5.3 Laws promoting and facilitating CCS

International law is important to encouraging the commercial-scale deployment of CCS because:

  • CCS projects may in the future be undertaken in areas beyond the jurisdiction of States;
  • international legal principles have informed, and will continue to inform, the development of domestic legal regulation of CCS projects; and
  • if CCS is widely deployed, consistency in crediting CCS operations across jurisdictions will be important when linking emissions trading systems.

In general terms, public international law regulates the relationships between sovereign States. Of the sources of international law, treaties are the most relevant to CCS. However, existing international environmental treaties were not drafted with CCS activities in mind. At present, there is no single international treaty regulating CCS activities. Instead, different stages of the CCS project cycle are regulated by different sources of international environmental law.

Developing economies have not yet generally enacted specific CCS laws or taken steps to amend existing legislation to accommodate the CCS project cycle.

In developed economies, existing legal frameworks designed to deal with waste, transport, property rights and pollution liability do not readily accommodate the whole CCS project cycle. This will hamper investment not only in CCS projects but in the technologies required to achieve scalable projects within the G8’s timeframe.

With the exception of the EU, in most jurisdictions surveyed, existing legislative frameworks relating to carbon capture are fragmentary and incomplete. This is the case even in the Australian jurisdictions with dedicated carbon storage legislative frameworks.

With the exception of the EU, in most jurisdictions surveyed, existing legislative frameworks relating to carbon capture are fragmentary and incomplete

The EU regulation envisages the imposition of Carbon Capture Ready (CCR) requirements on new power plant construction. It is likely that in coming years, other jurisdictions will implement similar regulations in order to ensure that carbon capture capability is integrated into new power plant construction. The EU approach of imposing CCR obligations through planning permitting processes is a simple, straightforward approach. It is, however, unlikely that any such regulations will be introduced in many jurisdictions until CCS is at or near commercial-scale development.

In addition, few jurisdictions have dealt in any detail with the question of whether captured CO2 should be treated as a waste or pollution and this will need to be clarified. The dedicated storage regulations which have been implemented, notably in Australian jurisdictions and the EU, seem to contemplate that captured CO2 be dealt with as a waste product. This is particularly important in the context of policies and legislation governing transport of CO2.

Only a few jurisdictions have in place dedicated CCS regulatory regimes (or amendments to existing regimes) required to adequately manage the unique legal challenges posed by CCS. These jurisdictions include some Australian and USA jurisdictions, together with the EU and some EU Member States. This poses significant barriers for investment in CCS projects in other jurisdictions. Potential investors and project proponents will be reluctant to support CCS projects where potential long-term risks are present due to insufficient or inflexible regulatory frameworks.

The Federal Governments in the USA and Australia are developing legislation for national-level schemes. The scheme proposed in the ACES Act will provide bonus allowances and other incentives to assist with the funding of CCS facilities. The EU ETS and the scheme proposed in the ACES Act provide direct incentives for CCS operations in the form of staged technological benchmarks or bonus allocations of permits to CCS facilities.

Some jurisdictions, including Australia, China, Japan and some States in the USA, have introduced, or are considering introducing, complementary policies which have the effect of imposing a cost on carbon, or which provide support in the form of subsidies or enabling frameworks. The complementary laws and policies include mandatory renewable energy targets, emissions reporting, incentives for energy efficiency and feed in tariffs.

Some other jurisdictions, including Norway and Japan, have regulated existing CCS projects through partially integrated CCS schemes or by exception to existing regulations. These approaches can facilitate demonstration-scale projects but are not considered suitable for commercial-scale projects due to potential long-term liabilities.

Integrating carbon capture permitting and regulation with transport and storage legislation will provide CCS project proponents a greater degree of certainty. This will reduce the administrative burden imposed by permitting requirements at various stages of the CCS project cycle.

Potential investors and project proponents will be reluctant to support CCS projects where potential long-term risks are present due to insufficient or inflexible regulatory frameworks

These regulatory gaps should be addressed in order to encourage the capture of commercial-scale quantities of CO2.

