[Senate Hearing 112-22]
[From the U.S. Government Publishing Office]




                                                         S. Hrg. 112-22
 
                          CARBON CAPTURE AND 
                       SEQUESTRATION LEGISLATION

=======================================================================



                                HEARING

                               before the

                              COMMITTEE ON
                      ENERGY AND NATURAL RESOURCES
                          UNITED STATES SENATE

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                                   TO

  RECEIVE TESTIMONY ON CARBON CAPTURE AND SEQUESTRATION LEGISLATION, 
                      INCLUDING S. 699 AND S. 757

                               __________

                              MAY 12, 2011


                       Printed for the use of the
               Committee on Energy and Natural Resources




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               COMMITTEE ON ENERGY AND NATURAL RESOURCES

                  JEFF BINGAMAN, New Mexico, Chairman

RON WYDEN, Oregon                    LISA MURKOWSKI, Alaska
TIM JOHNSON, South Dakota            RICHARD BURR, North Carolina
MARY L. LANDRIEU, Louisiana          JOHN BARRASSO, Wyoming
MARIA CANTWELL, Washington           JAMES E. RISCH, Idaho
BERNARD SANDERS, Vermont             MIKE LEE, Utah
DEBBIE STABENOW, Michigan            RAND PAUL, Kentucky
MARK UDALL, Colorado                 DANIEL COATS, Indiana
JEANNE SHAHEEN, New Hampshire        ROB PORTMAN, Ohio
AL FRANKEN, Minnesota                JOHN HOEVEN, North Dakota
JOE MANCHIN, III, West Virginia      BOB CORKER, Tennessee
CHRISTOPHER A. COONS, Delaware

                    Robert M. Simon, Staff Director
                      Sam E. Fowler, Chief Counsel
               McKie Campbell, Republican Staff Director
               Karen K. Billups, Republican Chief Counsel


                            C O N T E N T S

                              ----------                              

                               STATEMENTS

                                                                   Page

Barrasso, Hon. John, U.S. Senator From Wyoming...................     2
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................     1
Greenberg, Sallie E., Assistant Director, Advanced Energy 
  Technology Initiative, Illinois State Geological Survey, 
  Champaign, IL..................................................     8
Klara, Scott, Deputy Laboratory Director, National Energy 
  Technology Laboratory, Department of Energy....................     3
Lubbon, Ben, Managing Director, Jude Benedict & Associates.......    36
Trabucchi, Chiara, Principal, Industrial Economics Incorporated, 
  Cambridge, MA..................................................    14
Watson, Matt, Senior Energy Policy Manager, Environmental Defense 
  Fund...........................................................    10

                                APPENDIX

Responses to additional questions................................    39


                          CARBON CAPTURE AND 
                       SEQUESTRATION LEGISLATION

                              ----------                              


                         THURSDAY, MAY 12, 2011

                                       U.S. Senate,
                 Committee on Energy and Natural Resources,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 9:03 a.m. in room 
SD-366, Dirksen Senate Office Building, Hon. Jeff Bingaman, 
chairman, presiding.

OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW 
                             MEXICO

    The Chairman. I'd like to welcome everyone here and thank 
the witnesses for coming to testify this morning.
    This is a hearing on two bills, S. 699 and S. 757. These 2 
bills both focus on important aspects of carbon capture and 
storage that Senator Barrasso and I have been working on 
together in this Congress but also in the previous Congress.
    S. 699 focuses on creating a long term liability program 
that would incentivize large scale early mover deployment of 
integrated geologic carbon capture and storage.
    S. 757 is a bill that focuses on creating a technology 
prize for the successful demonstration of carbon dioxide 
capture from dilute sources such as the air. The topic of 
reducing greenhouse gases, particularly carbon dioxide 
emissions is a great concern to me and to other members of this 
committee. Carbon capture and geologic storage holds promise as 
a measure that can be used to mitigate a changing global 
climate while still allowing the use of fossil fuels at 
electric generating plants and industrial facilities such as 
steel manufacturing and cement plants. With discussion centered 
on coal use in a carbon constrained world integrated carbon 
capture and storage systems may represent the most immediate 
solution for continued use of coal and other carbon intensive 
fuels while not contributing further to carbon dioxide 
emissions and global warming.
    These two bills were introduced in the 111th Congress. We 
successfully passed them out of committee with a strong 
bipartisan vote. We're here today to receive testimony and 
update the record in the 112th Congress.
    I'd like to welcome our panel of experts before hearing 
from them. Let me turn to Senator Barrasso for any opening 
comments he has.

         STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR 
                          FROM WYOMING

    Senator Barrasso. Thank you very much, Mr. Chairman. I want 
to thank you personally for your leadership on carbon capture 
and sequestration. I'm privileged to be an original co-sponsor 
of your Carbon Capture and Sequestration Liability bill.
    Uncertainty over liability is a major impediment to carbon 
capture and sequestration deployment. This bill will address 
that question for the first ten projects. I believe it's a very 
important step.
    When it comes to carbon sequestration issues the State of 
Wyoming is a national leader. The Wyoming legislature enacted 
laws creating the legal framework for carbon sequestration. The 
Wyoming State Geological Survey has identified and 
characterized sequestrationsites within the State.
    The University of Wyoming is partnering with the private 
sector to develop innovative technologies. Wyoming has a long 
history as an energy producing State. We can use this knowledge 
and experience to make carbon sequestration a reality. There 
are steps, though, that the Federal Government must take first. 
That includes addressing the issue of liability.
    My direct air capture bill, the Carbon Dioxide Capture 
Technology Act is also on today's agenda. I'd like to thank 
you, Mr. Chairman, for partnering with me on this legislation. 
This bill takes a fresh approach to the issue of excess carbon 
dioxide. It would create a prize system for developing 
technology that directly removes CO2 from the 
atmosphere.
    An article 2009 in the Economist, lays out the issue 
clearly. Some researchers think there might be a simpler way to 
reduce the level of CO2 in the atmosphere, it says. 
To build air capture machines that as their name suggests grab 
it from the air.
    It goes on to say in some respects this is a more ambitious 
version of the carbon capture and sequestration technology. Air 
capture has the further advantage that it can be done anywhere, 
not just in places where carbon dioxide is being emitted such 
as power stations. So, Mr. Chairman, rather than focusing on 
solutions that impose costly regulations or taxes, this bill 
focuses solely on innovation.
    So I look forward to hearing the analysis and suggestions 
from today's panel. Thank you, Mr. Chairman.
    The Chairman. Thank you. I know Senator Franken has some 
other hearings he's going to have to leave and go to at some 
point. So let me just see if he had anything he wanted to say 
at this early point.
    Senator Franken. Not at this moment. This would be--if we 
can do this it'd be a really helpful way to address climate 
change. So, I'm looking forward to the testimony.
    Thank you. Thank all the witnesses for being here today.
    The Chairman. Alright. Why don't we start? Let me introduce 
all of our witnesses.
    Mr. Scott Klara is the Deputy Director of the National 
Energy Technology Laboratory in Pittsburgh. Thank you for being 
here.
    Miss Sallie Greenberg is the Assistant Directory with the 
Advanced Energy Technology Initiative at Illinois State 
Geologic Survey. Thank you for being here.
    Mr. Matt Watson is a Senior Energy Policy Manager with the 
Environmental Defense Fund. Thank you for coming.
    Ms. Chiara Trabucchi, is that reasonably accurate? Thank 
you for being here. She is the Principal and Chief Financial 
Officer with the Industrial Economics Incorporated in 
Cambridge, Massachusetts.
    Alright. Please let's just have you go in that order, if 
you would. Give us 5 minutes or so of the main points we need 
to understand about your views on these 2 pieces of 
legislation.
    Mr. Klara.

STATEMENT OF SCOTT KLARA, DEPUTY LABORATORY DIRECTOR, NATIONAL 
       ENERGY TECHNOLOGY LABORATORY, DEPARTMENT OF ENERGY

    Mr. Klara. Thank you, Chairman Bingaman, Ranking Member 
Barrasso and other members of the committee. I appreciate the 
opportunity to discuss the department's activities to promote 
the development of carbon capture and storage technologies. I 
will refer to this as CCS throughout my remarks.
    My testimony will provide an overview of the department's 
research efforts in developing CCS technologies. The 
administration is still reviewing the specifics of these 2 
bills and doesn't have a formal position at this time.
    Before I discuss the department's clean coal research 
program or CCS activities, I will briefly review the 
conclusions from the Interagency Task Force on CCS. In August 
2010 the final report from the Task Force was issued 
summarizing the administration's efforts to develop and deploy 
CCS technologies and the proposed plans to overcome the 
barriers for widescale deployment in 10 years with a goal of 
bringing at least 5 to 10 commercial demonstrations online by 
2016.
    The report is the collective work of 14 executive 
departments and Federal agencies which were tasked with 
developing a comprehensive and coordinated Federal strategy to 
speed the commercial development and deployment of these task 
force--or of these technologies. The Task Force concluded while 
there are no insurmountable technical, legal, institutional, 
regulatory or other barriers that prevent CCS from playing a 
key role in greenhouse gas reduction, early CCS projects, as 
many of you know, face economic challenges related to climate 
policy uncertainty, first of a kind technology risk and the 
current high cost associated with the technologies.
    DOE continues to play a leadership role in the development 
of these technologies. The programs that we run are 
administered by the Office of Fossil Energy and implemented by 
the National Energy Technology Laboratory. The coal program, in 
partnership with the private sector, is focusing on 2 key 
aspects in development: maximizing efficiency and environmental 
performance while minimizing the costs of these technologies.
    In recent years we've been restructured around the CCS 
mission and focusing on a 2-prong approach.
    The first is the capture and storing of the greenhouse 
gases.
    But second in conjunction with that an important aspect is 
improving the efficiency of fossil energy systems. As many of 
you may be aware, one of the key issues of carbon capture is 
these big efficiency penalty hits.
    The first strategy aims at concerns to reduce the 
greenhouse gas emissions from these fossil fuel systems.
    The second is to improve these fuel to energy efficiency, 
the system, thus reducing emissions, water use, carbon dioxide 
on a per unit energy basis.
    Collectively these 2 strategies comprise the program's 
approach in coming up with technologies for the future. The 
program is addressing these technical challenges through 
research on cost reduction for capture, monitoring verification 
and accounting technologies to ensure permanent storage, 
permitting issues and the development of advanced energy 
systems with these high efficiency gains. A key aspect of the 
research is focusing on developing options to dramatically 
lower the cost of carbon capture. This research is categorized 
into 3 pathways: Postcombustion, precombustion, oxycombustion.
    These pathways provide technology diversity that will allow 
for CCS integration and nearly all current and future fossil 
energy systems. This research is exploring a wide range of 
approaches such as membranes, oxy combustion concepts, sorbents 
and gas liquid scrubbing.
    Another key initiative is the Regional Carbon Sequestration 
Partnerships. The Partnerships are designed to form of network 
of capability, knowledge and infrastructure to enable carbon 
sequestration technology to play a major role in a national 
strategy to mitigate greenhouse gas emissions. These 
partnerships are comprised of State agencies, universities and 
private companies that represent more than 400 unique 
organizations in 43 States and 4 Canadian provinces. They also 
encompass regions that encompass 97 percent of coal fired 
CO2 emissions, 97 percent of industrial 
CO2 emissions, 96 percent of land mass and 
essentially all of the geologic storage sites that could 
potentially be available for carbon sequestration.
    The success of this program and the technologies that are 
emerging will ultimately be judged by the extent to which they 
get deployed in domestic and international marketplaces. Both 
technical and financial challenges associated with these high 
risk technologies must be overcome. To facilitate 
commercialization of integrated CCS systems, the Department is 
pursuing many commercial scale demonstrations to help industry 
understand and overcome startup issues, component integration 
and gaining early learning commercial experience necessary to 
reduce risk.
    CCS and related coal technologies, as you're aware, can 
play a critical role in the future of mitigating CO2 
emissions. The Department's research programs are a vital step 
to achieving the readiness of these technologies for these 
future deployments. I thank this committee and its members for 
allowing me the opportunity to provide remarks today. I look 
forward to our discussion.
    Thank you.
    [The prepared statement of Mr. Klara follows:]
Prepared Statement of Scott Klara, Deputy Laboratory Director, National 
           Energy Technology Laboratory, Department of Energy
    Thank you Chairman Bingaman, Ranking Member Barrasso, and members 
of the Committee; I appreciate the opportunity to discuss the 
Department of Energy's activities to promote the development of carbon 
capture and storage (CCS) technologies.
    My testimony will provide an overview of the Department of Energy's 
(DOE) research efforts in developing CCS technologies. The 
Administration is still reviewing S. 699 and S. 757 and does not have a 
position on either bill at this time.
          interagency task force on carbon capture and storage
    Before I discuss the Department's Clean Coal Research Program, I 
will briefly review the conclusions from the Interagency Task Force on 
CCS. In August 2010, the final report from the Task Force was issued 
summarizing the Administration's efforts to develop and deploy CCS 
technologies, and proposed a plan to overcome the barriers to the 
widespread, cost-effective deployment of CCS within ten years, with a 
goal of bringing five to ten commercial demonstration projects online 
by 2016. This report is the collective work of 14 executive departments 
and federal agencies, which were tasked with developing a comprehensive 
and coordinated Federal strategy to speed the commercial development 
and deployment of clean coal technologies. The task force concluded 
that while there are no insurmountable technological, legal, 
institutional, regulatory or other barriers that prevent CCS from 
playing a role in reducing GHG emissions, early CCS projects face 
economic challenges related to climate policy uncertainty, first-of-a-
kind technology risks, and the current high cost of CCS relative to 
other technologies.
                      clean coal research program
    DOE continues to play a leadership role in the development of clean 
coal technologies with a focus on CCS. The Clean Coal Research 
Program--administered by DOE's Office of Fossil Energy and implemented 
by the National Energy Technology Laboratory--is designed to enhance 
our energy security and reduce environmental concerns over the future 
use of coal by developing a portfolio of revolutionary clean coal 
technologies. The Program is well positioned to help overcome the 
technical challenges associated with the development of clean coal 
technologies.
    The Clean Coal Program, in partnership with the private sector, is 
focused on maximizing efficiency and environmental performance, while 
minimizing the costs of these new technologies. In recent years, the 
Program has been restructured to focus on clean coal technologies with 
CCS. The Program pursues the following two major strategies:

          1) capturing and storing greenhouse gases; and
          2) improving the efficiency of fossil energy systems.

    The first strategy aims to eliminate concerns over emissions of 
greenhouse gases from fossil fueled energy systems. The second strategy 
seeks to improve the fuel-to-energy efficiencies of these systems, thus 
reducing pollutant emissions, water usage, and carbon emissions on a 
per unit of energy basis. Collectively, these two strategies comprise 
the Clean Coal Program's approach to ensure that current and future 
fossil energy plants will have options to meet all emerging 
requirements for a safe and secure energy future.
                core research and development activities
    The Clean Coal Program is addressing the key technical challenges 
that confront the development and deployment of clean coal technologies 
through research on cost-effective capture technologies; monitoring, 
verification, and accounting technologies to ensure permanent storage; 
permitting issues; and development of advanced energy systems. The 
Program is also actively engaged in interagency efforts to address 
liability issues, public outreach, and infrastructure needs. As an 
example, today's commercially available CCS technologies would add 
around 80 percent to the cost of electricity for a new pulverized coal 
plant, and around 35 percent to the cost of electricity for a new 
integrated gasification combined cycle plant.\1\ The Program is 
aggressively pursuing developments to reduce these costs to less than a 
35 percent increase in the cost of electricity for pulverized coal 
energy plants and less than a 10 percent increase in the cost of 
electricity for new gasification-based energy plants.
---------------------------------------------------------------------------
    \1\ Cost and Performance Baseline for Fossil Energy Plants, Volume 
1: Bituminous Coal and Natural Gas to Electricity, U.S. Department of 
Energy/National Energy Technology Laboratory, DOE/NETL-2007/1281, Final 
Report, May 2007.
---------------------------------------------------------------------------
    Research is focused on developing technology options that 
dramatically lower the cost of capturing carbon dioxide 
(CO2) from fossil fueled energy plants. This research can be 
categorized into three technical pathways: post-combustion, pre-
combustion, and oxycombustion. Post-combustion refers to capturing 
CO2 from the stack gas after a fuel has been combusted in 
air. Pre-combustion refers to a process where a hydrocarbon fuel is 
gasified to form a mixture of hydrogen and carbon dioxide, and 
CO2 is captured from the synthesis gas before it is 
combusted. Oxy-combustion is an approach where a hydrocarbon fuel is 
combusted in pure or nearly pure oxygen rather than air, which produces 
a mixture of CO2 and water that can easily be separated to 
produce pure CO2. Collectively, research in each of these 
technical pathways is exploring a wide range of approaches such as 
membranes; oxy-combustion concepts; solid sorbents; CO2 
hydrates; and advanced gas/liquid scrubbing technologies. These efforts 
cover not only improvements to state-of-the-art technologies but also 
development of several revolutionary concepts, such as metal organic 
frameworks, ionic liquids, and enzymebased systems. Coupling these 
developments with other advances in efficiency improvements and cost 
reduction from developments in gasification, turbines, and fuel cells, 
will help provide a technology base for commercial deployment of fossil 
energy systems integrated with CCS.
    The Department is the primary supporter of the National Carbon 
Capture Center (NCCC), which is a joint partnership between DOE and 
industry. The NCCC is a one of a kind, world class facility which 
offers an opportunity to validate capture technologies on actual gas 
from a coal fired power plant or gasification facility. Because of the 
ability to operate under a wide range of process conditions, research 
at the NCCC can effectively evaluate technologies at various levels of 
maturity for many different applications.
               regional carbon sequestration partnerships
    The Regional Carbon Sequestration Partnerships were created by the 
DOE in 2003 through a competitive solicitation. The Partnerships were 
designed to address a range of issues associated with geologic storage 
of CO2. The Clean Coal Program has been performing CCS field 
tests focused on injection, monitoring, verification, accounting and 
other aspects of geologic storage for many years, and the seven 
Regional Carbon Sequestration Partnerships are critical to this effort. 
These Partnerships are comprised of state agencies, universities, and 
private companies. They represent more than 400 unique organizations in 
43 States, and four Canadian Provinces. Geographic differences in 
fossil fuel use and potential storage sites across the United States 
dictate the use of regional approaches in addressing CCS, so each 
Partnership is focused on a specific region of the United States and 
Canada that hold similar characteristics relating to CCS opportunities.
    Together, the Partnerships form a network of capability, knowledge, 
and infrastructure that will help enable geologic storage technology to 
play a role in the clean energy economy. They represent regions 
encompassing 97 percent of coal-fired CO2 emissions, 97 
percent of industrial CO2 emissions, 96 percent of the total 
land mass, and essentially all the geologic storage sites that can 
potentially be available for geologic carbon storage.
    Regional Partnerships are drilling wells and injecting small 
quantities of CO2 to validate the potential of key storage 
locations throughout the country. To date, the Regional Partnerships 
have injected over 1 million tons of CO2 at 18 small scale 
injection projects throughout the United States and Canada. These tests 
have helped to validate storage at a small scale and understand the 
fate of CO2 in different depositional systems containing 
saline water, oil, and natural gas. Several large scale projects are 
also underway that will inject several million tons of CO2 
over the life of the projects. One of these projects has safely and 
securely injected over 2 million metric tons of CO2. Several 
more large-scale field tests will begin later this year.
    Over the course of these initiatives, DOE and the Partnerships are 
addressing key infrastructure issues related to permitting, pore space 
ownership, site access, liability, public outreach, and education. We 
are also jointly developing Best Practice Manuals on topics such as 
site characterization, site construction, operations, monitoring, 
mitigation, closure, and long-term stewardship. These manuals will 
serve as guidelines for a future geologic sequestration industry in 
their regions, and help transfer the lessons learned from DOE's Program 
to all regional stakeholders. Finally, DOE and the Partnerships 
continue to work closely with the Environmental Protection Agency (EPA) 
and other federal and state agencies in developing CCS regulatory 
strategies, which will provide additional certainty for future CCS 
deployments.
                   demonstrations at commercial-scale
    The success of the Clean Coal Program will ultimately be judged by 
the extent to which emerging technologies get deployed in domestic and 
international marketplaces. Both technical and financial challenges 
associated with the deployment of new ``high risk'' coal technologies 
must be overcome in order to be capable of achieving success in the 
marketplace. Commercialscale demonstrations help the industry 
understand and overcome start-up issues, address component integration 
issues, and gain the early learning commercial experience necessary to 
reduce risk and secure private financing and investment for future 
plants.
    The Department is implementing large-scale projects through the 
Regional Partnerships, the Clean Coal Power Initiative (CCPI), and 
FutureGen. Phase III of the Partnerships is focused on large-scale 
field tests of geologic carbon sequestration on the order of 1 million 
metric tons of CO2 per year, and are addressing the 
liability, regulatory, permitting, and infrastructure needs of these 
projects. As described previously in this statement, the Partnerships 
have brought an enormous amount of capability and experience together 
to work on the challenges of these large projects.
    The CCPI is a cost-shared partnership between the government and 
industry to develop and demonstrate advanced coal-based power 
generation technologies at the commercial scale. CCPI demonstrations 
address the reliability and affordability of the Nation's electricity 
supply from coal-based generation. By enabling advanced technologies to 
overcome technical risks involved with scale-up and bringing them to 
the point of commercial readiness, CCPI accelerates the development of 
both advanced coal generation technologies and the integration of CCS 
with both new and existing generation technologies. The CCPI also 
facilitates the movement of technologies into the market place that are 
emerging from the core research and development activities. The CCPI 
program received an additional $800 million from the 2009 American 
Recovery and Reinvestment Act (Recovery Act) which, in combination with 
base funding, was used to fund four active CCPI projects, two pre-
combustion and two post-combustion projects. In addition, a CCPI round 
II project has been modified to demonstrate CCS at a new integrated 
gasification combined cycle power plant. We are working closely with 
the project developers to comply with NEPA, air and water regulatory 
requirements, and complete initial Front End Engineering & Design 
(FEED) studies for the facilities. All five of these projects are on 
track to be operational between 2013 and 2015.
    The FutureGen Project intends to conduct novel large-scale testing 
to accelerate the deployment of a set of advanced oxy-combustion power 
production technologies integrated with CCS. This project will be the 
first advanced repowering oxy-combustion project to store 
CO2 in a deep saline geologic formation. On August 5, 2010, 
Secretary of Energy Steven Chu announced an award of $1 billion in 
Recovery Act funding to the FutureGen Alliance, Ameren Energy 
Resources, Babcock & Wilcox, and Air Liquide Process and Construction, 
Inc., to build FutureGen 2.0, a clean coal repowering program and 
carbon dioxide storage network. On February 28, 2011, the FutureGen 
Alliance selected Morgan County, Illinois, as the preferred location 
for the FutureGen 2.0 CO2 storage site, visitor center, 
research, and training facilities.
    In addition to the CCPI and FutureGen 2.0 projects, the Recovery 
Act has also helped fund more than 80 additional projects which 
includes three large scale Industrial CCS demonstrations, ten geologic 
site characterizations, forty-three university research training 
projects, seven CCS research training centers, six Industrial CCS 
projects focused CO2 reuse, and 14 projects focused on 
accelerated component development in the core research program.\2\
---------------------------------------------------------------------------
    \2\ Details about all of the Fossil Energy projects funded by the 
Recovery Act can be found here: http://www.fossil.energy.gov/recovery/
index.html.
---------------------------------------------------------------------------
                               conclusion
    CCS and related clean coal technologies can play a critical role in 
mitigating CO2 emissions under many potential future carbon 
stabilization scenarios. Nevertheless, challenges remain to achieving 
cost-effective commercial deployment of CCS. The Department's research 
programs are a vital step to advancing the readiness of clean coal 
technologies for future commercial deployment. I thank this Committee 
and its members for allowing me the opportunity to provide an overview 
of DOE's research efforts in developing CCS technologies and I look 
forward to your questions. The Administration is still reviewing S. 699 
and S. 757 and does not have a position on either bill at this time.

