners or operators of a CO2 pipeline could probably be addressed by federal
antitrust enforcement agencies, including the Federal Trade Commission and the antitrust division
of the U.S. Department of Justice. Finally, any pipelines needing to cross federal lands would be
required to obtain a right-of-way from the federal government, and so would be subject to any
conditions such rights-of-way might impose.
Nevertheless, some analysts, drawing on the history of oil and natural gas pipeline development,
anticipate a potential need for better defined federal regulatory authority over a potential
expansive CO2 pipeline network:66
The growth of these sectors and the growing importance of transportation, abuses of market
power, price discrimination and other issues, including conflicts between state and federal
authorities led both to preemption by the federal government and administrative regulation.
As the CO2 transport and storage sector grows, similar issues of regulatory frameworks and
the mix of federal and state jurisdiction are likely to have to be confronted, as has been the
case for all network industries in the United States. The eventual economic regulatory
development for CCS will need to consider the varying approaches taken for oil and natural
gas, and the serious problems that their history experienced.
Thus, Congress may eventually be asked to consider whether the existing federal jurisdictional
disclaimers and the current state-by-state regulatory structure for EOR pipelines comprise an
appropriate regulatory scheme for a potential national CO2 pipeline network in support of CCS. If
Congress wishes to amend the existing regulatory structure, it could choose to amend existing
statutes to provide for definitive CO2 pipeline rate jurisdiction by the federal government.67 FERC
and the STB are two candidates for administration of such oversight. Alternatively, Congress
could establish another federal regulator of CO2 pipelines, or enact legislation addressing specific
aspects of the existing regulatory structure for EOR.
65
See, for example, Philip M. Marston, “Doing the Deal: Legal and Regulatory Aspects of the Evolving CCS Regime
in the USA,” Proceedings of the 2e Collogue International Captage et Stockage Géologique du CO2, Paris, France
(October 4-5, 2007), at 3. http://www.colloqueco2.com/presentations2007/ColloqueCO2-2007_Session4_1MARSTON.pdf.
66
M.A. de Figueiredo, H.J. Herzog, P.L. Joskow, K.A. Oye, and D.M. Reiner, “Regulating Carbon Dioxide Capture
and Storage,” MIT Center for Energy and Environmental Policy Research, Working Paper 07-003 (April 2007), at 5.
67
S. 2889, an STB reauthorization bill reported out of committee in December of 2009, would amend the STB’s
jurisdiction in a way that would likely refute any argument that the STB has jurisdiction over CO2 pipelines. Section
502 of the bill would strike STB’s statutory authority to regulate pipelines transporting “water, gas, or oil” and replace
it with authority to regulate “water, oil, or natural or artificial gases that are used primarily as a fuel or for other energy
purposes.”
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Legal Issues Associated with the Development of CO2 Sequestration Technology
The Status of CO2 as a Pollutant Under the Clean Air Act
When considering the need for CCS facilities, as well as the potential liability associated with
owning or operating a CCS facility, one important factor to consider is the regulatory treatment of
CO2. For example, if CO2 is considered a “pollutant” as that term is defined in the Clean Air Act,
the use of CCS facilities could help minimize the sort of emissions that would be subject to the
regulation of the Environmental Protection Agency (EPA) pursuant to the agency’s authority
under the Clean Air Act.68 Regulatory treatment of CO2 emissions would also be an important
consideration for potential CCS owners and operators who are assessing the potential regulatory
and liability concerns associated with the proposed facilities.
