Carbon Capture and Storage: A Fool’s Gold Rush?

Carbon capture and storage (CCS, also called carbon capture, utilization and storage CCUS or carbon capture and sequestration)) is a process of extracting carbon dioxide from the stream of an industrial process, transporting it through a pipeline, and storing it underground. The technology has gathered lots of attention over the past few years as nations look for ways to reduce their carbon dioxide emissions in the face of climate change pressures. In theory, the process seems straightforward and simple: capture carbon power generation and industrial processes release into the atmosphere and store it in an underground rock formation instead. Indeed developing and commercializing this technology is a critical component of the Biden Administration’s climate policy which aims to achieve “net zero greenhouse gas emissions by 2050” and “100 percent carbon pollution free electricity by 2035.” The MIT Technology Review published an interview with the new chief of staff at the Office of Fossil Energy that provides an excellent discussion of the role the Biden Administration sees CCS playing in achieving these ambitious climate change goals (read here).

Emissions from industrial facility

Carbon Capture and Storage Success Stories

Indeed, there are some notable CCS success stories. The Century Plant owned by Occidental Petroleum as part of its Century gas processing facility in West Texas is the largest single CCS plant in the world. The $1.1 billion facility captures and uses 8.4 million tons per annum (mtpa) of carbon dioxide for use as part of enhanced oil recovery (EOR) projects in the Permian Basin in Texas. ExxonMobil’s Shute Creek Gas Processing Plant in Wyoming is a close second at 7 mtpa. Three other major facilities include the Great Plains Synfuels plant in North Dakota (3mtpa), the Petra Nova Carbon Capture facility in Texas (1.6 mtpa) and the Boundary Dam Carbon Capture and Storage project in Saskatchewan, Canada (1 mtpa). The latter two facilities are notable because they capture the carbon dioxide from power plants. CCS is a proven technology that can work under the right circumstances and conditions.

Carbon Capture and Storage Cautionary Example – FutureGen

However, there have also been some failures, specifically with CCS and power generation. The Bush Administration originally proposed the FutureGen CCS project in 2003 as a public-private partnership where the federal government would cover more than three-quarters of the estimated $1.3 billion price tag. Of that amount, $730 million would retrofit a power plant in Meredosia, Illinois, with the project allocating the remaining $550 million for a CO2 pipeline, storage site, and research/training center. However, by 2010, the price had increased to more than $1.65 billion, with additional increases beyond that amount until the U.S. Department of Energy terminated the project in 2015. According to both the Department of Energy and the project’s private sponsors, the time ran out on stimulus funding before they could complete the project. However, one of the main issues with the FutureGen project (and all storage projects) was the economics of the deal.

Basics of Carbon Capture and Storage Economics

The economics of CCS are challenging in the current policy environment in the United States, as well as most places around the world. The fundamental economic problem is that CCS is expensive, and it is cheaper for companies to dump carbon dioxide in the atmosphere than try to capture and store it underground. EOR projects can offset some of the costs of CCS but using captured carbon to produce more hydrocarbons conflicts with overall emissions reduction goals. Of the 28 commercial CCS facilities in operation, just six have dedicated underground storage. The remaining 22 facilities support EOR projects. Until carbon costs more to dump into the atmosphere than capture and store, companies have no economic basis to change their operations. A carbon emissions policy that includes a tax or other economic incentive that places a value on carbon would go a long way in changing this equation.

A recent study from the Intergovernmental Panel on Climate Change (IPCC) found that the capital cost of a pulverized coal plant was approximately 63 percent higher with carbon capture technology. The same study found that adding carbon capture technology to power generation facilities increased the cost of energy by 46 percent for natural gas (combined cycle), 57 percent for pulverized coal and 33 percent for integrated coal gasification (combined cycle). The fact that adding carbon capture and storage technology to existing and new power plants raises the cost of electricity is not surprising. What these numbers suggest though is some method for calculating the value of carbon needed to support the enhanced deployment of CCS technology.

