Foreword

The 2005 IPCC Special Report on Carbon Dioxide Capture and Storage (CCS) found that:

“Observations from engineered and natural analogues as well as models suggest that the fraction retained in appropriately selected and managed geological reservoirs is very likely to exceed 99% over 100 years and is likely to exceed 99% over 1,000 years. For well-selected, designed and managed geological storage sites, the vast majority of the CO₂ will gradually be immobilized by various trapping mechanisms and, in that case, could be retained for up to millions of years. Because of these mechanisms, storage could become more secure over longer timeframes.”³

Yet, concern over the ‘liability’ arising from carbon capture and storage (CCS) projects often is cited as an important barrier to implementation. At the heart of this concern is uncertainty about the magnitude of potential economic damages from a well-sited and well-managed CCS project. To begin to answer this question, a diverse group of organizations jointly sponsored Industrial Economics Incorporated (IEc), an expert in environmental economics and natural resource damage assessment, to develop and test a model approach for valuing the human health and ecological damages arising from CCS at such a site.⁴

The sponsor group comprised representatives from industry, government, and the environmental community, including: Wade, LLC, CO₂ Capture Project, Chevron, Duke Energy, Environmental Defense Fund, Global CCS Institute, Government of Alberta, ICO2N, Industrial Economics, Incorporated, Natural Resources Defense Council, Southern Company, State of Wyoming, and World Resources Institute. Although individual sponsors may have differing views on CCS, they share a common interest in understanding how potential damages from a CCS project can be valued, and the likely magnitude of prospective economic damages at a well-selected and well-managed site.

The project had two objectives:

• Develop a computational model of the interaction between risks, CO₂ releases and damage values to derive overall damages estimates associated with CCS using generally accepted tools from the damage assessment field. The approach relies on site specific conditions and information.
• Apply this model to a ‘realistic’ project. The project sponsors selected the FutureGen 1.0 project proposed in Jewett, TX as a suitable ‘realistic’ project for purposes of analysis. Because the emissions at this site include a combined CO₂ and H₂S stream, and the FutureGen risk assessment considered impacts from both constituents, the model was constructed to include both.

This report meets the above objectives by identifying the dollar amounts that need to be managed, the set of circumstances under which these amounts will present, and the time frame over which these dollars will be needed. It presents a model that is based on standard practices within the financial and insurance industries, and can be applied, with adjustment for location, to CCS projects around the world.

Using a publicly available risk assessment for a finalist FutureGen site as a ‘realistic’ base case, the magnitude of likely economic damages over a 100-year assessment period is estimated to be $0.17 per metric ton, or less than 1% of total estimated project costs.⁵ From a damages perspective, the FutureGen site is ‘well-sited’ in a highly rural area, with limited potential to affect sensitive resources.

This report documents IEc’s analysis and provides detailed information on the findings.

Analytic method

Using a model developed by IEc, this study calculates damages by combining the information from the environmental impact studies for the Jewett site and other risk assessments to estimate probabilities and magnitudes of harm to people and the environment at the site. The model incorporates the potential magnitude of CO₂ and H₂S releases resulting from modeled release events at the capture plant, pipeline and storage site; release event probabilities; estimated human health and ecological effects resulting from release events; and, estimated costs arising from compensation for, or remediation of, these effects. Damage estimates associated with individual events are derived by drawing on valuation methods from legal systems for accident compensation, natural resource damage assessments and cost-benefit studies. By combining risks, event outcomes and damage assessment, IEc populated the cost curves used in the model. The study applies Monte Carlo modeling, a well-accepted probabilistic method, to estimate probability distributions for important input variables and damages.

To demonstrate application of the modeling approach to a real-world, a ‘realistic’ case study was developed, with parameters for risk and likely volumes of release based on the publicly available information contained in environmental impact studies and risk assessments developed as part of the FutureGen 1.0 project. Relying on this material, IEc assessed release events at the capture plant site, the pipeline, and the storage site (i.e., the subsurface). In the few instances where quantitative data needed for the analysis were not available from the FutureGen risk assessment and/or other relevant data sources, the sponsor group developed a set of assumptions for use in testing the model based on experience or background literature. The period of analysis was 100 years, reflecting 50 years of injection operations and 50 years post-injection monitoring.