On December 7, 2009, EPA issued an endangerment finding, classifying six greenhouse gases
including CO2 as “air pollution” that, in combination, endangers public health and welfare
because it causes or contributes to global warming. 69 The EPA expressly limited its finding to
greenhouse gases emitted from any class or classes of “new motor vehicles and new motor
vehicle engines.”70 The EPA’s endangerment finding allows the agency to establish emissions
standards for greenhouse gases produced by certain “moving sources” (including passenger cars,
light-duty trucks, motorcycles, buses, and medium and heavy duty trucks) under section 202(a) of
the Clean Air Act.71 The legal impetus for EPA’s finding was the Supreme Court’s opinion in
Massachusetts v. EPA, in which the Court held that EPA has the statutory authority to regulate
CO2 emissions from moving sources pursuant to section 202(a) of the Clean Air Act, and directed
the agency to address: (i) whether greenhouse gases emitted by certain moving sources are “air
pollution” within the meaning of section 202(a), and (ii) whether greenhouse gases emitted by
section 202(a) source categories endanger public health and welfare.72
To date, EPA has only proposed greenhouse gas emissions standards for moving sources.73 The
agency’s endangerment finding may potentially have implications other sectors including
electricity generation and industry. Some argue that EPA regulation of CO2 emissions from
stationary sources is the next logical step to help reduce atmospheric levels of greenhouse gases.
Whether EPA chooses to take this step remains to be seen. The 111th Congress is considering bills
addressing greenhouse gas emissions from certain stationary sources. 74
68
43 U.S.C. § 7401 et seq.
Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act;
Final Rule, 74 Fed. Reg. 66,495-66,546 (Dec. 15, 2009). The EPA Administrator defines “air pollution” as a mix of six
greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs), and sulfur hexafluoride (SF6).
69
70
According to the EPA Administrator’s finding, “the new motor vehicles and new motor vehicle engines” addressed
are: “Passenger cars, light-duty trucks, motorcycles, buses, and medium and heavy duty trucks.” Id. at 66,537.
71
Section 202(a) of the Clean Air Act provides:
The [EPA] Administrator shall by regulation prescribe … standards applicable to the emission of
any air pollutant from any class or classes of new motor vehicles … which in [her] judgment cause,
or contribute to, air pollution which may reasonably be anticipated to endanger public health or
welfare.
72
Massachusetts v. EPA, 549 U.S. 497 (2007).
73
Proposed Rulemaking To Establish Light-Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average
Fuel Economy Standards, 74 Fed. Reg. 49,454 (Sept. 29, 2009).
74
See, e.g., H.R. 2454 §§ 111-116; S. 1733 §§ 121-125.
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Massachusetts v. EPA
In Massachusetts v. EPA, the Supreme Court was tasked with determining whether EPA is
authorized by the Clean Air Act to regulate greenhouse gas emissions from new motor vehicles in
the event that the agency finds that such emissions cause or contribute to climate change. The
factual background underlying the case involved a rulemaking petition, filed in 1999 by a group
of 19 private organizations, asking EPA to regulate greenhouse gas emissions from new motor
vehicles under section 202(a).75 In September, 2003, EPA entered an order denying the
rulemaking petition on the grounds that (i) the Clean Air Act did not authorize EPA to issue
mandatory regulations to address global climate change; and (ii) even if EPA had the authority to
set greenhouse gas emissions standards, such a course of action would be “unwise.”76
The Court, unmoved by EPA’s justifications for declining to regulate greenhouse gas emissions,
held that because greenhouse gases (which, as mentioned, include CO2) “fit well within the Clean
Air Act’s capacious definition of ‘air pollutant,’ … EPA has the statutory authority to regulate the
emission of such gases from new motor vehicles.”77 Clarifying the contours of EPA’s authority to
regulate greenhouse gas emissions, Justice Stevens further observed:
If EPA makes a finding of endangerment, the Clean Air Act requires the agency to regulate
the emissions of [CO2] from new motor vehicles … [O]nce EPA has responded to a petition
for rulemaking, its reasons for action or inaction must conform to the [Clean Air Act]. Under
the clear terms of the Clean Air Act, EPA can avoid taking further action only if it
determines that greenhouse gases do not contribute to climate change or if it provides some
reasonable explanation as to why it cannot or will not exercise its discretion to determine
whether they do. 78
In sum, the Court considered EPA’s denial of the rulemaking petition “arbitrary, capricious … or
otherwise not in accordance with the law,” because the agency failed to offer a reasonable
explanation for declining to determine whether greenhouse gases are “air pollution” within the
meaning of section 202(a) of the Clean Air Act.79 The Court, however, expressly noted that it was
not requiring EPA to make an endangerment finding.80 Instead, the Court held only “that EPA
must ground its reasons for action or inaction in the statute.”81
EPA’s CO2 Endangerment Finding
In response to the Supreme Court’s order in Massachusetts v. EPA, EPA announced its final CO2
endangerment finding on December 7, 2009.82 The EPA’s endangerment determination consisted
of two findings, one addressing each component of the section 202(a) endangerment provision.
