Insights and Commentaries
US CO2 injection rules clarified to facilitate CCUS
15th June 2015
Topic(s): Carbon capture, Economics, law and regulation, Policy, use and storage (CCUS)
The US Environmental Protection Agency (EPA) recently issued a clarification of the rules for CO2 injecting companies to transition from EOR (enhanced oil recovery) to CO2 storage. In this Insight, L. Stephen Melzer, Melzer Consulting and Director - Annual CO2 Flooding Conference and Michael E. Moore, Vice President of Energy Commodities and Advisory Services - FearnOil Inc., Executive Director - North American Carbon Capture and Storage Association and Director - Annual Carbon Management Workshop, discuss the Environmental Protection Agency (EPA) rules governing CO2 storage and the potential impact of the rules clarification on CCUS projects in the US.
Many places in the world have not deployed large scale carbon capture, utilization and storage (CCUS) in a serious way as they do not have in place all the necessary components to make commercial CCUS successful. One country that has all the components is the United States. The experience and expertise of oil companies in the US for CO2 enhanced oil recovery (CO2-EOR), together with the extensive coal reserves and nationwide electricity generation needs, might seem like a perfect fit for development of the technologies needed for commercial CCS. The costs of capturing the carbon dioxide (CO2) could, at least in part, be offset by the very large CO2 demands of CO2-EOR. To the casual observer, it might therefore seem a strong statement about the feasibility of CCUS if the US does not participate in CCS.
But one of the key factors that has constrained the development of US CCUS to date has been the subtleties of the storage regulatory regime that have been under development for the past 10 years. As is so often the case, the regulatory framework moves very slowly, as much care is to be taken by the designated regulating agency (US EPA) to examine and prepare regulations for worst case scenarios.
What has been developed by EPA is a set of rules more in line with deep saline injection, a dedicated storage option which may be regarded as waste injection. By contrast, the rules governing injection for purposes of oil recovery have been worked out and tested over the course of the past 60 years. Those rules were developed and implemented by the individual state regulatory agencies for oil recovery projects within their borders but with later stage oversight by the EPA under the direction of the Safe Drinking Water Act passed in 1974. The Underground Injection Well Program (Title40/40cfr144) set out several classes of injection wells with rules governing each class. Class II wells are those deemed for injection in oil and gas operations and EPA recently created a new class for CO2 injection they designated as Class VI.
As is often the case, the Class VI wells took on a life of their own and were ostensibly dedicated to the wells wherein subsurface storage of CO2 would be governed. The volumes of CO2 envisaged were very large since power plants were the likely target facilities. The rules were naturally based on a precautionary principle and tailored to a range of situations, including in marginally acceptable subsurface conditions. The EOR companies already injecting large volumes of CO2 were also storing CO2 but this retention in the formation was incidental to the oil production objectives. Those companies possessed the technology and safety records to handle the new captured emission streams but they were working under the Class II guidelines for injection and in a law environment where mineral rights were dominant. This is one in which the injected CO2 was a commodity used for oil production and not one where waste disposal was envisioned. When the companies examined the new reality of Class VI rules, they viewed the new regulations as riddled with complications that would make a very long term and often marginally profitable business uneconomic - along with the new liabilities associated with proving long term storage through extensive monitoring after their mineral leases expired. As a result, the experienced oil and gas industry players opted not to participate in the CCUS world leaving the capturing companies without a place to sell and sequester their captured CO2. The nascent U.S. CCUS industry languished.
On April 22, 2015, the US EPA, having recognized that almost nothing was moving forward, chose to clarify what their rules intended by publication of the transition guidance for injecting companies to transition from EOR to CO2 storage. They clarified the position that CO2-EOR does indeed store CO2 while producing oil during EOR operations and that injection under Class II rules could recognize the incidentally stored volumes. Furthermore, they encouraged the existing state regulators to continue their oversight under Class II and encouraged the states to apply for Class VI well primacy whereby they would be the exclusive regulating agency for all of underground storage. Additionally, EPA recognized that an injecting company would not be forced to ever transition their Class II injection wells to Class VI storage wells if they could demonstrate no increased endangerment to underground sources of drinking water. In another clarification, a long term liability of as much as 50 years could be avoided so long as the endangerment finding was acceptable to the regulator.
What remains to be seen is whether the regulatory clarifications will result in EOR companies taking on anthropogenic CO2 and claiming storage. If they move in that direction, the capturing companies will have the “credit” of removing emissions from the atmosphere and the expensive CCUS projects in the US will regain lost momentum.