Tailored, end-to-end policies and laws, harmonised across national boundaries, offer the best chance to rapidly and efficiently promote large scale investment in CCS.

There is no one template or single ”best practice” for end-to-end CCS regulation with even the most robust existing frameworks having gaps. However, governments should examine these dedicated regimes, and with increases in international harmonisation of CCS regulation, regulatory risks will be minimised for potential market participants.

A ”universal” (and jurisdictionally adaptable) CCS regulatory template may emerge from dialogue amongst those governments and international agencies promoting CCS, especially if they agree to act urgently and cooperatively. Policies and legislation as they relate to key components of the CCS project cycle are described in more detail below.

5.3.1 Capture

Policies designed to impose a cost on carbon emissions could also be accompanied by regimes restricting the construction of new fossil fuel power plants without incorporating CCS or the mandating of CCS retrofits to existing plants. These could include technology standards and planning requirements for new plants to be CCS-ready. Such policies could be a particularly useful complement to carbon cost imposition policies in the initial stages of CCS deployment. CCS-ready policies under development in the USA and some EU Member States could provide these frameworks.

There are, however, likely to be significant short-term financial ramifications for utilities which may be obliged to retrofit CCS technology to existing plants or budget for CCS capabilities in new plants. Tax incentives or other financial measures are useful policy tools to promote investment in CCS. These incentives not only assist in offsetting capital expenditure in plant and equipment but may also be used to provide companies that are engaged in storage activities with an additional revenue stream for storing CO2. The USA Federal government’s investment tax credits are one positive example of this approach.

5.3.2 Transport

Transportation of captured CO2 by pipeline falls within pipeline permitting regimes. This can potentially add complexity and delay to integrated CCS activities.

Case study: Pipeline licensing under the Australian government CCS legislation

Under Chapter 2 Part 2.2 of the government’s GGS Act, the pipeline licensing process consists of four main steps:

  • the pipeline proponent must apply to the licence determination authority (the Designated Authority), providing information including details of the pipeline’s design and construction process, the proponent’s technical qualifications, a layout plan for the pipeline and any agreements the proponent has entered into for the procurement or conveyance of CO2;
  • if the Designated Authority wishes to approve the licence application it will issue to the proponent an ”offer document” indicating its intention to do so;
  • if the proponent wishes to accept the Designated Authority’s offer, the proponent must within between 90 and 180 days after receiving the offer document provide written notification to the Designated Authority requesting that an issuing authority, the Joint Authority issue the licence; and
  • the Joint Authority will issue the pipeline licence if notice has been provided in accordance with the Act.

Section 211 of the Act sets out the rights conferred on pipeline licensees. These include the rights, in accordance with any conditions imposed on the grant of the licence, to:

  1. construct in the offshore area specified in the licence a pipeline:
    1. of the design, construction, size and capacity specified in the licence;
    2. along the route specified in the licence; and
    3. in the position, in relation to the sea bed, specified in the licence;
  2. construct in the offshore area specified in the licence the pumping stations, tank stations and valve stations specified in the licence in the positions specified in the licence; and
  3. to operate:
    1. that pipeline; and
    2. those pumping stations, tank stations and valve stations; and
  • carry on such operations, to execute such works and to do all such other things in the offshore area specified in the licence as are necessary for, or incidental to, the construction or operation of:
    1. that pipeline; and
    2. those pumping stations, tank stations and valve stations.

In some Australian jurisdictions and the EU, existing pipeline legislation has been well-integrated into CCS legislative schemes, providing a high degree of certainty for market participants. Other jurisdictions, including the USA and Canada, have pipelines regulations which could be adapted to CO2 transport. In many other jurisdictions, however, such regulatory integration has not yet occurred. In these jurisdictions, CO2 transportation would generally fall within existing pipeline regulatory regimes. These are not in all cases well-adapted to regulating transportation of CO2.