75
Mass v. EPA at 510.
Id. at 511.
77
Id. at 532.
78
Id. at 533.
79
Id. at 534.
80
Id. at 535.
81
Id.
76
82
74 Fed. Reg. 66,495-66,546. For a more detailed discussion of EPA’s CO2 Endangerment Finding, see CRS Report
R40984, Legal Consequences of EPA’s Endangerment Finding for New Motor Vehicle Greenhouse Gas Emissions, by
Robert Meltz.
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First, EPA found that current atmospheric levels of greenhouse gases—from all emission
sources—constitute in combination “air pollution which may reasonably be anticipated to
endanger public health and welfare.”83 This finding is not tied to any specific source category.
Second, EPA found that emissions of greenhouse gases by new motor vehicles will in
combination “cause or contribute to” the current atmospheric levels of greenhouse gases. This
second determination is plainly linked to one source category—emissions from new automobiles,
trucks, and motorcycles.
The EPA’s bifurcated approach to its endangerment finding may affect sources of CO2 emissions
covered by other provisions of the Clean Air Act, including fuels and fuel additives, non-road
engines and non-road vehicles, and aircraft engines, to name a few. 84 For the purposes of the
instant discussion, however, the most important consequence of EPA’s endangerment finding is
that it may potentially trigger EPA regulation of CO2 emissions from stationary sources of air
pollution at some point in the near future.85
Implications of EPA’s Endangerment Finding for Stationary Sources Covered
by the Clean Air Act
As mentioned, the EPA Administrator’s endangerment finding under section 202(a) of the Clean
Air Act consisted of a general finding (greenhouse gas emissions from all sources, taken together,
constitute air pollution that may reasonably be anticipated to endanger public health and welfare)
and a more specific finding linked to a specific category of moving sources (greenhouse gas
emissions from motor vehicles, taken together, constitute air pollution that may reasonably be
anticipated to endanger public health and welfare). The first, more general endangerment finding
may implicate other provisions of the Clean Air Act that apply to stationary sources.
Specifically, section 111(b)(1) of the Clean Air Act, which applies to stationary sources, contains
an endangerment provision similar to the one found in section 202(a) of the act.86 The difference
between the two provisions is that section 111(b)(1) only authorizes an endangerment finding for
those emissions from stationary sources that cause or contribute “significantly” to air pollution
and which may reasonably be anticipated to endanger public health and welfare. An argument
could be made that the EPA Administrator’s general endangerment finding under section 202(a),
coupled with her extensive discussion on the effects of greenhouse gas emissions throughout the
endangerment finding, could compel a similar endangerment finding under section 111(b)(1) of
the Clean Air Act.87 In the event of such an endangerment finding, stationary sources would be
required to implement the “best system of emission reduction” to comply with any new standards
of performance promulgated by EPA.88
83
74 Fed. Reg. at 66,516.
See Meltz, at supra note 82.
85
For a discussion and chronology of major federal actions taken in the wake of Mass. v. EPA, see CRS Report
R41103, Federal Agency Actions Following the Supreme Court’s Climate Change Decision: A Chronology, by Robert
Meltz.