    The Chairman. Thank you very much.
    Ms. Greenberg.

STATEMENT OF SALLIE E. GREENBERG, ASSISTANT DIRECTOR, ADVANCED 
ENERGY TECHNOLOGY INITIATIVE, ILLINOIS STATE GEOLOGICAL SURVEY, 
                         CHAMPAIGN, IL

    Ms. Greenberg. Mr. Chairman, Ranking Member Barrasso, 
distinguished members of the committee, thank you for the 
opportunity to testify before you today on S. 699.
    The Illinois State Geological Survey at the University of 
Illinois is one of the largest and most diverse State 
geological surveys in the United States. Beginning in 2001 we 
have been researching carbon capture and storage in the 
Illinois basin of Illinois, Southwestern Indiana and Western 
Kentucky. We have led the Midwest Geological Sequestration 
Consortium, 1 of the 7 regional carbon sequestration 
partnerships supported by the U.S. Department of Energy since 
2003.
    In 2008, we began developing a one million metric ton 
demonstration of carbon dioxide capture and storage in 
collaboration with the Archer Daniels Midland Company in 
Decatur, Illinois. Injection is expected to begin at the rate 
of 1,000 tons per day in September 2011 and continue for the 
next 3 years. As a result of directly dealing with such issues 
as underground injection control permitting, pore space 
ownership, liability and community stakeholder engagement, we 
are pleased to offer our comments on S. 699.
    We commend the criteria established in this bill to define 
a large scale injection to mean the injection of at least one 
million metric tons per year. To specify a set of project 
selection criteria that require the submittal of comprehensive 
geologic data and appropriate plans for environmental 
monitoring. We see these project selection provisions as 
requiring selective projects to be beyond the applied research 
stage. Applicants must demonstrate thorough knowledge of their 
proposed site based on existing information or new information 
such as geophysical surveys specifically obtained to validate 
their application to the Secretary.
    A basic project will not and should not qualify. The 
Secretary, however, will require the staff to assure that the 
information submitted is adequate and complete in order to 
minimize the risk to the government and the taxpayer under the 
indemnification provisions. The recently adopted Class VI 
underground injection control or UIC regulations will also 
assure that many of the provisions of S. 699 are met.
    These regulations require that underground sources of 
drinking water are protected and no injection project may 
proceed without a UIC permit. UIC regulations cover all aspects 
of carbon dioxide injection from site characterization to well 
construction and from operational monitoring to site closure. 
Many of the provisions in the UIC Class VI regulations are 
mirrored in the post injection and monitoring elements of S. 
699 which in effect means that the U.S. EPA or State EPAs in 
States with primacy will have the leading enforcement rule. 
Close coordination in between the Secretary of Energy and these 
organizations will be required.
    With respect to liability, risks during site operations and 
immediately following closure can be minimized through rigorous 
geological site characterization and excellent operational and 
site closure practices. Best practices guidelines have been 
developed for many of these activities based on the DOE's 
supported applied research conducted since 2003. We believe the 
indemnification provisions of S. 699 represent a backstop to 
new UIC Class VI regulations and to privately insurable 
activities that commercial carbon capture and storage operators 
will normally engage in such as the drilling of injection 
wells.
    Beyond these requirements the government's indemnification 
is necessary to allow projects to proceed where the risk 
profile beyond post closure stewardship is poorly known. Given 
that it is in the public interest for carbon capture and 
storage to be thoroughly evaluated the provisions of S. 699 
that allow for a pool of up to ten indemnified projects will 
help establish a risk profile that can inform long term 
liability under a fee supported structure. These projects must 
be carefully selected and monitored, however, to ensure that 
the indemnity is warranted at the outset and not abused by poor 
practices during project execution and post closure 
stewardship.
    We would also suggest that the projects be selected in 
geologically diverse areas to maximize the understanding of 
relative risk. Excuse me.
    Mr. Chairman and members, we appreciate the opportunity to 
submit these comments to the committee. Would welcome any 
follow up communications that would be useful to you.
    [The prepared statement of Ms. Greenberg follows:]
    Prepared Statement of Robert J. Finley, Director and Sallie E. 
 Greenberg, Assistant Director, Advanced Energy Technology Initiative, 
            Illinois State Geological Survey, Champaign, IL
    Chairman Bingaman and Members U.S. Senate Committee on Energy and 
Natural Resources: The Illinois State Geological Survey at the 
University of Illinois is one of the largest and most diverse state 
geological surveys in the United States. Beginning in 2001, we have 
been researching carbon capture and storage in the Illinois Basin of 
Illinois, southwestern Indiana, and western Kentucky. We have led the 
Midwest Geological Sequestration Consortium, one of the seven Regional 
Carbon Sequestration Partnerships supported by the U. S. Department of 
Energy, since 2003. In 2008, we began developing a one million metric 
ton demonstration of carbon dioxide capture and storage in 
collaboration with the Archer Daniels Midland Company at Decatur, 
Illinois. Injection is expected to begin at the rate of 1,000 tonnes 
per day in September 2011 and continue for the next three years. As a 
result of directly dealing with such issues as Underground Injection 
Control permitting, pore space ownership, liability, and community 
stakeholder engagement, we are pleased to offer our comments on S.699.
    We commend the criteria established in this bill to define a large-
scale injection to mean the injection of at least one million metric 
tons per year and to specify a set of project selection criteria that 
require the submittal of comprehensive geological data and appropriate 
plans for environmental monitoring. We see these Project Selection 
provisions as requiring selected projects to be beyond the applied 
research stage. Applicants must demonstrate thorough knowledge of their 
proposed site based on existing information or new information, such as 
geophysical surveys, specifically obtained to validate their 
application to the Secretary. A basic research project will not and 
should not qualify. The Secretary, however, will require the staff to 
assure that the information submitted is adequate and complete in order 
to minimize the risk to the Government and the taxpayer under the 
indemnification provisions.
    The recently adopted Class VI Underground Injection Control, or 
UIC, regulations will also assure that many of the provisions of S.699 
are met. These regulations require that underground sources of drinking 
water are protected, and no injection project may proceed without a UIC 
permit. UIC regulations cover all aspects of carbon dioxide injection 
from site characterization to well construction and from operational 
monitoring to site closure. Many of the provisions of the UIC Class VI 
regulations are mirrored in the Post Injection and Monitoring Elements 
of S.699 which, in effect, means that the US EPA, or state EPAs in 
states with primacy, will have the leading enforcement role. Close 
coordination between the Secretary of Energy and these organizations 
will be required.
    With respect to liability, risks during site operations and 
immediately following closure can be minimized through rigorous 
geological site characterization and excellent operational and site-
closure practices. Best-practices guidelines have been developed for 
many of these activities based on DOE-supported applied research 
conducted since 2003. We believe the indemnification provisions of 
S.699 represent a backstop to new UIC Class VI regulations and to 
privately insurable activities that commercial carbon storage operators 
will normally engage in, such as drilling of injection wells. Beyond 
these requirements, the Government's indemnification is necessary to 
allow projects to proceed where the risk profile beyond post-closure 
stewardship is poorly known. Given that it is in the public interest 
for carbon capture and storage to be thoroughly evaluated, the 
provisions of S.699 that allow for a pool of up to 10 indemnified 
projects will help establish a risk profile that can inform long-term 
liability under a fee-supported structure. These projects must be 
carefully selected and monitored, however, to ensure that public 
indemnity is warranted at the outset and not abused by poor practices 
during project execution and post-closure stewardship. We would also 
suggest that the projects be selected in geologically diverse areas to 
maximize understanding of relative risk.
    Mr. Chairman and Members, we appreciate the opportunity to submit 
these comments to the Committee and would welcome any follow-up 
communications that would be useful to you.
    Mr. Chairman and Members, we appreciate the opportunity to submit 
these comments to the Committee and would welcome any follow-up 
communications that would be useful to you.

    The Chairman. Thank you very much.
    Mr. Watson.