A further weakness in existing CO2 transport regimes is ambiguity in relation to whether CO2 should be treated as a pollutant or waste. This will dictate which regulatory regimes should apply to CO2 transport. This also poses a challenge for the regulation of CCS transportation, particularly where there are restrictions on the treatment of the substance or where responsibility for leakage and harm does not clearly attach to any one entity. A further difficulty posed by existing transport regimes is the number of permits required to construct and operate pipelines. This is the case not only in respect of general pipeline regulations but also in respect of those integrated with CO2 storage legislative schemes. This is likely to increase the cost, duration and uncertainty associated with undertaking pipeline activities.

In federated countries such as Australia and the USA, lack of integration between State-level pipeline transport regimes will impede the development of national pipeline networks suitable for CO2 transport. These jurisdictions should seek to harmonise sub-national regulation to enhance regulatory efficiency. This would also apply to national policymakers seeking to harmonise regulations in an international context. The EU’s experience in pipeline regulation may be useful for the latter.

Finally, transport of CO2 by non-pipeline methods is generally not comprehensively regulated. This poses challenges to small-scale CCS projects and to CCS activities in the exploration and testing phases, where it may not be commercially viable to construct pipeline networks to transport CO2.

These gaps will need to be overcome in order to encourage the investment required to develop commercial-scale CO2 transport networks and this of course needs to take place in an integrated fashion with laws dealing with both capture and storage.

A further weakness in existing CO2 transport regimes is ambiguity in relation to whether CO2 should be treated as a pollutant or waste

5.3.3 Storage

In jurisdictions where CCS exploration regimes have been integrated with CO2 storage regulation, CCS exploration is relatively robustly regulated. This is the case in respect of the Australian Federal jurisdiction and the jurisdictions of Victoria and Queensland, as well as to some extent the EU. Transparent approval regimes with clearly enunciated frameworks of exploration rights are essential as is multi-stage permitting which can allow administering authorities to monitor and regulate the environmental impact of exploration activities on the existing and future uses of permit areas.

In jurisdictions where CCS exploration has not yet been regulated, a lack of regulation will inevitably delay proponents who may be required to seek permits from multiple government agencies, assuming of course that those agencies themselves are equipped to assess CCS project applications.

The existing regimes in the USA and South Africa contain key regulatory components for effective CCS exploration regimes.

In those jurisdictions where specific CCS injection and storage laws have been enacted, there appear to be relatively robust systems in place for regulatory authorities. Proposals for storage typically identify the characteristics of the storage site, access to commercial quantities of CO2, the suitability of the operator (eg, technical and financial criteria) and detailed site management and monitoring plans.

Case study: Regulation in Japan of sea-bed CO2 storage

An individual or entity that wishes to inject CO2 waste into the sub-sea bed must apply for and obtain approval for the “disposal” of CO2 from the Environment Minister.

Applications for sub-sea bed CO2 storage must include information such as:

  1. the applicant’s name, address, representative’s details (for a corporate entity);
  2. a CO2disposal implementation plan including:
    1. the length of time the disposal will take (not to exceed five years);
    2. the amount and characteristics of the CO2;
    3. the estimated amount of CO2 already disposed of at the given site;
    4. where and how the CO2 will be disposed of; and
    5. proposed measures to prevent and contain any damage caused to the marine environment by the dumping;
  3. a detailed plan regarding monitoring of any pollution arising from the dumped CO2; and
  4. any other information required by Ministry of Environment Ordinances – such as environmental risk assessment survey information.

The standards which must be met for approval of applications by the Environment Minister include:

  1. a finding that the disposal method meets the required standards;
  2. a finding that there is no other appropriate means to dispose of the CO2; and,
  3. a finding that the applicant is fit to competently dispose of and monitor the CO2 after disposal, in accordance with the implementation plans submitted, including having sufficient financial and technical capabilities.

In accordance with Ministry of Environment Notice No.83, an applicant who is granted a licence has up to five years to dispose of the CO2 in question (Article 10-8-2 of the Marine Pollution Act, as applied correspondingly by Article 18-2).