According to the IPCC, carbon dioxide prices of $25 – $30 per ton would accelerate the development and deployment of CCS systems for power generation. The pricing system could be based on emissions permitting systems like the US Environmental Protection Agency’s Clean Air Act permit system. The challenge with the permitting and pricing system for carbon dioxide is to keep the initial permits small and gradually reduce available permits over time to raise the price of carbon dioxide emissions and encourage further deployment emission reduction technology. Again, creating a price for carbon through government policy is one of the keys in creating an economic case for the use of CCS technology, particularly in electric power generation.

Substantial Need for Growth in Carbon Capture and Storage Capacity

The Global CCS Institute publishes detailed information on the development of CCS projects and technologies, as well as the future situation for CCS development. As of 2020, the global total capacity of CCS projects was 40 mtpa, according to the Institute. By 2050, that number will need to be more than 5.6 gigatons to meet climate change goals – a more than one hundredfold increase! As noted above, the economics are simply not on the side of using CCS technology to address climate change and carbon dioxide emissions. Governments around the world will need to provide much more support to these projects if they intend to use CCS to meet climate change goals.

Location Matters for Carbon Capture and Storage Facilities

Since CCS projects rely on very specific underground formations to effectively store carbon dioxide, the location of these facilities is critical. The company and government must have a detailed understanding of the subsurface geology to ensure that stored carbon dioxide will not migrate back to the surface, to other underground formations or to groundwater sources. It should come as no surprise that half of the 28 commercial CCS projects are in the United States and the remaining half are in countries like Canada, Norway and China – all countries with extensive petroleum development. The same geological survey technologies that help companies find oil and gas resources help identify and analyze potential CCS locations. For projects that do not use the captured carbon in EOR, depleted natural gas deposits are particularly attractive sites for CCS.

The challenge for companies and governments is to find locations in the world where the potential storage site is close enough to the emissions source (such as a power plant, a cement factory, or gas processing plant) to make transportation of the captured carbon dioxide possible and cost-effective. If the CCS facility is supporting a power plant, the company must also site the plant close enough to a population center to avoid transmission losses. Countries that have been active in developing petroleum resources over the past half-century have an advantage in CCS siting because they have the detailed subsurface knowledge and professional capabilities to identify and develop these sites. For the rest of the world, CCS siting could be a major challenge requiring costly subsurface analysis and the training of a new class of professionals to oversee and manage these projects.

Legal and Regulatory Regime of Carbon Capture and Storage

Along with the technical and economic challenges of CCS, the legal and regulatory regime for CCS projects presents yet another issue for potential projects. In the United States, a handful of state governments have developed CCS legislation to support the development of projects in their jurisdiction. Not surprisingly, the most of the first states to move on legislation for CCS projects have been the largest coal, oil, and natural gas producing states. There are a few key considerations when developing a legal and regulatory regime for CCS: 1) pore space ownership; 2) the permitting system to manage and regulate CCS activity; and 3) long-term liability for the storage facility.

Wyoming was the first state in the United States to enact legislation to permit and manage CCS projects. Wyoming was also the first state to assign legal ownership of the pore space (the space between rocks used for carbon dioxide storage) to the surface owner. The legal ownership of the pore space is important in CCS projects because it determines who the project owner contacts to negotiate storage rights. Wyoming and Montana allow the owner of the pore space estate (the legal term for property ownership) to sever it from the surface estate. North Dakota assigns the pore space ownership to the surface owner but does not allow the surface owner to sever the estate. Severed property ownership interests are common in the Western United States, particularly regarding mineral rights.

Wyoming’s carbon sequestration legislation created a permitting system for the state Department of Environmental Quality to issue permits to CCS projects in the state. The permitting process requires that the permit application include, among other things, 1) a monitoring plan to assess any migration or release of carbon dioxide from the storage formation; 2) proof of bonding and/or appropriate financial assurance to cover construction, operation and closure of the facility; and 3) a description of the formations, geochemistry and all other relevant data to demonstrate the suitability of the facility. The permitting system in Wyoming provides an appropriate regulatory system that could be a basis for a model for other countries.