    STATEMENT OF MATT WATSON, SENIOR ENERGY POLICY MANAGER, 
                   ENVIRONMENTAL DEFENSE FUND

    Mr. Watson. Chairman Bingaman, Ranking Member Barrasso, 
members of the committee: EDF appreciates the opportunity to 
appear in support of S. 699. Until we have a policy mechanism 
that internalizes the cost of carbon pollution and creates a 
true market for CCS, we won't see the technology perfected and 
deployed at scale. In today's context with the commercial basis 
for CCS in limbo and the prospects for new projects 
increasingly in question, we think the targeted rifle shot 
approach in S. 699 is an important and productive step in the 
right direction.
    It's been suggested that the private market won't provide 
financial risk management tools for CCS projects and that 
operators will need unlimited and perpetual liability relief in 
order to go forward. EDF strongly disagrees with this 
assertion. There's no special liability relief for EOR projects 
or for underground injection of hazardous waste or geologic 
storage of natural gas. Under the right conditions CCS 
shouldn't present risks any greater than those posed by these 
activities, all of which appear to have little trouble 
attracting investment capital and risk management options in 
the marketplace.
    We recognize, however, that as a new technology private 
sector insurance offerings for CCS are limited. Ultimately, it 
will take on the ground experience to generate the actuarial 
data on which a robust and well calibrated suite of risk 
management options can be built. S. 699 will help generate this 
on the ground experience. It strikes an appropriate balance by 
providing limited indemnification to early CCS projects while 
putting 4 key protections in place to reduce the risk of moral 
hazard that's inherent to broad liability relief.
    So I'd like to spend a minute on those protections because 
to EDF they're critical aspects of the bill.
    No. 1, the bill is limited to ten projects. This should put 
future project operators as well as private insurers on notice 
that liability relief is not going to become a permanent 
fixture of the legal regime governing CCS. We anticipate the 
private insurance market and the CCS industry itself will 
respond by closely observing these ten demonstration projects 
and using the data generated there to develop insurance 
products to meet the needs of future projects.
    No. 2, the bill requires project operators to seek 
financial assurances in the marketplace and only provides 
indemnification from liabilities over and above the coverage 
provided by those protections. Requiring project operators to 
have first dollar responsibility for damages is a critical step 
toward minimizing moral hazard.
    No. 3, the bill requires recipients of indemnification 
agreements to pay risk based fees to cover taxpayer exposure 
for the ten projects. Risk based fees provide an important 
incentive for careful project planning, in particular as it 
relates to the critical issues of site characterization and 
site selection.
    No. 4, project selection is competitive and is based on a 
number of eligibility criteria that can be thought of as 
underwriting standards. In particular requirements for detailed 
geologic characterization and requirements for thorough 
measurement monitoring and verification would serve as 
important thresholds for program participation.
    By establishing a program that mimics risk management 
models that exist in the marketplace and by restricting the 
program to a limited number of early projects, S. 699 should 
help lay a foundation for the development of market based 
solutions to the industry's need to manage risk at a reasonable 
cost.
    Finally a few words about the post closure stewardship 
aspects of the bill. EDF supports creation of a third party 
entity, adequately funded by industry to manage the routine 
maintenance and monitoring of properly closed 
sequestrationsites. S. 699 goes beyond routine maintenance 
allowing DOE to take responsibility for remediation activities. 
The limited confines of this bill for these ten projects we 
believe this broad definition of stewardship is appropriate. 
However, when stewardship policies are crafted for future 
projects it would not be appropriate to transfer major 
remediation responsibilities or responsibilities for other 
liabilities that may arise to third party entities, again, 
because of the risk of moral hazard that this creates.
    That concludes my written remarks other than to commend the 
Chairman and Senators Murkowski, Barrasso and Rockefeller for 
putting forward this important legislation. Look forward to the 
discussion.
    [The prepared statement of Mr. Watson follows:]
   Prepared Statement of Matt Watson, Senior Energy Policy Manager, 
                       Environmental Defense Fund
    Environmental Defense Fund (EDF) appreciates the opportunity to 
speak in support of S.699 as the Committee considers how to help early 
carbon capture and sequestration (CCS) projects conduct operations in a 
safe and effective manner and otherwise address risk management issues. 
Since 1967 EDF has linked science, economics and law to create 
innovative, equitable and cost-effective solutions to urgent 
environmental problems.
    The primary challenges to CCS deployment are not technological. The 
component technologies exist today. Rather, the primary barrier is the 
lack of a commercial basis for deployment. Without a policy mechanism 
that internalizes the costs of carbon pollution--such as a declining 
cap on carbon emissions, or more robust regulatory requirements than 
are currently being contemplated--it is unlikely that we'll see CCS 
deployment at scale. As such, costs will remain high and technology 
advancements will be slower than they would otherwise be.
    However, the problem of climate disruption isn't going away. As a 
society, it is something we will be forced to address, sooner or later, 
whether we like it or not. And EDF believes that successful deployment 
of geologic sequestration will be a critical technology option if we 
are to accommodate fossil energy in a carbon-constrained future.
    EDF therefore supports moving forward with pilot projects than can 
help us begin the process of acquiring operational experience with CCS. 
We likewise favor moving forward judiciously in building up the legal 
and regulatory frameworks that will be necessary to support CCS 
commercialization.
    Progress is being made on this front. For example, in December the 
EPA promulgated final rules for geologic sequestration of 
CO2 under the Underground Injection Control program and for 
injection and geologic sequestration of CO2 under the 
greenhouse gas reporting program. These rules represent important steps 
forward in laying the groundwork for CCS deployment.
    As Congress and the Administration contemplate additional steps on 
the legal and regulatory front, though, it will be important to not get 
too far ahead of our on-the-ground experience. Decision makers should 
resist the temptation to intervene in the marketplace or create 
exemptions in fundamental laws that protect citizens and the 
environment in an attempt to solve problems or reduce barriers to CCS 
deployment that may not actually exist.
   ccs does not present inherently unique financial risk management 
                               challenges
    It has been suggested that the private market will not provide 
adequate financial risk management tools for CCS projects and that 
operators will need unlimited and perpetual ``liability relief'' in 
order to move forward with CCS projects. EDF strongly disagrees with 
this assertion.
    Under the right conditions, CCS should present risks no greater 
than those posed by any number of other similar activities. The IPCC 
Special Report on Carbon Capture and Sequestration concluded in 2005 
that the local health, safety and environmental risks of CCS are 
comparable to the risks of similar underground injection and storage 
activities if there is ``appropriate site selection based on available 
subsurface information, a monitoring programme to detect problems, a 
regulatory system and the appropriate use of remediation methods to 
stop or control CO2 releases if they arise.''
    With these protections in place, CCS projects should be able to 
secure risk management tools in the private marketplace, rather than 
rely on taxpayers to take on the liability risks associated with 
projects.
    There is no special liability relief for the enhanced oil recovery 
business. Businesses engaged in the underground injection of industrial 
and hazardous wastes operate without any special liability relief. 
Natural gas storage operators are not shielded from liability. Firms in 
these industries face potential liability for their actions until 
normal statutes of limitation have run their course or the companies 
are relieved of liability through bankruptcy. Yet all of these 
businesses inject material into geologic formations and appear to have 
little trouble attracting investment capital and risk-management tools 
in the marketplace.
    We recognize, however, that at this early stage the private sector 
has not yet developed a robust suite of risk management tools for CCS 
projects. At least one private-sector insurer is now offering policies 
for CCS projects. But ultimately it will take on-the-ground operational 
experience to generate the actuarial data on which a robust and well-
calibrated suite of risk-management options can be built. Similarly, 
on-the-ground experience will help banks and other investors better 
understand project risk, which should bring down the costs of capital 
over time.
          s.699 is a measured approach to a temporary problem
    Given these facts, EDF is willing to support temporary, limited and 
thoughtful intervention in the marketplace in order to acquire the 
operational experience that will support the development of a broader 
range of risk management options in the private sector. It is critical, 
however, that any such intervention put protections in place to avoid 
the problems of ``moral hazard'' that are inherent to broad liability 
relief.
    Current liability rules, grounded in common law and statutes, serve 
an important purpose--encouraging people to take prudent and necessary 
steps to avoid putting fellow citizens and investors at risk. 
Privatizing economic benefits while socializing the associated risks 
through so-called liability relief increases the odds that shortcuts 
will be taken and warnings will be ignored, potentially leading to 
disastrous results.
    S.699 strikes an appropriate balance between the need to provide 
limited indemnification to early CCS projects--in order to generate the 
operational experience that will allow the private sector to take over 
the task of financial risk management--and putting protections in place 
to reduce the risk of ``moral hazard'' for these early projects.
    First and foremost, the indemnification program under S.699 is 
limited. Limiting the program to 10 projects puts future project 
operators, as well as private insurers, on notice that liability relief 
is not going to become a permanent fixture of the legal regime 
governing CCS. We anticipate the private insurance market will respond 
by closely observing the 10 demonstration projects and developing 
private insurance products to meet the needs of future projects. 
Likewise, expect the CCS industry itself will use the experience gained 
through the demonstration projects to develop self-insurance strategies 
and mutual insurance arrangements.
    Second, in order to be eligible for an indemnification agreement, 
S.699 requires project operators to seek financial assurances in the 
private marketplace and only provides indemnification from liabilities 
over and above those privately-secured financial protections. Requiring 
project operators to have ``first dollar'' responsibility for any 
damages that may arise is a critical step toward minimizing moral 
hazard.
    Third, S.699 requires recipients of indemnification agreements to 
pay risk-based fees to cover the taxpayer exposure for the 10 projects. 
Risk-based fees provide an important incentive for careful planning of 
CCS projects--in particular as relates to site selection, an issue of 
utmost importance to project safety.
    Fourth, project selection is competitive and based on a number of 
eligibility criteria that can be thought of as ``underwriting 
standards.'' In particular, requirements for detailed geologic 
characterization and risk analysis and requirements for thorough 
measurement, monitoring and verification serve as important thresholds 
to protect taxpayers, local communities and the environment.
    By establishing a program that mimics risk management models that 
exist in the marketplace, and by restricting the program to a limited 
number of early projects, S.699 should help lay a foundation for the 
development of market-based solutions to the emerging CCS industry's 
need to manage financial risk at a reasonable cost.
  post-closure infrastructure maintenance--an appropriate government 
                                function
    Properly closed sequestration sites will require stewardship for 
long time periods even though there is sound basis to believe that 
properly planned and operated projects will present minimal risk in the 
post-closure period. EDF supports the creation of a third-party entity, 
adequately funded by industry, to manage the maintenance of properly 
closed sequestration sites. Ultimately the function might be 
privatized, but it makes sense for the government to perform this role 
for early projects.
    The bill extends DOE's post-closure stewardship obligations beyond 
simple infrastructure maintenance (plugging the occasional leaking 
well, conducting a low-intensity monitoring regime, etc.) to include 
``remediation activities to ensure the geological integrity of the site 
and prevent any endangerment of public safety.'' Given the nature of 
the program established by S.699--one in which the government will 
indemnify eligible sites for damages that do not arise from gross 
negligence or intentional conduct--we believe this broad definition of 
stewardship is appropriate.
    When long-term stewardship policies are crafted for future 
projects, however, we recommend that Congress re-consider the scope of 
any third-party stewardship program. Creation of a third-party entity 
for site maintenance is probably appropriate for both early projects 
and later projects, but the optimum funding method, duties and 
obligations of the stewardship entity are likely to be different once 
the marketplace has had time to develop robust insurance offerings and 
other risk mitigation tools.
    And while it may be appropriate to allow a future third-party 
entity to take on routine stewardship responsibilities, it would not be 
appropriate to transfer responsibility for remediation or other 
liabilities to a third-party entity in the post-closure phase. Again, 
this would raise the prospect of moral hazard. Certainly, decisions 
made during a project's operational phase could lead to problems that 
might not materialize until post-closure. Therefore, responsibility for 
liabilities that may arise should rest with the project operator, even 
in the event that a third-party entity takes on stewardship 
responsibilities.
                  assisting state regulatory agencies
    EDF is pleased that the bill establishes grants to state agencies 
for employee training purposes. CCS projects raise a number of new 
regulatory issues and federal assistance in helping to educate state 
agencies regarding these issues is important.

    The Chairman. Thank you very much.
    Ms. Trabucchi.

STATEMENT OF CHIARA TRABUCCHI, PRINCIPAL, INDUSTRIAL ECONOMICS 
                  INCORPORATED, CAMBRIDGE, MA

    Ms. Trabucchi. Mr. Chairman, Senator Barrasso, 
distinguished members of the committee, thank you for 
introducing S. 699 and for the invitation to testify at today's 
hearing.
    I'm a Principal and Chief Financial Officer with Industrial 
Economics in Cambridge, Massachusetts. My expertise relevant to 
this matter is in financial insurance frameworks and long term 
indemnity models. My testimony focuses on the financial 
management in indemnification framework proposed in the bill. 
My remarks today address 2 specific aspects.
    The first being the assessment, collection and use of fees 
from developers of CCS projects.
    No. 2, the dollar delimited amount of indemnification 
included in the bill.
    Firms seeking investment capital to finance business 
ventures including CCS must demonstrate the ability to assume 
and manage risks inherent to the venture. By doing so the firm 
is able to assure investors whether private or public that the 
value of their investment will not erode. In fact, over time 
will gain value.
    In the case of CCS the use of taxpayer dollars in the very 
long time horizon demands a financial assurance structure that 
blends the strengths of private and public risk sharing. To be 
effective a financial assurance structure that implements 
private/public risk sharing should achieve 4 goals.
    No. 1, it should ensure funds are adequate when needed.
    No. 2, it should ensure these funds are readily assessable 
when needed.
    No. 3, it should establish minimum standards for financial 
institutions providing funds or underwriting risk.
    No. 4, it should insure continuity of financial assurances 
when ownership of sites is transferred.
    The long term indemnity model proposed in S. 699 is a 
notable step forward in achieving these goals. However, to the 
extent the bill is designed to establish a financial management 
structure that ensures sufficient resources are available to 
pay for long term stewardship at the time of a demonstration 
projects are transferred. Then in my view the following 
elements warrant additional clarification.
    No. 1, in the section addressing collection of fees and the 
use of net present value analysis, the amount of fees assessed 
and collected should be based on the net present value of 
probable damages arising from each project. The analytic tools 
exist to estimate dollar values for potential damages and are 
routinely used by firms expert and financial and natural 
resource economics.
    No. 2, consistent with basing fees on a net present value 
analysis, the fees collected should be investing the dedicated 
interest bearing account that generates a rate of return at 
least equal to the risk adjusted discount rate used in the net 
present value calculation. In the absence of doing so the fees 
collected may not yield sufficient revenue to avoid an 
intergenerational transfer of costs to future taxpayers.
    No. 3, by design an appropriate fee structure should be 
adjustable whereby the CCS developer pays a risk adjusted, site 
specific fee that is reassessed as actual site specific 
monitoring, measuring and verification data become available.
    No. 4, given the experimental nature of CCS and its limited 
commercial application insufficient information may exist about 
the risk profiles of a candidate demonstration projects to 
establish a limited liability today that appropriately adjusts 
for risk and uncertainty over the long term.
    In my view pending the availability of such information and 
to provide a measure of certainty to markets interested in 
investing in CCS projects establishing a dollar delimited 
amount of indemnification for a discreet number of early mover 
demonstration projects may in fact be appropriate. But only if 
the stated public policy objective to accelerate the deployment 
of CCS technology. It is important to recognize that public 
financing of this sort distorts or eliminates the impact of 
market forces in determining what is or is not a rational risk 
neutral business venture.
    With respect to the specific indemnification provisions 
included in the bill, as I understand the bill authorizes 
financial assistance for up to ten CCS demonstration projects 
with explicit provisions for project selection and financial 
responsibility. In my view by doing so the bill appropriately 
limits the overall risk exposure to the public to a discreet 
number of sites with a discreet array of selection criteria. 
Further, by limiting the timing of liability relief to after a 
defined period of post injection and by requiring that transfer 
of title be contingent upon performance based standards, the 
bill appropriately provides incentives for developers of CCS 
demonstration projects to properly operate and maintain their 
sites limiting the potential for future damages and public 
liability.
    Finally, in the section addressing the amount of 
indemnification the language should state clearly that 
indemnification is applicable only to CCS related activities. A 
business entity or ``person'' underwriting a CCS project should 
not be allowed to package its operating activities in such a 
way as to yield an inappropriate risk transfer of preexisting 
non CCS related liabilities to the public.
    In my view clarifying the language of S. 699, as I have 
suggested will help ensure continuity of financial assurances 
and provide a measure of certainty with respect to the long 
term stewardship of CCS sites in a manner cognizant of and 
consistent with potential risks to the public. My written 
testimony elaborates on these areas. I would be pleased to 
answer any questions.
    Thank you.
    [The prepared statement of Ms. Trabucchi follows:]
Prepared Statement of Chiara Trabucchi, Principal, Industrial Economics 
                      Incorporated, Cambridge, MA
                                summary
    Firms seeking investment capital to finance business ventures, 
including CCS, must demonstrate the ability to assume and manage risks 
inherent to the venture. By doing so, the firm is able to assure 
investors, whether private or public, that the value of their 
investment will not erode, and with time, will gain value. In the case 
of CCS, the very long time horizon and the use of taxpayer dollars 
demands a financial assurance structure that adequately protects the 
private and public investor.
    To be effective, a financial assurance structure that implements 
private--public risk sharing should achieve four clear goals: (1) 
Ensure funds are adequate, when needed; (2) Ensure these funds are 
readily accessible, when needed; (3) Establish minimum standards for 
financial institutions providing funds or underwriting risk; and (4) 
Ensure continuity of financial assurances, when ownership of sites is 
transferred.
    The long-term indemnity model proposed in Senate Bill 699 is a 
notable step forward in achieving these goals, and appropriately limits 
indemnification to certain types of damages. To the extent that Senate 
Bill 699 is designed to establish a financial management structure that 
ensures sufficient resources are available to pay for long-term 
stewardship at the time ownership of the demonstration projects is 
transferred, then, in my view, the following elements of the Bill would 
benefit from additional clarification:

          1. In the section addressing Collection of Fees and the use 
        of Net Present Value analysis, the amount of fees assessed and 
        collected should be based on the Net Present Value of probable 
        damages arising from each demonstration project. Damages 
        associated with CCS projects are a function of site location 
        and plant design; the analytic tools exist to estimate dollar 
        values for potential damages and are routinely used by firms 
        expert in financial and natural resource economics.
          2. This section also should require the design of an 
        adjustable fee structure, whereby the CCS developer pays a 
        risk-adjusted, site-specific fee that is reassessed as actual 
        site-specific monitoring, measuring and verification data 
        become available.
          3. Consistent with basing fees on a Net Present Value 
        analysis, the fees collected should be invested in a dedicated, 
        interest-bearing account that generates a rate of return at 
        least equal to the risk-adjusted discount rate underpinning the 
        Net Present Value calculation. In the absence of doing so, the 
        fees collected may not yield sufficient revenue to avoid an 
        inter-generational transfer of costs to future tax payers.
          4. Given the experimental nature of CCS and its limited 
        commercial application, insufficient information may exist 
        about the risk profiles of the candidate demonstration projects 
        to design a site-specific fee structure, today, that 
        appropriately adjusts for risk and uncertainty over the long-
        term. Pending the availability of such information, 
        establishing a dollar-denominated amount of indemnification for 
        a discrete number of early-mover, demonstration projects may be 
        appropriate.
          Over the long term, I caution against establishing an 
        arbitrary limit of absolute dollar liability. Rather, the 
        amount of indemnification should be correlated to the pooled 
        value of probable loss associated with the specific CCS 
        demonstration projects subject to cooperative agreements under 
        the Bill.
          5. In the section addressing the amount of indemnification, 
        the language should state clearly that indemnification is 
        applicable only to CCS-related activities; a business entity 
        (or `person') underwriting a CCS project should not be allowed 
        to package its operating activities in such a way as to yield 
        an inappropriate risk transfer of pre-existing, non-CCS related 
        liabilities to the public.

    In my view, clarifying the language of Senate Bill 699 as I have 
suggested will help ensure continuity of financial assurances and 
provide a measure of certainty with respect to the long-term 
stewardship of CCS sites in a manner cognizant of, and consistent with, 
potential risks to the public. In so doing, Senate Bill 699 will send a 
positive signal to private capital markets seeking to invest in CCS 
technology.

    Thank you for the opportunity to testify in today's legislative 
hearing on Senate Bill 699, Department of Energy Carbon Capture and 
Sequestration Program Amendments Act of 2011. I am a Principal with, 
and the Chief Financial Officer of, Industrial Economics Incorporated 
in Cambridge, Massachusetts. My expertise is in finance and economics, 
with specific focus on financial assurance frameworks and financial 
indemnity models. Founded in 1981, Industrial Economics is a privately-
owned professional services firm expert in the areas of financial and 
natural resource economics. The clients of the firm span the public and 
private sectors.
    The focus of my testimony is on the financial management and 
indemnification framework proposed by Senate Bill 699. Below, I offer 
my overall assessment of Senate Bill 699, I highlight areas of the Bill 
with which I agree, and offer suggestions for consideration by the 
Committee. These suggestions are based on the language proposed in 
Senate Bill 699, and the Bill's intended objective of fostering early-
mover deployment of no more than 10 Carbon Capture and Sequestration 
(herinafter CCS) demonstration projects.
    The sections that follow map to the provisions proposed by Senate 
Bill 699. Where appropriate, I highlight elements of the proposed 
language that are well designed; and I offer suggestions where the 
language of Senate Bill 699 might be clarified or improved.
          overview. the importance of financial responsibility
    Firms seeking investment capital to finance business ventures must 
demonstrate the ability to assume and manage risks inherent to the 
venture. By doing so, the firm is able to assure investors, whether 
private or public, that the value of their investment will not erode, 
and with time, will gain value. Under traditional financing models, 
investors require that risks be bounded, quantified and accounted for 
either directly as an expense, or indirectly through third-party 
financial instruments (letters of credit, surety bonds, insurance, to 
name a few).
    CCS processes create a suite of risks, including possible injury to 
private and public sector interests, e.g., possible injury to natural 
resources, bodily injury and/or property damage. Traditional financing 
models presume that the project developer is an active business entity 
capable of setting aside funds today to pay for future obligations 
related to these risks. However, the objective of CCS is to store 
CO2 in perpetuity, i.e., a period of time that transcends 
the typical business life cycle of many corporate endeavors. To the 
degree risks arising from CCS ventures continue beyond the operational 
life of the project, and in the event the CCS developer is no longer a 
going concern, prudent risk management dictates consideration of who 
will finance the obligations arising from these risks.
    The use of taxpayer dollars and the very long time horizon 
associated with CCS--one which may extend beyond the natural life of 
the corporate entity undertaking the demonstration project--demands a 
financial management solution that blends the strengths of private and 
public risk sharing. To be effective, a financial assurance structure 
that implements a private--public risk sharing should achieve four 
clear goals:

          (1) Ensure funds are adequate, when needed;
          (2) Ensure these funds are readily accessible, when needed;
          (3) Establish minimum standards for financial institutions 
        providing funds or underwriting risk; and
          (4) Ensure continuity of financial assurances, when ownership 
        of sites is transferred.

