Climate Change and Carbon Management

Transcription

1 Climate Change and Carbon Management STATE AND REGIONAL DEVELOPMENTS In the absence of a clear legal and regulatory framework by the federal government, states and regions have undertaken initiatives to address the use of Carbon, Capture and Storage ( CCS ) technology as a means to mitigate climate change. Some of these initiatives are summarized below: (1) model climate change legislation which refers to CCS is being introduced in numerous States; (2) some States are moving forward on regulations and incentives in a manner that would support commercial activity; (3) other States are pursuing approaches which could be interpreted less favorably; and (4) a handful of States is competing for CCS business as a matter of economic development. The less-commercially focused CCS efforts in the States appear to be well organized and well funded (to the tune of millions of dollars, according to media reports). California AB 32: California policymakers are moving forward on various fronts to implement AB32, the State s landmark climate change bill. Several of the activities involve sequestration: (i) by June 2007, the State will have developed basic requirements for the new Low Carbon Fuel Standard (should the case be made that oil produced from CO 2 -EOR is a low-carbon fuel?); and (ii) numerous meetings will be held throughout the spring and early summer 2007 to examine issues such as whether and the extent to which that geologic sequestration is included in the program. AB 705: AB 705 would require various State agencies in California to set model rules for the capture and geologic storage of carbon dioxide. The bill has the support of the NRDC. SB 247: Introduced on February 14, 2007, SB 247 (the Global Warming Solutions Act of 2006 ) would designate CARB as the lead regulatory agency for climate change purposes. CARB would be directed to approve a plan for achieving the maximum technologically feasible and cost-effective reductions in greenhouse gas emissions from various sources. The plan would have to identify opportunities for emission reductions measures from all verifiable and enforceable voluntary actions, including, but not limited, carbon sequestration projects and best management practices ( 1) (emphasis added). Media : + Inside Cal/EPA (Mar. 2, 2007), Pavley Promotes Climate Model to Other States, Eyes CIWMB Seat : Pavley said she is also talking with California lawmakers to promote legislative ideas she believes should be considered in the wake of AB 32, and said she may consider similar legislation if elected to the Senate in For example, the Legislature needs more detailed discussions of carbon sequestration, Pavley said Underground storage of CO 2 is a popular potential strategy envisioned by some businesses, but there doesn t seem to be models on [carbon sequestration], Pavley said. Colorado Colorado Statutes (enacted as House Bill ): Last year, Colorado enacted legislation that authorized the PUC to incentivize the construction of CCS-equipped IGCC. The bill requires that a portion of the CO 2 be captured and separately requires various economic analyses. It also sets the stage for the PUC 1 We have highlighted some key media only. CCS media is voluminous.

2 to allow utilities to recover their CCS costs from ratepayers. The statute is thus striking in its approach as it opens up a new front for the CCS debates i.e, the PUCs. Hawaii HB 226 (companion SB 1612): Introduced on March 2, 2007, HB 226 is functionally similar to Illinois/HB1874 in that it directs the State Department of Health to develop an emission reduction plan, including carbon sequestration projects ( 7(f)). Illinois Last fall, the Governor announced plans to construct a CO 2 pipeline to supply anthropogenic CO 2 to the Illinois basin in the southeast corner of the State. HB 1777 (companion SB 1704): Introduced on February 23, 2007, HB 1777 (the Clean Coal FutureGen for Illinois Act ) provides the FutureGen Alliance with liability protection, land use rights, and permitting certainty. Despite the legislation s FutureGen focus, it could indirectly set standards for commercial facilities in several key aspects, as follows: (i) it refers to permanent sequestration, suggesting that a permanence standard is needed ( 5, 10(3)); (ii) it defines carbon capture and storage as the process of capturing and injecting sequestered gas for permanent storage, thereby suggesting that no leakage is acceptable ( 15 2 ); and (iii) it defines sequestered gas as CO 2 and other chemical constituents in concentrations determined to be acceptable by the Agency, thereby raising the notion of Illinois setting constituent-based standards for the gas that either conflict with those being set by other States (e.g., California) or DOT s standards for the pipeline transportation of CO 2. The bill also addresses liability and limits on the post-injection use of the gas. HB1874 (companion SB 1187): Introduced on February 27, 2007, HB1877 (the Global Warming Response Act ) directs the Illinois EPA to develop an emission reduction plan, including carbon sequestration projects ( 30(c)). This bill is relevant because it could be read to suggest that IEPA would regulate CO 2 injection and storage (as opposed to an approach advocated by the IOGCC). It also would spawn State regulatory decision making on the meaning of carbon sequestration. + Carbon Control News (Mar. 13, 2007), Midwest Pursues Groundbreaking CO 2 Pipeline, Sequestration Projects : Reporting that the Joyce Foundation, a Chicago-based NGO, is providing Midwest environmental and related groups with millions of dollars to develop CCS policy. 3 Funded groups include the NRDC and the Great Plains Institute. + Carbon Control News (Mar. 13, 2007), Midwest Pursues Groundbreaking CO 2 Pipeline, Sequestration Projects : Illinois is seen as a leading candidate for receiving CO 2 shipments from throughout the region, including coal-fueled projects in Minnesota and Wisconsin, sources say. Illinois officials and industry representatives serving on a special task force created by Gov. Rod Blagojevich (D) are trying to identify and overcome various barriers to permitting integrated gasification combined cycle (IGCC) coal facilities, building CO 2 pipelines, and garnering approvals for geologic sequestration projects. The sequestration projects are expected to include both enhanced oil- and coal-field recovery, as well as long-term CO 2 geologic containment 2 This definition is potentially problematic for several reasons aside from the notion of permanence. For those in the CCS industry interested in their post EOR floods being deemed storage or sequestration, this definition could be interpreted to eliminate that activity, for example. Gasification, CTL and other facilities planned for the Illinois Basin (including those portions in Kentucky) should be interested in this definition. 3 We take no position regarding JF s alleged involvement. We only note that JF is not a commercial enterprise