86
Specifically, Clean Air Act section 111(b)(1) commands EPA to issue new source performance standards (NSPSs)
for new or modified stationary sources of air pollution once it determines that a stationary source “causes, or
contributes significantly to, air pollution which may be reasonably anticipated to endanger public health or welfare.”
87
See Meltz at supra note 82.
88
For the purposes of section 111 generally, the term “standard of performance” means:
(continued...)
84
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Beyond the duty to promulgate new standards of performance for stationary sources subsequent
to an endangerment finding under section 111(b)(1), the EPA Administrator has considerable
discretion to determine the precise content and applicability of a particular standard of
performance. This discretion is inherent in the Clean Air Act’s definition “standard of
performance,” which directs EPA to factor in the feasibility of reducing emissions with current
technology (e.g., CCS), and the costs associated with implementing such technology. 89
Additionally, section 111(b)(2) allows EPA to “distinguish among classes, types, and sizes within
categories of new sources” when establishing new standards of performance, adding another layer
of agency discretion.90 Accordingly, an endangerment finding under section 111(b)(1) would not
necessarily result in EPA regulation of greenhouse gas emissions from all stationary sources. To
the extent that new standards of performance established by EPA impact stationary sources (such
as coal-fired factories and power plants), CCS technology could play an important role in helping
stationary sources comply with such standards.
Liability Concerns Associated with CCS Technology
As with most developing technologies, implementation of CCS gives rise to a number of
concerns related to both known and unknown risk of loss and liability. Generally, the liability
risks associated with CCS fall into three categories: (1) groundwater contamination, either
through displacement of saline groundwater into potable aquifers or through direct CO2
contamination of the aquifers; (2) seismic events triggered by pressure changes; and (3) surface
releases due to buoyant flow of CO2 upward through pathways in undetected faults or abandoned
wells.
There is a growing concern that the uncertainty regarding financial responsibility for liability
associated with CCS could seriously hinder the development of CCS technology. In the words of
the nonprofit U.S. Carbon Sequestration Council:
A commercial scale power plant equipped with current CCS technology can easily cost over
$2 billion. Energy companies and financial institutions (including insurers) cannot risk
capital of that magnitude without a clear understanding of regulatory requirements, legal
risks and long-term liabilities, before they commit the capital. Today, that understanding
does not exist.91
Because of this uncertainty and the concern that it will hinder the development of CCS
technology, some have suggested that the government create a liability scheme that will provide
(...continued)
[A] standard for emissions of air pollutants which reflects the degree of emission limitation
achievable through the application of the best system of emission reduction which (taking into
account the cost of achieving such reduction and any nonair quality health and environmental
impact and energy requirements) the Administrator determines has been adequately demonstrated.
Clean Air Act, § 111(a)(1); 42 U.S.C. § 7411(a)(1).
89
Id. The D.C. Circuit has interpreted the standard set forth in Clean Air Act section 111(a)(1) to mean that EPA
should “identify the emission levels that are ‘achievable’ with ‘adequately demonstrated technology’” and then use its
discretion “to choose an achievable emission level which represents the best balance of economic, environmental, and
energy considerations.” Sierra Club v. Costle, 657 F.2d 298, 330 (D.C. Cir. 1981).
90
42 U.S.C. § 7411(b)(2).
91
U.S. Carbon Sequestration Council, Wanted: A Legal and Regulatory Framework for Carbon Capture and Storage
(CCS), April 2009, http://www.uscsc.org/Files/Admin/Educational_Papers/CCS_Legal_Regulatory_Framework.pdf.
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certainty to developers and possibly buttress against catastrophic risk. The first such proposal has
been issued by EPA pursuant to its regulatory authority under the Safe Drinking Water Act.92
Other liability schemes that provide greater protection from catastrophic risk, including the
“Price-Anderson” model, have also been discussed.