    To the degree society wishes to reduce greenhouse gas emissions, 
and the portfolio of emission reduction technologies includes CCS, then 
an effective financial assurance and indemnification framework will 
balance the four above-listed goals with needed incentives to foster 
the safe deployment of a limited number of early mover, demonstration 
projects.
    If modified as I suggest below, the design of the financial 
assurance framework and the implementation of private--public risk 
sharing as proposed in Senate Bill 699 should provide a measure of 
financial and legal certainty with respect to the long term stewardship 
of CCS sites in a manner cognizant of, and consistent with, potential 
risks to the public. In so doing, Senate Bill 699 sends a positive 
signal to private capital markets seeking to invest in CCS projects.
                       project selection criteria
    In my view, the science-based criteria and provisions for project 
selection as proposed by Senate Bill 699 are necessary but not 
sufficient to underpin the financial management structure defined in 
later sections of the Bill. Additional provisions requiring the 
explicit evaluation of potential human health and environmental impacts 
from a financial perspective--deriving expected and maximum loss values 
with a clear understanding of the statistical range of possible 
outcomes--are needed for each proposed demonstration project.
    The outputs of these evaluations will achieve three objectives.
    First, they will help the implementing agency assess competitive 
bids for demonstration projects, and make an informed decision as to 
the potential financial risk posed by each demonstration project.
    Second, they will provide an appropriate basis to calculate the 
amount of financial assurance that should be set aside by the 
individual CCS developer during the operating lifecycle of the CCS 
project, and for a defined period post-injection.
    Third, to the degree the Secretary agrees to indemnify recipients 
of cooperative agreements for CCS demonstration projects, they will 
inform the amount of indemnification that is warranted.
               terms and conditions (financial assurance)
    In my view, as proposed by Senate Bill 699, the CCS developer 
should remain financially responsible for events that occur during the 
operating lifecycle of the CCS project, and for a defined period post-
injection. Specifically, financial assurances should be secured and 
maintained by the developer of the CCS demonstration project until such 
time as title to the site is transferred and accepted by the 
implementing Federal agency. In this way, the Bill provides incentives 
for CCS developers to properly operate and maintain their sites, 
limiting the potential for future damages. Firms are more likely to 
undertake design and operating decisions that minimize environmental 
(and remediation) costs, if they are held financially accountable.
    Further, maximum flexibility should be afforded to developers of 
the early mover demonstration projects in selecting the financial 
instruments that may be used, including but not limited to trust funds, 
letters of credit, surety bonds, insurance, and self-insurance through 
a corporate financial test or corporate guarantee, or any combination 
thereof. The array of acceptable financial instruments must ensure that 
funds are adequate if and when needed, and readily accessible to pay 
for delineated activities. For this reason, minimum standards are 
necessary for financial institutions securing funds or underwriting CCS 
risks.
                       indemnification agreements
Exception for Gross Negligence and Intentional Misconduct
    In my opinion, Senate Bill 699 appropriately limits indemnification 
to certain types of damages. The exception provided in Senate Bill 699 
for gross negligence and intentional misconduct is important, 
particularly as it relates to fraud and misrepresentation of site 
(monitoring, measuring and verification) data. The importance of this 
exception can not be overemphasized, because these data likely will be 
used to underpin financial assurances, fee calculations and 
indemnification amounts.
Collection of Fees
    I believe it is appropriate to assess and collect fees from the CCS 
developer to finance the cost of long-term stewardship. In my view, the 
language proposed by Senate Bill 699 should be clarified to ensure that 
the amount of fees collected is not arbitrary or based on a fixed rate 
for all sites. Establishing a blanket fixed fee to be paid by all CCS 
developers regardless of their individual site characteristics, 
operational methods and potential for consequences results in an 
inefficient use of available resources which otherwise could be 
invested for productive economic purposes. From a financial 
perspective, establishing a fixed rate of financial assurance that is 
paid by all CCS developers results in some developers paying more, and 
others less, than their fair share, because of differences in site 
attributes. Further, without strong oversight regarding site selection 
and fund management, and a clear process by which the amount of fees 
collected are periodically evaluated against the risk profiles of 
pooled sites, there is no reason to believe that the amount of funds 
collected will map to the actual financial resources needed to address 
long-term care expenses and delimited compensatory damages.
    If the intent of Senate Bill 699 is to ensure a fee structure 
whereby the CCS developer pays a risk-adjusted, site-specific fee, then 
additional clarifying language in the section of the Bill that 
addresses the criteria for determining the amount of the fee to be 
collected is prudent. In my opinion, this fee should be based on the 
Net Present Value of the future expected losses for each individual 
demonstration project. Specifically, damages associated with CCS 
projects are a function of location and plant design (including fuel 
source and technology), and therefore probable loss scenarios can be 
derived from each project's site characterization and risk assessment 
plans. These analyses provide an indication of `how bad it could get' 
if an adverse event related to a CCS project were to occur, as well as 
a measure of the expected amount of funds required for remediation and 
to compensate for harm or injury, taking into account the probability 
of an event arising.
    The amount of money collected from each CCS developer should 
directly correlate to the funds needed for long-term stewardship once 
ownership of their specific site is transferred. A `one-size-fits-all' 
approach will result in perverse financial incentives, whereby poorly 
designed, sited and operated sites may be allowed to proceed without 
`paying' for their share of prospective risk; allowing exclusions for a 
subset of sites will exacerbate these incentives, contributing to 
market distortions and the potential for moral hazard.
    The use of Net Present Value analysis is accepted practice for 
funds management within the financial community; in addition, the 
analytic tools exist to estimate the expected range of dollar values 
for potential damages on a site-specific basis. Similar tools are used 
by: (1) firms, such as insurers, in the risk management industry; (2) 
firms in the financial sector; and (3) firms with expertise in human 
health and natural resource economics.
    Additional clarifying language is warranted with respect to the 
timing of when such fees will be paid by the CCS developer. To ensure 
continuity of financial assurance during active site injection, post-
injection, and through long-term stewardship, the amount of fees 
collected from the CCS developer should be established either as an up-
front payment or as a payment over time during the operating 
lifecycle--the period of active injection--of the demonstration 
project. If the intent of Senate Bill 699 is not to delay the 
collection of fees until the end of the project, when there is the 
danger that the CCS developer may not have the resources available to 
pay the fees, or until an event or claim arises, then the language of 
the Bill should clearly state this. Provisions should be made at the 
outset of the demonstration project for the possibility of future 
bankruptcy or financial distress of the developer of the CCS 
demonstration project.
    As the provisions proposed by Senate Bill 699 relate to a limited 
number of demonstration projects, and the public is assuming a measure 
of financial risk, the fees should be reassessed as information about 
the risk profiles become available. Practical reality should inform the 
application of financial theory. For example, if actual site 
monitoring, measuring and verification data demonstrate a declining 
risk profile and a reduced dollar value of future expected loss, the 
Net Present Value calculation underpinning the fee collection should be 
adjusted to reflect this situation, and the CCS developer should pay 
less in fees. Overfunding a long-term financial structure benefits 
neither the private sector nor the public sector. However, the inverse 
is also true--if monitoring, measuring and verification data suggest an 
increasing risk profile--the fees assessed should reflect the 
incremental increase in potential harm that may arise from the 
occurrence of an adverse event.
    Establishing an adjustable fee structure that is based on the 
results of actual monitoring, measuring and verification data ensures 
that the CCS developer is rewarded for design and operating decisions 
that minimize future risk, and by extension future loss. Further, 
underpinning the financial management structure proposed by Senate Bill 
699 with an adjustable fee structure that reflects the evolution of 
site risks over time ensures that the financial instruments used for 
purposes of financial assurance can be scaled up or down in response to 
site-specific differences.
    Analyses underpinning the Net Present Value calculation proposed by 
Senate Bill 699, and the determination of how much to collect in fees, 
should be developed prior to entering into an indemnification 
agreement. These analyses should be transparent, identifying key 
assumptions regarding the timing of probable payments and an 
appropriate risk-adjusted discount rate. The public should know what it 
is financing, especially if there is the expectation that these fees 
will be passed through to end consumers in the form of increased energy 
rates. Further, to the degree other projects (beyond the early mover 
demonstration projects) come on-line, the data generated as part of 
these early mover efforts should inform the financial assurances and 
design of financial management strategies for long-term stewardship of 
subsequent projects.
Use of Fees (Net Present Value and the Importance of Funds Management)
    In my view, the use of Net Present Value analysis as proposed in 
Senate Bill 699 is effective only if the money that is collected is set 
aside in a dedicated, interest-bearing account that generates a rate of 
return at least equal to the risk-adjusted discount rate underpinning 
the Net Present Value calculation. In the absence of doing so, the fees 
collected may not yield sufficient revenue to avoid an inter-
generational transfer of costs to future tax payers.
    The portion of funds collected that is not required to meet annual 
withdrawals should be invested in interest-bearing obligations of the 
United States.\1\ Other long-term liability and federal indemnity 
models, including the Hazardous Substances Superfund,\2\ the Oil Spill 
Liability Trust Fund,\3\ and the Harbor Maintenance Trust Fund,\4\ to 
name a few, adopt a similar investment strategy. Further, the Secretary 
of the Treasury should rely on the implementing agency, as established 
by Senate Bill 699, to provide information on the annual funding needs 
of the program, either as it may relate to the payment of claims 
following acceptance of title to the CCS demonstration project, or for 
purposes of long-term monitoring activities.
---------------------------------------------------------------------------
    \1\ 26 U.S.C. 9602
    \2\ See Comprehensive Environmental Response, Compensation, and 
Liability Act Sec.  221, 42 U.S.C. 9631 (2007), Superfund Amendments 
and Reauthorization Act Sec.  517, 42 U.S.C. 9601(11) (2006), 26 U.S.C. 
9507 (Hazardous Substance Superfund).
    \3\ See Oil Pollution Act Sec.  1001(11), 33 U.S.C. 2701(11) 
(2007). 26 U.S.C. 9509 (Oil Spill Liability Trust Fund).
    \4\ See Act of May 13, 1954 (commonly referred to as the ``St. 
Lawrence Seaway Act'') Sec.  13(a), 33 U.S.C. 988(a). Water Resources 
Development Act Sec.  210(a), 33 U.S.C. 2238(a) (2007). 26 U.S.C. 9505 
(Harbor Maintenance Trust Fund).
---------------------------------------------------------------------------
    Ensuring that the language of Senate Bill 699 clearly articulates 
the intent of Congress in assessing, collecting and using fees from the 
developers of CCS demonstration projects will help to avoid future 
litigation over how much should have been collected in fees, how much 
was collected in fees, and what happened to the fees that were 
collected.
Contracts in Advance of Appropriations--Limitation
    I am persuaded that investing in a limited number of CCS 
demonstration projects through a public financial assistance program is 
prudent. In my view, the financial management and indemnification 
framework as set forth in Senate Bill 699 provide a measure of 
financial and legal certainty with respect to long term stewardship of 
CCS sites in a manner cognizant of, and consistent with, potential 
risks to the public. In so doing, Senate Bill 699 sends a positive 
signal to private capital markets seeking to invest in CCS projects.
    All else being equal, site-specific, risk-based pricing is 
predicated on the premise that the amount of funds collected over the 
life of the CCS project equals the amount of funds necessary to hedge 
financial obligations arising from project risks in the long-term. This 
is particularly true if the fees are regularly adjusted to reflect 
evolutions in the project's risk profile over time. However, given the 
experimental nature of CCS and its limited commercial application, 
insufficient information may exist about the risk profiles of the 
individual demonstration projects to design a site-specific fee 
structure, today, that appropriately adjusts for risk and uncertainty 
over the long-term. Therefore, pending the availability of such 
information, establishing a dollar-delimited limitation of liability 
for a discrete number of early mover, demonstration projects may be 
appropriate.
    However, over the long term, any limitation of liability (i.e., 
dollar-denominated amount of indemnification) should not be arbitrary 
in design. Establishing an arbitrary limitation of liability 
contributes to unreasonable expectations and fosters misunderstanding 
with respect to the amount and timing of funds necessary for the 
responsible deployment of CCS. Perhaps more importantly, arbitrary 
limits of absolute dollar liability can result in moral hazard arising, 
because the CCS developer believes itself insulated from risk, and 
therefore may act less prudently with respect to how it sites and 
operates its project. Rather, the amount of indemnification should be 
correlated to the pooled value of probable loss associated with the 
specific CCS demonstration projects subject to cooperative agreements 
under the Bill.
    As the provisions proposed by Senate Bill 699 relate to a limited 
number of demonstration projects, and the public is assuming a measure 
of financial risk, the amount of indemnification should be reassessed 
as information about the risk profiles of the CCS demonstration 
projects becomes available. Finally, if the intent of Senate Bill 699 
is to provide financial certainty with respect to long term 
stewardship, then additional clarifying language in the section of the 
Bill that addresses limitations of liability is warranted.
    First, with respect to the amount of indemnification proposed by 
the Bill, the language in this subsection should apply only to CCS-
related activities underpinning each demonstration project subject to 
cooperative agreement. Blanket indemnification should not be provided 
to `all persons indemnified in connection with an agreement' 
irrespective of activity. In the absence of clearly delineating that 
the amount of indemnification is applicable only to CCS-related 
activities, a business entity (or `person') underwriting a CCS project 
could package its operating activities in such a way as to yield an 
inappropriate risk transfer of pre-existing, non-CCS related 
liabilities to the public.
    Second, as written, the Bill leaves open to interpretation whether 
the $10 billion amount of indemnification applies to the collective 
pool of CCS demonstration projects, or whether each CCS demonstration 
project is subject to an individual amount of indemnification equal to 
$1 billion per project. In my view, of the two options, the more 
effective means of protecting the public against financial risks 
associated with the early-mover CCS demonstration projects over the 
long-term would be to apply the amount of indemnification to the 
collective pool. Notwithstanding, if the intent of Senate Bill 699 is 
to establish per project indemnification, then additional clarifying 
language is warranted to address what happens if a single CCS 
demonstration project exceeds its per project limit of liability.
                              federal land
    The same financial and legal provisions, with respect to financial 
assurances and indemnification, should exist regardless of whether the 
CCS demonstration project is sited on private lands, public lands or 
tribal lands. The failure to establish the same financial provisions 
for demonstration projects sited on public or tribal lands as for those 
sited on private lands may result in: (1) poor operating decisions and 
lack of appropriate site selection, because the project developer is 
not held financially accountable for its business decisions; and/or (2) 
provide an unintended subsidy or competitive market advantage to 
developers of demonstration projects on public or tribal lands.
                               conclusion
    The use of tax payer dollars and the very long time horizon 
associated with CCS--one which may extend beyond the natural life of 
the corporate entity undertaking the demonstration project--demands a 
financial assurance structure that blends the strengths of private and 
public financing and risk management tools. In my view, a financial 
assurance structure that successfully implements private--public risk 
sharing should achieve four clear goals:

          (1) Ensure funds are adequate, when needed;
          (2) Ensure these funds are readily accessible, when needed;
          (3) Establish minimum standards for financial institutions 
        providing funds or underwriting risk; and
          (4) Ensure continuity of financial assurances, when ownership 
        of sites is transferred.

    To the degree society wishes to reduce greenhouse gas emissions, 
and the portfolio of emission reduction technologies includes CCS, then 
an effective financial assurance and indemnification framework will 
balance the above-listed goals with needed incentives to foster the 
safe deployment of a limited number of early mover, demonstration 
projects. The long-term indemnity model proposed in Senate Bill 699 is 
a step forward in accomplishing this objective.
    However, if the intent of Senate Bill 699 is also to establish a 
financial assurance structure that ensures sufficient funds are 
available to pay for long-term stewardship at the time ownership of the 
demonstration projects is transferred, then the Bill would benefit from 
the modifications that I outline above. Finally, ensuring that the 
language of Senate Bill 699 clearly articulates the intent of Congress 
in assessing, collecting and using fees from the developers of CCS 
demonstration projects will help to avoid future litigation.