North Dakota has also developed an underground storage regulatory framework to support CCS projects. In North Dakota, the carbon dioxide underground storage law creates a permitting system like Wyoming’s for CCS projects managed by the state industrial commission. The company applying for the permit must satisfy the conditions described in the law, including acquiring ownership of at least 60 percent of the pore space (note: Wyoming requires 80 percent of pore space owners to consent to the facility). The North Dakota law also creates a fund, supported by a per ton fee on injected carbon dioxide, that provides funding for the industrial commission to process applications and manage the CCS projects for the long-term. The regulatory system in North Dakota for CCS could also be the basis for a model for other countries.

From a regulatory and government perspective, companies developing and designing CCS projects must demonstrate the ability to store carbon dioxide underground for hundreds of years without the possibility of release. A release of carbon dioxide from an underground storage facility creates a potential legal liability for the company or the government based on any carbon emissions tax or other financial penalty. The transfer of legal liability for the facility from the company to the government should be subject to well defined conditions and appropriate time limits. North Dakota’s law provides that the state will assume liability for the carbon dioxide ten years after the storage facility has closed, and subject to the facility operator obtaining a certificate demonstrating the long-term storage of the facility.

Conclusions on Carbon Capture and Storage

The long-term potential of CCS to mitigate climate change will depend on a combination of government policy and effective regulation of the projects. Governments can support these projects in several ways:

  1. Improve project economics: the most effective way to support the private sector in developing CCS systems and technologies is to implement a set of effective financial incentives that put an appropriate price on carbon dioxide emissions. The economics of CCS do not support long-term geologic storage without a well-designed fiscal regime. As noted above, most of the largest existing CCS projects use captured carbon dioxide to support EOR projects – providing a sustaining source of revenue for project sponsors.
  2. Develop the appropriate regulatory framework: the very long-term project horizons and eventual transfer of liability to the government will require a robust and effective regulatory framework (like Wyoming or North Dakota) to be successful. Without appropriate regulatory oversight, these projects may eventually release the stored carbon dioxide – negating any beneficial impact on climate change and subjecting the government to liability for the emissions.
  3. Advance projects by identifying sites and building oversight capacity: siting CCS projects requires a project sponsor to identify sites with appropriate geologic formations suitable for long-term storage of carbon dioxide. The government can support this effort through grants to colleges or universities or allocating resources to government geological agencies to identify and examine potential CCS sites. The government should also make investments in developing trained professional staff to effectively manage and oversee new CCS projects.

Carbon capture and storage is a viable technology that could provide part of the solution for reducing carbon dioxide emissions and meeting climate change goals. If the technology is going to reach its full potential, governments around the world will need to make substantial investments in creating the right economic and policy conditions. CCS has had several success stories – and a few notable failures. Policymakers can learn from these examples, as well as the governments that are designing legal and regulatory systems, to create an effective framework for CCS to help meet emissions and climate objectives. Far from being a “fool’s gold rush,” CCS projects could help in averting some of the consequences of climate change and reduce emissions for power generation and other industrial activities.

Planning For the Ones You Love

Our estate planning process begins with a Family Wealth Planning Session. Before the Session, you will complete homework that will have you feeling more organized and put together than you have in a long time. Maybe ever.

During the Session, we will look at what would happen to all of what you have and everyone you love, if anything were to happen to you. Then we will create a plan together to make sure everything goes the way you want. You can control your future and do things today that will help your family during one of their most emotional and difficult moments. They will always know how much you cared about them and will be relieved of many of the difficult choices they would have otherwise been forced to make.

At Kinney Law Office, we see the signing of your estate planning documents as just the beginning of our relationship with your family. Over time, your assets will change, your family will change, the law will change and your life will change. Your plan must evolve and adapt to these changes to make sure it works when your family needs it the most. Let's get started today!

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