The EPA Proposed Rule
On July 25, 2008, EPA issued a proposed rule for the regulation of the underground injection of
CO2 for purposes of CCS.93 EPA issued the proposed rule pursuant to its authority to regulate
underground injections under the Safe Drinking Water Act. The proposed rule would apply to
owners and operators of wells that will be used for long-term CO2 sequestration. 94 EPA proposed
new technical and operational requirements that would be applicable to these owners and
operators, but did not offer any specifics about the requisite financial assurances that the
owners/operators must provide during the time frame in which these facilities are operational.
Instead, EPA sought comments on many of these financial assurance issues. 95
The proposed rule offered more detail on proposed financial assurance requirements for the postinjection site care period, although EPA still welcomes guidance on these issues before it issues a
final rule. The proposed rule would establish a 50-year post-injection site care period,
commencing when injection activities cease and the wells are plugged.96 During this care period,
the owner/operator would be required to monitor the underground CO2 plume and provide
financial assurance to address any liability associated with the facility that may arise.97 The
proposed rulemaking would give EPA’s regional administrator or the director of a delegated
regulatory authority the discretion to lengthen or shorten the site care period based on remaining
potential danger to underground drinking water sources or the ongoing stability of the CO2
plume. 98
If EPA does adopt a final rule that imposes long-term stewardship requirements on CCS facilities
or if any similar statutory or regulatory requirements come to pass, the issue of indemnification of
liability for owners and operators of these facilities must be addressed. As other observers have
noted, it is exceedingly difficult to obtain liability coverage from private insurers without a
clearly defined and commercially practical coverage period.99 However, a shorter or more clearly
defined coverage period could result in harm associated with the facility that is not covered by an
insurance policy or some other form of liability assurance, if the liability event occurs after the
shorter coverage period. One possible solution to this problem would be for the government to
take on some or all of the liability associated with CCS.
92
See generally 42 U.S.C. § 300f through 300j-26.
93
Federal Requirements Under the Underground Injection Control (UIC) Program for Carbon Dioxide (CO2 )
Geologic Sequestration (GS) Wells, 73 Fed. Reg. 43492 (July 25, 2008).
94
Id.
95
Id. at 43,521.
96
Id. at 43,519-20.
97
Id. at 43,520.
98
Id.
99
David P. Flynn and Susan M. Marriott, “Carbon Sequestration: A Liability Pathway to Commercial Viability,” ABA
Journal: Natural Resources & Environment (Summer 2009), at p. 39.
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The Price-Anderson Model
One possible model for addressing potential liability concerns associated with CCS, especially
the possibility of catastrophic loss, is the Price-Anderson Act,100 which addresses liability
associated with nuclear energy facilities. Under the Price-Anderson Act, nuclear power licensees
are required to assume all liability for damages associated with their operations that are awarded
to the public and must waive most of their legal defenses following an “extraordinary nuclear
occurrence.”101 The act further requires licensees that operate reactors with at least 100 megawatts
of generation capacity to obtain the maximum liability coverage readily available on the
insurance market (currently $300 million).102 Damages that exceed that amount are covered by
the “Price-Anderson Fund,” which is funded with retrospective premiums assessed equally
against the eligible reactors.103 That is, if a nuclear incident with liability in excess of $300
million occurs, that excess liability is covered equally by all the licensees. These retrospective
payments are capped at $17.5 million per licensee in order to limit the potential financial burden
following a major accident. 104 Repayment of liability beyond that amount would require
congressional approval under certain procedures outlined in the act.105
The liability scheme established by the Price-Anderson Act helped to make the developing
nuclear power industry commercially viable in the 1950s by creating a means by which parties
could obtain liability coverage despite the unknown extent of the potential liability associated
with the emerging technology. Without liability coverage, nuclear generation would have been a
risky financial proposition and perhaps would not have been economically viable, given the
substantial liability exposure of nuclear facilities.