    The Chairman. Thank you very much. Let me ask a few 
questions.
    Ms. Greenberg, let me ask you first. This project that you 
folks are involved with with Archer Daniels Midland that's 
beginning here in September, as I understand, the first of 
September you're going to start injecting a thousand tons of 
CO2 per day.
    Ms. Greenberg. That's correct.
    The Chairman. How have you dealt with the issue of 
potential liability in connection with that project?
    Ms. Greenberg. Thank you for your question, Senator. The 
Midwest Geological Sequestration Consortium approached Archer 
Daniels Midland back in 2007 having done considerable amount of 
geologic site characterization in the Illinois Basin region 
itself and then more specifically in that area of Illinois. So 
we came to ADM with a significant amount of geologic knowledge 
and understanding of what the benefits of the rock units in the 
area are for carbon capture and storage.
    We were very fortunate in that Archer Daniels Midland has a 
considerable amount of experience in the operation and handling 
of liquid carbon dioxide. So while the subsurface component of 
storing carbon dioxide was new to them and unfamiliar to them, 
the surface and operational handling of that carbon dioxide was 
actually something they were quite familiar with. So we were 
able, through a series of board meetings and meetings with 
their legal counsel and a variety of other individuals in the 
core processing and operations to bring them along with respect 
to their comfort level with respect to carbon--excuse me, 
carbon capture and storage.
    In addition to that I will say that the carbon capture 
storage, this project and the plume of carbon dioxide stored in 
the subsurface is expected to stay wholly with on underneath 
ADM owned lands. So there has been no additional liability 
protection that's been undergone for the particular project.
    The Chairman. OK.
    Mr. Klara, let me ask you. We had a hearing earlier this 
week here where we had various experts talking to us about 
enhanced oil recovery and the use of CO2 in enhanced 
oil recovery. The complaint that we heard pretty loud and clear 
was they didn't have enough CO2. That there was a 
much more demand for CO2 to--for use in enhanced oil 
recovery than they could find.
    There was very little concern raised. We didn't--the 
subject of the hearing was not focused on liability, potential 
liability. But my impression is that this whole issue of 
liability is one that the oil and gas industry basically blew 
right past in all of their use of CO2 as enhanced 
oil recovery.
    Am I wrong about that? Is there anything in place to deal 
with the liability problems that they encounter in use of that 
CO2?
    Mr. Klara. I'll even give you a step backward in terms of 
just within the Department's portfolio. There are upwards of 25 
plus projects that are drilling. Many have already injected 
CO2 in the ground. That several of those projects do 
relate to EOR, many don't.
    The department has no ability to provide indemnifications. 
So the requirement for proposers was that you would have to 
figure out a way to find indemnification elsewhere or we would 
be unable to accept the project. We were able to fill our 
portfolio of projects.
    I think, as Sallie indicated, what has happened amongst all 
the projects is it really required a lot of due diligence on 
their part in finding partners that really believed in the need 
for future CCS. Were willing to--and I think generally 
speaking, use their private mechanisms of assurances to deal 
with the liability issues. Now having said that, certainly we 
are aware as well that there are many potential proposers that 
will not come to the table with ideas because of the fear of 
liability.
    So what I can tell you is the projects that are out there, 
especially the ones like EOR, where there's a value added 
aspect to it, that the liability issue seems to not get much 
chatter and attention.
    The Chairman. Thank you very much.
    Senator Barrasso.
    Senator Barrasso. Thank you very much, Mr. Chairman.
    I would like to ask Ms. Trabucchi just along the line of 
what Mr. Klara was talking about, the issue of giving the 
private sector some legal framework that they can understand 
and then maybe bringing others to the table. This bill does 
provide steps that an applicant must demonstrate to receive the 
long term indemnification. One of the things that the 
indemnification agreement section of the bill says. The 
language says, ``The Secretary may agree to indemnify a project 
1 year after the completed application is submitted.''
    Does the term may provide adequate certainty for a company 
and for potential investors?
    Ms. Trabucchi. In my view actually it does.
    I think what your investment community is looking for and 
what your capital markets are looking for in the form of 
certainty is the appreciation that the return on their 
investment will mature with time and gain value. I think if you 
create an indemnification provision that says will, no matter 
who you are. You enter into the cooperative agreement. You will 
receive indemnification.
    What ends up happening is you provide the potential for 
perverse incentive where you have created a cap of liability. 
If it's an arbitrary limit, say it's just a random number. Then 
you are encouraging those actors to manage to that number 
without perhaps taking the necessary steps in place to do the 
performance based limits that are so much a function of the 
cooperative agreement.
    So what I like about the use of the word may, is it leaves 
it to the Secretary to make a determination whether or not that 
indemnification is negotiated at the outset of the cooperative 
agreement based on the information provided by the site or 
whether that indemnification is negotiated throughout the life 
of the site. As information becomes available because these are 
experimental projects, the Secretary may decide that, you know, 
they're not doing their due diligence managing the projects 
correctly. So, no, we're going to protect the public's risk by 
not offering indemnity.
    So in my view I think it provides adequate coverage.
    Senator Barrasso. Great.
    Ms. Trabucchi. Certainty to the capital market.
    Senator Barrasso. That's kind of what I heard from Mr. 
Watson as well, along with that thought process.
    Could I ask you as well, Ms. Trabucchi, if this bill were 
signed into law how you think it would impact investor interest 
including interest in carbon capture and sequestration projects 
even beyond the first ten?
    Ms. Trabucchi. You mean more for scaling up for commercial 
applications?
    Senator Barrasso. Yes.
    Ms. Trabucchi. You know, in my view what--in my view the 
bill if signed into law as it's currently configured would 
certainly foster capital investment in the ten demonstration 
projects with certainty. I think beyond that my sense is the 
capital--you know, it's the early entrants. It's the curve of 
your financial markets.
    So those who are the early entrants who are willing to bear 
the risk are likely to bear the greater reward. So I think what 
this bill will do is create more of a competitive interest 
within the capital markets to invest in the ten projects. I 
think the real question is after those ten projects is there 
sufficient capacity for greater commercial application?
    If there is additional capacity then what you're going to 
have is perhaps a more mature functioning market whereby your 
investors are more likely to be willing to invest because 
somebody else absorbed the risk on their behalf. So I'll leave 
it at that.
    Senator Barrasso. Thank you.
    Mr. Klara, if I could just visit with you for a second? 
Researchers around the world are looking at geo-engineering as 
a potential approach to this issue of excess carbon dioxide. 
The focus of the one bill that we're looking at today, Direct 
Air Capture, follows a similar approach of using technology in 
innovation. Do you think the geo-engineering or direct air 
capture is a potential option at this point?
    You know, there's been a lot written. Even the New York 
Times earlier this week had an article about it.
    Mr. Klara. Certainly it represents a very high risk option 
in terms of just the availability of technology to do so. Just 
generally speaking the portfolios, certainly in our portfolio, 
have focused primarily on looking at capturing large, high 
percentage quantities, which the bill recognizes. We have 
looked at, to some degree, these options for direct air 
capture. In every case we're just finding insurmountable 
barriers in terms of cost.
    Senator Barrasso. Cost.
    Mr. Klara. Other things like, for example Princeton is 
mentioned. Another issue there too, which you may be aware, at 
the end of the day it's going to all be about how many tons you 
take out of the atmosphere. So obviously out of the air when 
it's 380 parts per million, you have to process a lot of air to 
get one ton of carbon dioxide. That's another factor that leads 
into this cost issue.
    So is it possible? Perhaps. Are there many technological 
barriers to it? Absolutely.
    Senator Barrasso. You know it's interesting in that recent 
article that Columbia professors disagreed with the Princeton 
professors as the cost and what the technology would be which 
makes me get to the final question, Mr. Chairman, is that what 
do think about the use of prizes as an effective way to try to 
spur private investment and then looking for ways to lower the 
cost?
    Mr. Klara. Certainly within our program we've never taken 
that approach. But if that approach certainly stimulates, you 
know, the best minds in the country, if not the world, to do 
so, we'd certainly encourage that.
    Another aspect too, that we've tried in the past is often 
what happens in an area you kind of get bogged down in 
discipline. So for example, it's obviously geologists, chemical 
engineers. So we even tried to expand beyond that to get some 
interest from any diverse, you know, subset of education 
leaders, scientists. So if the prize can kind of encourage that 
as well I think that would be very valuable.
    Senator Barrasso. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Manchin.
    Senator Manchin. Thank you, Mr. Chairman. To all of you, 
thank you for being here.
    If I could and I think the first question will go to Mr. 
Klara. But you know the whole thing that with technology today 
and where we stand with CCS we faced this with acid rain back 
in the 1980s as you recall. At that time you all had worked and 
developed a technology with scrubbers, low nox boilers. There 
was an alternative with how we would fix it. It was fixable 
because it was technology.
    You all have an impressive record at NETL. I've been there 
many times and have gone through the process. Are you close to 
getting something that's commercial able and also affordable 
other than just the capture and storage? Because with the 
CO2, I mean, the SO2 that we were able 
to, the sulphur, that we were able to capture. We were able to 
create a whole nother industry.
    Mr. Klara. Right.
    Senator Manchin. With the low nox boilers. But now the 
Federal Government has taken a position unless we can find a 
way to effectively capture CCS you can't move forward with any 
projects. It doesn't make any sense at all because technology 
has not developed or matured enough.
    How close are you and how much--I know that the Department 
of Energy, you all have been on the front end. Are you still in 
that position or are they putting all their effort toward you 
all finding the cure?
    Mr. Klara. Certainly within the CCS portion of our program, 
we have a program designed to try to reduce those barriers. As 
you point out many good points, right now it's a very expensive 
technology and likely too prohibitive under many scenarios to 
go forward. We have a 10-year plan, roughly a 10-year plan.
    Senator Manchin. But basically you all agree that the 
Federal Government has taken a position, everything stops, 
nothing happens unless CCS is implemented. We don't have the 
technology in place. Would that be a fair statement?
    Mr. Klara. I can only comment on the technology side. On 
the technology side it's a very expensive option right now. 
However, if you look at our portfolio that there are many 
developments potentially emerging that we believe within a 10-
year span will drive these costs and risks down to such a point 
that then it might be a whole new dynamic of how these 
technologies----
    Senator Manchin. Such as scrubbers and low nox did for the 
acid rain?
    Mr. Klara. Exactly. In fact when developing these kinds of 
technologies we often look at those kind of past learning 
curves to try to get some insights into the kind of timing we 
might need to drive those costs and increase those performance.
    Senator Manchin. Is NETL playing a significant role in 
administering? Do you all see that in the future you're going 
to play a significant role or is DOE are they fracturing this 
off and going in different directions?
    Mr. Klara. Yes, we have--I don't have any indications that 
would not say that NETL would play a key role.
    Senator Manchin. How's your funding?
    Mr. Klara. Adequate.
    Senator Manchin. What was the recommendation from DOE for 
your funding?
    Mr. Klara. For what year, sir?
    Senator Manchin. For this coming year.
    Mr. Klara. For fiscal year 2011?
    Senator Manchin. 2011.
    Mr. Klara. With a continuing resolution, we stayed 
stagnate.
    Senator Manchin. How about 2012?
    Mr. Klara. For 2012, there is a slight reduction due to the 
fiscal constraints we're all under.
    Senator Manchin. Alright. Also, with what's going on around 
the country, around the world, you have India. You have, of 
course, China. We hear so much about what China has been doing 
as far as in this arena.
    Do you see them making significant strides because there's 
no limit or no restraints on them from being able to use 
different types of technology?
    Mr. Klara. From what we've seen on the technical side is 
that they definitely are showing interest. In fact, we have 
technical collaborations with most of those countries relative 
to what our researchers are doing and what they're doing. So 
from a technology standpoint, we've seen a lot of interest and 
potential there.
    I would kind of use an analogy that if you look back at the 
kind of technologies you're mentioning for NOX and 
SOX that have been developed out of the Federal 
Government that those are the technologies that are leading the 
way in these emerging countries. So, you know, using that as 
the potential analogy and, you know, I would say that----
    Senator Manchin. Is China using, I mean, are they using the 
scrubbers and the low NOX boilers? Are they going 