3 in underground saline aquifers, sources say. Officials with the Illinois Department of Natural Resources and the Illinois Environmental Protection Agency are in discussions with staffers at EPA Region V to iron out potential permitting barriers, according to an Illinois source. Region V [will] discuss where they think they can help us moving forward, because at the end of the day the [government] wants to make sure permitting for gasification, carbon capture and sequestration is clear and... leaves plenty of room for public input, the source says. Because drilling wells for CO 2 injection intended for longer-term storage is a new undertaking, both state agencies and EPA are looking at potential new regulations to ensure the projects are safe and protect the environment. EPA officials plan to regulate a series of demonstration carbon sequestration projects across the country through an experimental permit under the federal underground injection control (UIC) program. But Illinois officials and industry representatives are discussing alternative permitting options to cover longer-term CO 2 storage that does not clearly fall under the UIC program, sources say. This not only would benefit private industry undertakings, but also Illinois efforts to land the federal FutureGen project. I m guessing that at the end of the day there will have to be some regulations promulgated, the Illinois official says. Task force members are expected to meet again with EPA Region V officials near the end of the month. We ll talk about wells for CO 2 capture, and we have someone coming to talk about gasification. Pending Projects There are four pending new coal projects in Illinois in various permitting stages that are central to the task force s work. These plants would yield a variety of products diesel fuel, natural gas, electricity all from coal supplied by the state. If and when these projects are up and running, they are likely to begin providing a stream of CO 2 that can be sold to energy companies for use in enhanced oil recovery and other projects that increase production from underground sources of fuel, as well as projects for long-term sequestration, which can generate valuable CO 2 emission-reduction credits. Pipelines are critical to carrying out this vision, the Illinois official says. As you know, CO 2 being a GHG is one of the main emissions from coal combustion or gasification, and for Illinois coal miners and anywhere in the U.S. to have a future, they need to have technologies that are eventually sound and carbon capture and sequestration helps give coal miners a future. Kansas HB2429: Introduced earlier this year, HB2429 creates the Kansas energy enhancement and environmental reclamation fund, some portion of the proceeds of which must be used by the Kansas Geological Survey to research, develop and promote carbon sequestration and other technologies that reduce the environmental impact of energy production including [sic] reduction in greenhouse gas emissions ( 2(3)). Maryland HB890 (companion SB 409): Introduced on February 9, 2007, HB890 is functionally similar to Illinois/HB1874 in that it directs the Maryland Department of the Environment to develop an emission reduction plan, including carbon sequestration projects ( (D)(6)). This bill would also establish carbon sequestration as an offset/alternative means of compliance mechanism. Minnesota HB 1666 (companion bill SB 1560): Introduced on March 8, 2007, this bill appropriates $475,000 from the general fund to measure Minnesota s capacity to store carbon in terrestrial systems, such as soils and vegetation, and in geologic reservoirs, in order to reduce atmospheric carbon dioxide levels. The bill targets an unique geologic feature

4 HB 1786: Introduced on March 7, 2007, HB 1786 appropriates $2.5M for a carbon sequestration demonstration project. SB 1586: Introduced earlier this year, SB 1586 is functionally similar to Illinois/HB1874 in that it directs the Pollution Control Agency to prepare a GHG study, including opportunities for emissions reductions from geologic carbon sequestration projects ( 4(4)). S.F. No. 1783: Appropriating a bond issuance of $2.5M for an unspecific carbon sequestration project. Montana HB753: Introduced on November 29, 2006 and the subject of a hearing on March 9, 2007, HB753 is functionally similar to Illinois/HB1874 in that it directs the Montana Department of Environmental Quality to develop an emission reduction plan, including carbon sequestration projects ( 5(3)(d)). SB218: Introduced on January 9, 2007 and passed by the Senate on February 15, 2007 (and currently pending in the House), SB218 would establish a new regulatory program for CCS, specifically including the conversion of CO 2 -EOR into long-term storage operations. New Mexico SB1084: Introduced earlier this year, SB1084 appropriates certain funds for research on R&D on geologic sequestration. New York AB5038: Introduced on February 12, 2007, AB5038 (the New York Clean State and Clean City Act of 2007 ) is functionally similar to Illinois/HB1874 in that it directs the Department of Environmental Conservation to develop an emission reduction plan, including carbon sequestration projects ( (1)(F)). North California + The News & Observer (Mar. 8, 2007), Keeping Coal Power: Burying the gases; Utilities Answer to Global Warming Faces Obstacles in NC : Discussing Duke s R&D efforts in Kentucky, then goes on to note that the prospects for so-called carbon sequestration in North Carolina are challenging. Quotes Gerald Hill, a senior technical adviser on the SSEB, as saying Trying to do just a single plant with a 200- to 300-mile pipeline would be absolutely cost-prohibitive. The article also describes CCS as a disposal activity. North Dakota HB 1492 (engrossed): Introduced earlier this year, HB1492 creates a new tax incentive for the use of renewable energy, and defines renewable energy to include carbon recycling and carbon sequestration ( 1). (See also HCR 3020, which addresses the renewable goal and in so doing refers to sequestration.) - 4 -