Sites specific estimated damages

Overall, estimated total damages for CO₂ alone are approximately $7.3 million (50^th percentile) and $16.9 million (95^th percentile). These estimates include all credible potential adverse events (as determined in FutureGen risk assessment analyses) over the 100-year analysis period, and are expressed in 2010$. These estimates translate to approximately $0.15 (50^th percentile) and $0.34 (95^th percentile) per metric ton of CO₂ sequestered (50 million metric tons of CO₂ are expected to be sequestered at the Jewett, TX site).

Estimated total damages for CO₂ and H₂S are approximately $8.5 million (50^th percentile) and $18.6 million (95^th percentile). These estimates include all credible potential adverse events (as determined in FutureGen risk assessment analyses) over the 100-year analysis period, and are expressed in 2010$. These estimates translate to approximately $0.17 (50^th percentile) and $0.37 (95^th percentile) per metric ton of CO₂ sequestered (50 million metric tons of CO₂ are expected to be sequestered at the Jewett, TX site). Several types of potential damages contribute to this total, including the cost of actions to: 1) stop subsurface releases to groundwater and address groundwater contamination; 2) pay for emissions offsets to address CO₂ leakage; 3) compensate for human health damages; and 4) address habitat/other damages.

Key specific drivers and uncertainties

If there were no H₂S in the sequestration stream, total estimated damages would be approximately 10-15% lower. CO₂ is the dominant stream at the Jewett site. However, the planned process would result in the presence of trace amounts of H₂S (0.01%) in the captured stream. This trace amount of H₂S is the primary driver of estimated human health effects in the study and would not be present in some projects that used a different capture process. Further, although H₂S is the primary driver of human health risks in this analysis, the extremely rural location for plant, pipeline and sequestration operations severely limits potential human health damages, minimizing the added impact of H₂S.

Potential releases at oil & gas/other wells in the sequestration site area are responsible for over 95% of estimated total damages. At the Jewett, TX site there are believed to be numerous deep oil & gas wells and potentially other older abandoned wells.

FutureGen analyses assign total (or aggregate) release probabilities from any one of those wells that are multiple orders of magnitude higher than any other type of release event at the plant or sequestration site, contributing substantially to the prominence of this potential damages category. A site with this characteristic could potentially mitigate the effect by selecting a location with fewer existing wells, or undertake measures to prevent the frequency or size of releases.

Potential damages associated with other release events are negligible. Estimated damages for the following incidents are negligible for both 50^th and 95^th percentile cases, reflecting their extremely low event probabilities and/or site characteristics that limit potential impacts if an event occurs: other aboveground wellhead events, plant site events, and pipeline events including ruptures and punctures.

Conclusion

The sponsor group includes representatives from industry, government, and the environmental community. Although individual sponsors may have differing views on CCS, they share a common interest in understanding how potential damages from a CCS project can be valued, and the likely magnitude of prospective economic damages at a well-selected and well-managed site.

This report answers those questions by identifying the dollar amounts that need to be managed, the set of circumstances under which these amounts will present, and the time frame over which these dollars will be needed at a specific CCS project. It presents an approach that is based on standard practices within the financial and damage assessment industries, and can be applied, with adjustment for location, to CCS projects around the world.

Using a publicly available risk assessment for a finalist FutureGen site as a ‘realistic’ base case, which has certain site-specific characteristics including both relative isolation from human populations and limited groundwater use, the magnitude of likely economic damages over a 100-year assessment period is estimated to be in the range of $0.15 - $0.34 per metric ton over the 100-year period, i.e., less than 1% of total estimated project costs.

³ IPCC, Special Report on Carbon Dioxide Capture and Storage, Summary for Policy Makers, 2005 -Bert Metz, Ogunlade Davidson, Heleen de Coninck, Manuela Loos and Leo Meyer (Eds.), Cambridge University Press, U.K., page 14.

⁴ The damages contemplated by this analysis do not address potential impacts from facility construction or routine operation, nor do they address potential impacts to workers, business interruption, facility repair or similar ‘private’ costs internal to the operator.

⁵ For estimates of CCS project costs, see: Gresham et al. (2010), McCoy and Rubin (2009), Rubin et al. (2007), MIT Future of Coal (2007), ETIP-Harvard (2009), Simbeck, D. MIT (2009), McCoy and Rubin (2007).