This is notably the case in relation to the EU and Australia at a Federal level and in the States of Victoria and Queensland. The laws in these jurisdictions provide a guide to other countries as they develop their own legal frameworks.

There nonetheless remain some key regulatory gaps in existing dedicated CO2 storage regulatory frameworks. They do not necessarily address comprehensively the question of whether only one operator will be allowed access to a storage site, or whether multiple operators will be able to inject. If multiple operators are using a site, legal frameworks will need to be developed to share or apportion liability and determine, if necessary, how to prioritise access (eg, on a maximum volumetric basis or some other criteria). The difficulties associated with managing multiple uses of land and potential storage formations have resulted in most jurisdictions only granting approval to one operator per site.

A further potential gap relates to activities which might fall under the jurisdiction of multiple governments, either in adjacent jurisdictions or at multiple levels. Where storage sites fall under more than one jurisdiction, regulators from two or more States may apply different criteria in considering CCS project activities. Alternatively, it is conceivable that in federated countries, Federal and State jurisdictions might overlap. In these circumstances, there will be a need for coordination amongst regulators and the development of guidelines for, at a minimum, consultation and ideally a joint approach to approving access to such sites and managing their use.

The absence of adequate regulation of this final stage of the CCS project cycle is perhaps the greatest barrier to the commercial-scale deployment of CCS in jurisdictions without robust regulation of CCS, or where existing regulation needs to be adapted to accommodate CCS.

Where integrated legislation exists, liability for CO2 leakage post-closure is reasonably well defined and the process for surrendering any access licences is well set out. The laws in relevant jurisdictions in Australia, the EU and the USA all address the ownership of injected CO2 post-closure, in most instances with such ownership reverting to the regulating government upon surrender of the relevant approvals by the operator. This is the key strength of these legislative schemes. By clarifying these matters, governments provide investors with a level of comfort that operators of injection facilities will bear the post-closure liabilities associated with their storage activities to the extent that this is practical but that the liability of such operators is not unlimited.

Case study: Post-closure liabilities under the Australian government’s GGS Act

Under the Australian government’s GGS Act, a closure assurance period will commence in respect of a formation on the day the Minister is satisfied that injection operations into the formation ceased and will end at least 15 years later, when the Minister is satisfied that:

  • the injected substance is behaving as predicted in the approved site plan;
  • there is no significant risk that the substance will have a significant adverse impact on:
    • the geotechnical integrity of the whole or part of the geological formation or structure;
    • the environment;
    • human health or safety; and
    • no further injection has taken place since the initial cessation of injection activities.

If a site closing certificate has been issued in respect of a formation and a closure assurance period exists, the Australian government’s indemnity is then triggered in respect of the formation when:

  • a person who has been the registered holder of the relevant licence has ceased to exist;
  • if the person had continued in existence their liability is:
    • a liability for damages;
    • attributable to an act done or omitted to be done in the carrying out of operations authorised by the licence in relation to the formation; and
    • incurred or accrued after the end of the closure assurance in relation to the formation; and
  • apart from this provision, the damages are irrecoverable because the person has ceased to exist.

The section also requires that any further conditions set out in the regulations have been met, however the regulations to the Act have not yet become effective.

Pollution and other environmental regulations in most jurisdictions centre on the ”polluter pays” principle. It is not unreasonable that potential CCS project developers would delay the development of CCS projects until regulatory frameworks make it possible for them to quantify and manage potential liabilities. Governments which seek to encourage the commercial-scale deployment of CCS within their jurisdictions should seek to address this immediately.

A key concern arising from the assumption that governments will be responsible for stored CO2 is that such governments will themselves face a potentially unlimited liability. This liability can arise both from the potential future cost of carbon escaping into the atmosphere (where an obligation is placed on the State to meet targets to reduce or limit GHG emissions under the Kyoto Protocol) and also where the escape of CO2 causes more localised environmental harm.

