As the country, policymakers and industry focus on reducing greenhouse gas (GHG) emissions, carbon utilization and sequestration (CCUS) has become an important part of the solution. The CCUS captures carbon dioxide (CO2) emissions from stationary sources such as coal-fired power plants and CO transport2 for another use or for underground sequestration. CCUS can help reduce GHG emissions and generate additional income for the producer. As with any new industry, there are technical, regulatory and legal barriers that pose challenges for all stakeholders. The following alert discusses some of the recent opportunities that are emerging to make CCUS a meaningful solution to climate change.
Federal legislation encouraging CCUS projects
There is a significant movement at the federal level that offers incentives to support CCUS activities. Congress first passed Section 45Q of the Internal Revenue Code in 2008 to provide a tailored carbon sequestration tax credit and amended Section 45Q on several occasions. Notably, on January 15, 2021, the Internal Revenue Service and the Treasury Department released final settlement the implementation of changes in carbon tax credit requested by the Bipartite Finance Law of 2018. The new regulations aim to create a more widespread adoption of CCUS projects by, among others, increasing the available tax credit, allowing the transfer of tax credits, eliminating the industry-wide credit limit and expanding the scope of activities for which a credit would apply (e.g. eligible for credit). In addition, section S of the 2021 omnibus spending bill funds research on carbon use and direct air capture.
More recently, Congress has sought to further fund and encourage CCUS. The bipartite Energy Infrastructure Act (S.2377) would allocate $ 900 million to CO2 transportation, $ 2.5 billion for four regional carbon capture centers, and would authorize the Home Office to allow carbon storage in the Gulf of Mexico. And the CO storage2 and the Emissions Reduction Act (SCALE Act) (S.799) would provide grants to develop CO transport infrastructure2 from the capture site to the use and storage sites. The SCALE Act also provides increased funding for the EPA authorization for Class VI underground injection wells.
Potential obstacles to CCUS projects
Despite the strong federal momentum behind CCUS, the challenges of widespread CCUS deployment lie ahead of industry and policy makers. These challenges include the cost of CCUS technologies, a lack of adequate existing transport infrastructure, unclear and lengthy licensing programs, and legal uncertainty regarding the ownership and liability of underground storage. Sequestration requires the injection of captured CO2 in the basement for storage and there are often questions, or at least a lack of clarity, about the ownership of the interstitial space which can create a liability unease. These injection wells are also regulated as Class VI underground injection wells under the Safe Drinking Water Act and the EPA approval process can be lengthy (up to six years depending on the projects. previous) and only two states (Wyoming and North Dakota) have been delegated to the regulatory authority. to enable these types of sinks. Thus, two key elements of a more prolific use of CCUS will be the resolution of the licensing system and the uncertainty of legal ownership, issues that states like Wyoming are actively seeking to address.
Wyoming – At the head of the CCUS
As lawmakers and regulators grapple with the hurdles associated with CCUS, Wyoming provides a good example of how states can play a leading role. It’s no coincidence that Wyoming already has favorable CCUS laws on the books. These include a law establish authorization procedures and requirements for CCUS sites and a law providing for CO certification2 accidentally stored during enhanced oil recovery (EOR) operations. Wyoming also has CO2 pipeline infrastructure in place used for PAR and geology conducive to sequestration. In addition, the Wyoming Pipeline Corridor Initiative establish corridors on public lands for CO2 pipelines associated with CCUS and EOR, which will reduce up-front costs for participating industries and encourage regulatory stability.
Currently, the Joint Minerals Committee of the Wyoming Legislature is considering a bill to establish a statutory framework to address and further clarify the ownership and liability of CO.2 storage room. The bill would grant the title of CO2 storage (i.e. interstitial space) to the operator of the unit, clarify responsibility, including the ultimate transfer of responsibility to the State, and allow unitization of interstitial space by through the Wyoming Oil and Gas Conservation Commission. The bill also deals with the authorization process, including the CO2 accidentally stored via EOR, among others. The bill will certainly change as the legislative process progresses, but it is a promising step towards clarifying the regulatory and accountability framework and increasing CCUSs statewide.
Our attorneys and policy advisers have substantial expertise in CCUS at the federal and state levels and will be happy to answer any questions your business may have about a CCUS project.