5 RGGI Implementation of the RGGI model rule is underway. Geologic sequestration is not an eligible offset (which perhaps is not a surprise). The RGGI program nonetheless could be used as the vehicle to get CCS CERs into the US (and vice versa) in the future. Southern Region + Press Release (Mar. 13, 2007), Governors Across the US Begin Signing Declaration of Energy Independence : Bearing the signatures of nine governors, the declaration refers to CO 2 -EOR (noting 100 billion barrels of additional recovery domestically). Tennessee HB 2327 deals with forestry sequestration but could be used as a model State law for the establishment of a geologic-based credit program. Texas HB 1967: Introduced on February 26, 2007, this bill would regulate as common carriers pipelines for the transportation of feedstocks for carbon gasification. While not related to CCS per se, the legislation reflects continued State interest in commercial FutureGen-esque projects, most if not all of which would be designed, constructed and operated with CCS in mind. HB 2143 (companion SB 945): Introduced on February 27, 2007, this bill (the Texas Global Warming Solutions Bill ) is functionally similar to Illinois/HB1874 in that it directs TCEQ to develop an emission reduction plan, including carbon sequestration projects ( (c)(4)). This bill is arguably in tension with Texas bifurcation of authority of carbon injection under the State s separate FutureGen statutes, which were enacted last year. HB 3431: Introduced on March 8, 2007, this bill would provide a 50% reduction in tax rate for the use of anthropogenic CO 2 for EOR. The legislation contemplates that CO 2 -EOR is sequestration and notes that the incentive applies whether or not CO 2 is deemed a pollutant. + E&E News (Mar. 10, 2007), Texas Partners Plan IGCC, Carbon Capture Demonstration Plants : The leverage-buyout partners involved in the takeover of TXU Corp. followed up promises to reduce air pollution and greenhouse-gas emissions today by announcing plans to build two integrated gasification combined cycle (IGCC) demonstration plants with carbon-dioxide capture in Texas. It s time to start exploring how we bring better technology to Texas so we can generate clean, affordable, reliable power in the future, said Michael MacDougall of Texas Pacific Group, which with Kohlberg Kravis Roberts & Co. formed Texas Energy Future Holdings Limited Partnership to take over TXU. Carbon injection technology has been in use for more than three decades to force oil and natural gas from depleted wells. But the Energy Department predicted this week that carbon sequestration and capture technologies will not be in wide commercial use until midcentury. Proposals from companies that want to build the plants will go before TXU s new Sustainable Energy Advisory Board. Its members include representatives of two environmental groups, the Natural Resources - 5 -

6 Defense Council and Environmental Defense; utility customers; Texas economic development officials; and representatives of the Electric Reliability Council of Texas. Washington HB 2156: Introduced on February 12, 2007, HB 2156 related to carbon dioxide mitigation and in so doing includes carbon sequestration as a mitigation measure ( 1(16)(a)). West Virginia SB 377: Introduced on January 29, 2007, SB 377 would create a GHG emissions inventory. In so doing, it discusses capture and sequestration in various contexts that make it unclear if CCS is a reduction activity. Western Region On February 26, 2007, the Governors of Arizona, California, New Mexico, Oregon and Washington signed a MOU stating their intent to establish a RGGI-like regional cap-and-trade program among their States. Targets will be established within six months and the market mechanisms are supposed to be in place by August Wisconsin SB 81: Introduced on March 6, 2007, this bill authorizes a GHG management scheme to be developed by the Department of Natural Resources, and is so doing defines carbon sequestration to mean the longterm [sic] storage of carbon in water bodies, soil, vegetation, or geologic formations ( (3m). Longterm is not defined nor is it clear to us if it is wise to lump geologic sequestration in with other forms of sequestration. The bill further states that the Department must authorize the use of carbon sequestration but that if such authorization is given, the action must be treated as a valid compliance mechanism for a regulated emitter. This approach is novel to us. Numerous other bills are pending in the Wisconsin legislation, each dealing with CCS in some form or manner. Contact: Bob Mowrey ; bob.mowrey@alston.com or Kipp Coddington ; kipp.coddington@alston.com. This material was prepared by Alston & Bird LLP to provide a summary of significant developments regarding climate change and carbon management. It is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under court rules of certain jurisdictions