To deal with this risk exposure, some governments are looking to extend operator liability for longer periods of time as well as innovative insurance and funding arrangements. Provisions requiring security in the form of insurance and rehabilitation bonds will help to ensure that long-term liabilities arising from injection activities can be funded and that governments are not left with all such liabilities. Governments should prioritise such efforts to develop financial instruments to facilitate efforts to manage these liabilities.

To begin with, models for long-term liability may include, for example both tiered liability insurance and indemnification by the government or a per ton fee paid to the government for CO2 injection, with a “handoff” to the government for monitoring, remediation, and liability. The handoff might occur a defined period after injection ceases, to minimise moral hazard issues.

Case study: Policy options for liability – USA experience
  • Price-Anderson Nuclear Industries Indemnity Act, USC § 2014(hh)
    • The Price Anderson Act created a tiered system of limited liability for nuclear accidents, which essentially divided liability for such accidents between facility owners, the industry as a whole, and the Federal government.
    • The three-tiered coverage system requires licensed nuclear facilities to maintain their own liability insurance, as well as contribute to an industry pool for liability insurance.
    • The Federal Government would provide the licensee with indemnity in case liability exceeded the amount available from these sources (EPA, 2008).
  • Illinois and Texas FutureGen Statutes
    • Under these statutes, the States would assume full responsibility for CO2 at a given point in the CCS cycle.
    • While these models are helpful to spur short-term investment, a more strategic government approach to liability assumption based on risk profiles or site performance may be necessary in the future.
  • DOE Carbon Capture and CO2Storage Program Amendments Act of 2009
    • Sponsored by Senator Jeff Bingaman (D-NM), this Bill would enable the DOE to enter into cooperative agreements to provide financial and technical assistance to up to 10 CCS demonstration projects.
    • The Secretary of Energy would also have authority under the Bill to indemnify and hold harmless the recipient of a cooperative agreement from any liability arising out of their CCS demonstration project. The value of this indemnification is tempered by a requirement that the government collect a fee from the project owner equal to the net present value of payments made by the government to cover the liability under the indemnification agreement. In addition, the legislation would prohibit site closure until 10 years after the CO2 plume stabilised.
    • This model provides the government more ability to determine which projects should be insured, rather than more general assumptions of liability for the entire industry, but is limited in scope.
  • Interstate Oil & Gas Compact Commission (IOGCC) Model
    • Under the IOGCC Model, State authorities would assume long-term responsibilities for monitoring and remediation activities at CCS sites.
    • This effort would be financed through an industry-funded, State-administered trust fund.
    • While the IOGCC Model insulates a CCS operator from regulatory liability it would not insulate them from long-term general liability.

A further difficult question is whether existing integrated legislative structures are sufficiently flexible to accommodate the evolution in CCS and knowledge of the environmental and social risks associated with CCS activities. As understanding of CCS and the operation of geological storage sites improves, it will be necessary to keep existing laws under periodic review and amend them to accommodate emerging risks and new approaches to manage them.

Without access to and control over a suitable storage site, no CCS project (no matter how technologically advanced at the capture end of the process) will be likely to attract funding or investors

In those jurisdictions that do not have dedicated CCS legislation, questions of liability remain unclear. Existing mining and environmental pollution legislation is not well suited to the purpose of long-term management for storage sites. Whilst mining laws often provide for rehabilitation bonds, mine-closure plans and the like, the anticipated long-term risks are better understood and more easily quantified. If CCS is to be addressed under these frameworks, issues such as post-closure liability and surrender of that liability to the State will need to be addressed.

Without access to and control over a suitable storage site, no CCS project (no matter how technologically advanced at the capture end of the process) will be likely to attract funding or investors. An absence of, or gaps in, storage laws will make it very difficult to address this risk. The “timeframe challenge” already referred to will also be exacerbated.

Governments should be expending real effort now to deal with the issue of storage if the G8’s timeframe is to be achieved.