Although it could be argued that the CCS industry might not face the same potential for
catastrophic loss associated with nuclear power, the uncertainty of liability associated with CCS
could limit the industry much as the nascent nuclear power industry could have been limited
without a federally created liability program. As a result, some have proposed the adoption of a
liability scheme for CCS projects that is similar to that found in the Price-Anderson Act. For
example, in March of 2009, a panel of EPA’s Financial Advisory Board announced that it would
look to the Price-Anderson Act for guidance in establishing the liability scheme for geologic CO2
sequestration.106 Speaking about the Price-Anderson Act, the chairman of the panel noted that
“[b]y limiting liability in the event of an accident, while at the same time providing some level of
public compensation for damages, the legislation served as an incentive and the nuclear power
industry grew from one reactor in 1957, to 104 today.”107 The chairman clarified that while he
was not suggesting the adoption of the Price-Anderson model without alteration for the CCS
industry, the panel would use the act as a guide for addressing long-term financial responsibility
issues; for example, the panel might look to the act’s three tiers of liability: individual site
100
Primarily section 170 of the Atomic Energy Act of 1954, 42 U.S.C. § 2210. For further discussion of the PriceAnderson Act, see CRS Report RL33558, Nuclear Energy Policy, by Mark Holt, at section entitled “Nuclear Accident
Liability.”
101
42 U.S.C. § 2210.
102
Id.
103
Id.
104
Id.
105
Id.
106
“EPA Finance Advisors Eye Price-Anderson Model for CCS Liability,” Inside the EPA, March 20, 2009.
107
Id.
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responsibility; collective responsibility of all nuclear generators; and the responsibility of the U.S.
government.108
Financial Assurance Requirements in Legislative Proposals
Not all proposals to address CCS liability concerns are variations on the Price-Anderson model.
Other models have gained traction among legislators and regulators. For example, S. 1013, the
Department of Energy Carbon Capture and Sequestration Program Amendments Act of 2009,
would require CCS facility licensees to obtain liability protection in amounts “acceptable” to
regulators, and would authorize the Secretary of Energy to agree to indemnify licensees who
satisfy this requirement for amounts in excess of the liability protection obtained by the
licensees. 109 The federal Secretary of Energy would also be authorized to collect a fee from
licensees to cover this indemnification.110 The amount of the fee would be determined by taking
into account the likelihood of an incident and other factors related to the hazards associated with
the indemnified project.111 This proposal has some elements in common with the Price-Anderson
model—most notably, the requirement that licensees obtain financial protection to a certain level,
and indemnification through a federal program above and beyond that protection. However, this
proposal would not necessarily require licensees to obtain the highest possible level of financial
protection before triggering federal indemnification, and such federal indemnification would
come from the Treasury rather than a separate fund comprised of monies collected retroactively
from licensees.
Other bills contain fewer details regarding financial assurances from owners/operators of CCS
facilities, but still recognize the need to address the issue before the technology can be deployed
in a commercially viable manner. For example, Subtitle B of H.R. 2454, the American Clean
Energy and Security Act of 2009, would seek to encourage CCS technology. Although the
Subtitle would not establish a financial assurance system for licensed CCS facilities, it would
require the EPA Administrator to promulgate regulations requiring operators of CCS facilities to
provide evidence of “financial responsibility,” with the details of that demonstration for the most
part left to the discretion of the Administrator.112
108
Id.
S. 1013 at § 2.
110
Id.
111
Id.
112
H.R. 2454 at § 112.
109
Congressional Research Service
19
Legal Issues Associated with the Development of CO2 Sequestration Technology
Author Contact Information
Adam Vann
Legislative Attorney
avann@crs.loc.gov, 7-6978
Paul W. Parfomak
Specialist in Energy and Infrastructure Policy
pparfomak@crs.loc.gov, 7-0030
James E. Nichols
Law Clerk
jnichols@crs.loc.gov, 7-5812
Congressional Research Service
20
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