NOX and SOX in China?
    Mr. Klara. Yes, there are using the----
    Senator Manchin. For their new are they retrofitting their 
old or taking their old?
    Mr. Klara. They're using the latest technologies, many and 
most of which have come out of the Federal Government's past 
portfolio. All indications are, at least from a technology 
exchange standpoint, that they would continue to do that with 
U.S. leadership and the technologies that we develop.
    Senator Manchin. Would it be a fair statement to say that 
we don't have the technology in place to basically that would 
handle the CCS, if you will, carbon capture whether it's the 
storage or the--have we come close to finding any technology 
that would be able to take the waste of carbon CO2 
and turn that into a useable fuel?
    Mr. Klara. At this point we categorize those as reuse 
opportunities. So generally speaking with storage you put it 
underground and it's----
    Senator Manchin. I know from that. But----
    Mr. Klara. Yes. But from a standpoint of looking at 
CO2 reuse opportunities which means converting 
CO2 to some other product.
    Senator Manchin. Right.
    Mr. Klara. Like aggregates or----
    Senator Manchin. Yes.
    Mr. Klara. Other chemical products. We have a small 
portfolio looking at that. It does become a key issue that 
CO2 is such a stable molecule that it's often very 
expensive, high pressures, high temperatures, to convert it to 
these other products.
    So people are looking at trying to look at creative 
mechanisms, chemistry and otherwise, to make that a reality. 
But right now in nearly every case that is in our portfolio, 
the costs are still too prohibitive for that options, those 
options.
    Senator Manchin. So CCS is about the only viable option 
that we have right now?
    Mr. Klara. Even with CCS it's very costly. But yes, it does 
appear to be the lower cost option of those other alternatives.
    Senator Manchin. Thank you, sir.
    The Chairman. Senator Portman.
    Senator Portman. Thank you, Mr. Chairman. Thanks to the 
panelists here. I'm going to follow up, if I could, on some of 
the questions that Senator Manchin raised.
    We had testimony earlier this week in committee regarding 
oil recovery, tertiary recovery particularly and the use of 
CO2. The comment was made by some of the industry 
experts that there's not an adequate supply of CO2 
for that kind of recovery. So I guess, Mr. Klara and others, 
feel free to chime in, in talking about the uses of 
CO2 understanding that it's very expensive to 
convert it to an energy use as you said.
    But what's the relationship here between capture, 
transportation, sequestration on the one hand and on the other 
hand this need that the oil and gas industry appears to have 
for additional CO2 for recovery efforts?
    Mr. Klara. In a sense it's a chicken and an egg scenario. 
The problem becomes that right now there are capture 
technologies that go out there and capture CO2 in 
large quantities that could be used for everything from EOR and 
other. The problem there is it's too costly of a source 
currently with the capture technologies that we have available.
    So what I would say, relative to EOR, that it's the 
logical. If CCS becomes well deployed into the future that EOR 
will certainly be one of the first options that are pursued as 
we start to unroll CCS out. But that will be pursued only when 
we get the cost of these technologies down.
    As I was commenting to Senator Manchin is that if we look 
at our 10 year road map, we are hopeful that we can drive the 
cost of those technologies down over the course of 10 years. At 
that time we would potentially be able to capture these large 
quantities of CO2 at costs that can be acceptable to 
the oil industry for enhanced oil recovery.
    Senator Portman. Is EOR sequestration?
    Mr. Klara. A good point there as well. With those kinds of 
exchange options you will logically hear well, aren't you just 
putting carbon in the ground to produce carbon? There's a 
little bit of truth to that.
    We've looked at it from a resource portfolio standpoint 
right now if you look at today's practices for EOR. How much 
CO2 you put in the ground for how much oil you 
recover. You put about 80 percent of the carbon in the ground 
compared to the emissions you'd produce from the oil.
    Now if we go into a CCS dominated environment where all of 
sudden there's a cost to the CO2 and maybe a cost to 
keep it underground.
    Senator Portman. Right.
    Mr. Klara. We've looked at new reservoir management 
practices where all of a sudden now you could put 120 percent 
of the carbon in the ground that you'd produce. So the bottom 
line is we still do believe that there's a storage potential to 
that if indeed CCS begins to roll forward. CO2 gets 
a value to be stored underground.
    But it's a very logical and important point to make.
    Senator Portman. It would seem to be. What are the best 
geological formations for sequestration currently? What parts 
of the country are they?
    Mr. Klara. The good news is we've done a lot of study on 
options for storage.
    Senator Portman. You've got regional partnerships?
    Mr. Klara. Yes, absolutely.
    Senator Portman. You've got, what, 18 going around the 
country. So you've got some experience now.
    Mr. Klara. Yes. In fact we're already on our third version 
of a national atlas for the United States and Canada, nothing 
like it anywhere in the world. The bottom line is depending on 
the projection of how much reduction CCS would have to 
accommodate.
    If that reduction is pretty large, what tends to happen is 
you really have to have the final backstop in these saline 
formations. EOR could play a key role. But when you're talking 
billions of tons potentially that's just a lot of volume to be 
dealing with.
    So these saline aquifers--salt water, undrinkable--these 
are the real prime targets for the ultimate storage opportunity 
relative to CCS. Just to show you why CCS and sequestration 
tends to get a lot of hoopla that it does, the magnitude of 
these storage formations are huge even though the emissions are 
huge.
    So for example, with our estimates so far, we found that 
the storage opportunities are widespread under at least 43 
States. We've also found that they're huge, especially relative 
to the saline formations. That if you would look at the U.S. 
emissions in a given year, we have hundreds to thousands of 
years of capacity to store all those emissions.
    So again, another reason why sequestration tends to be such 
an attractive option people don't want to get away from because 
it has that ability to store these huge, huge volumes, if 
needed.
    Senator Portman. Those of us, including Senator Manchin and 
myself, who are interested in this technology and want to move 
it forward. We like the fact that there's some hoopla, as you 
said, associated with it. Hope that the department and the 
industry, frankly and others in academia continue to focus on 
this.
    It seems to me we're close to the technology that's 
commercial able on the capture side which seems to me is your 
biggest scientific challenge. Then on the sequestration side 
obviously there's a lot of issues including political issues 
that aren't science based. But we are committed to working with 
you on that and hope that again, after this hearing and others, 
that you're getting the message that there are lots of folks 
who believe that this hoopla is justified and that this is a 
way for us to make great gains using the coal resources that we 
have here in this country.
    Thank you.
    Mr. Klara. Thank you.
    Senator Portman. Thank you all.
    The Chairman. Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman. Thank you all for 
being here this morning. I'm not sure exactly who to direct 
this question to because I was not here for all of the--all of 
your testimony. I apologize for that. So I'll just throw this 
out and see who responds.
    Does S.669 address the most serious barriers that companies 
who are doing carbon capture and sequestration will face? If we 
pass this is, is this going to open the opportunities for 
companies to actually move forward in a way that will make this 
technology commercially viable? I'm particularly interested in 
this because we have a company in New Hampshire called 
Powerspan, that is--actually has their technology being tested 
in Ohio at First Energy, that First Energy utility is doing.
    They believe their technology is very competitive in terms 
of cost with any of the other technologies that are out there. 
So if we were to pass this does this provide real opportunities 
for companies like Powerspan to move forward? Who would like to 
answer that?
    There's no penalty. You can just step right up.
    Ms. Greenberg. Senator, I'll speak to a portion of that.
    Senator Shaheen. OK.
    Ms. Greenberg. From the project perspective we spend a lot 
of time talking to a variety of stakeholders about issues 
related to carbon capture and storage. So I think from the 
perspective of companies being able to manage the real and 
perceived risks that they face from the public and various 
other stakeholders that this bill would go a long way toward 
addressing the liability issues which is one of the key issues 
that's brought up repeatedly from those stakeholders.
    Senator Shaheen. Anybody else want to add? Yes?
    Ms. Trabucchi. Yes, I'll actually follow on what Sallie 
just said. I think that one of the significant elements of the 
bill is that it sends a positive signal to the capital markets 
that there's perceived value in carbon capture and storage. 
That there should be a public/private sharing of the risks 
associated with that and the rewards associated with that.
    I think that again, if there's a public policy goal that 
CCS can satisfy then what this bill does is it provides that 
necessary signal to say investment in this, these projects, 
these 10 projects, is warranted. Because at some point in the 
future that investment will pay off either in a public policy 
reward and/or in financial rewards. I think that the 
indemnification provisions, the marriage that's been created by 
this bill with performance standards, the timing of when the 
liability relief happens coupled with dollar values and limits 
of liability, I think it's a nice coupling. I think it sends a 
positive signal.
    Mr. Watson. Senator, a bit more simplistic answer, but I 
don't think I'll be allowed back in the office if I don't make 
this point. The primary barrier to commercialization of CCS is 
the lack of a price on carbon. So we can make progress with 
bills like this but beyond applications like EOR or maybe you 
can get closer to it and have it be economical. Ultimately 
you're going to need a policy that creates a market for CCS.
    Senator Shaheen. Thank you. I appreciate your making that 
point.
    There was some discussion earlier about China. Is there--
has there been any thought given to the idea of trying to set 
up a real cooperative effort with China? I mean, obviously, 
they stand to benefit significantly and they're working hard on 
this technology as well.
    So has there been any thought given to our setting up a 
real formal working effort to try and see if we combine all of 
our scientists whether we could come up with a commercially 
viable technology faster?
    Ms. Greenberg. Senator, that's an excellent question. I 
would like to say that those efforts are already underway at a 
significant level both through the U.S. State Department, U.S. 
Department of Energy. We have hosted several delegations of 
Chinese scientists at the Illinois State Geological Survey to 
share with them the knowledge that we're getting first hand 
through our experiences.
    The Director of our program, Dr. Robert Finley, has been to 
China as well. So there are very strong, individual, scientific 
partnerships and collaborations in place. I believe DOE just 
funded an international collaboration which is through Lawrence 
Berkley and the University of West Virginia and Tsinghua 
University in China.
    So there really is actually quite, on the technical side, 
quite a lot of activity.
    Senator Shaheen. Thank you. Thank you, Mr. Chairman.
    The Chairman. Senator Hoeven.
    Senator Hoeven. Thank you, Mr. Chairman.
    It seems to me that the 2 big issues in getting the 
technology to move forward for carbon capture and sequestration 
are cost and liability. This legislation really goes to the 
liability aspect. I and our State of North Dakota, we've 
actually put a legal and regulatory regime in place that 
addresses the liability aspects. It's modeled after the 
Interstate Oil and Gas Compact Commission model legislation 
which some of you may be familiar with.
    So it does appear to me that this legislation makes a very 
good attempt to deal with the liability aspect. I think that 
would be very helpful. Following this--and I hope I don't--I'm 
going to take a stab at your name. I know I'm going to get it 
wrong, Trabucchi, mentioned I think getting ten projects going 
would be phenomenally helpful.
    Ms. Trabucchi. I'll take it.
    Senator Hoeven. Nobody wants to be first. Everybody wants 
to be second or third. Wants this commercially viable hence 
going to the question that I'd like each of you to address for 
a minute.
    Mr. Watson got at it in a way. But not the way that I think 
we need to do it. The concept of mandating something I think is 
problematic particularly with our financial constraints that we 
have in the Federal Government today.
    We have got to find a way to address the cost aspect where 
we use the CO2 in a productive way. Hence, you know, 
tertiary oil recovery or maybe some type of coal to liquids 
conversion where you've got to, you know, an easier ability to 
capture that CO2 in the process, but if you would 
address that cost driver. How do we put this CO2 to 
use in a way that justifies a cost that will enable us to move 
this forward verses a mandate?
    Mr. Watson, you could sure weigh in on this one too. Maybe 
you even want to start. But I'm looking for ideas on how we use 
it so that we can handle that cost aspect of moving this 
forward.
    Mr. Watson. Thank you, Senator. I think costs coming down 
is a function of experience and a function of the market. My 
point was that until we have a kind of policy in place that 
creates a market for CCS we're just not going to have the level 
of experience with it and the kind of deployment and economies 
of scale that will ultimately bring those costs down.
    Senator Hoeven. I don't mean to interrupt. But I mean 
revenue, revenue generation. The cost will come down as the 
technology gets better. It always does.
    But some revenue aspect that helps us make this 
commercially viable.
    Mr. Watson. The EOR application seemed to be the most 
immediate one that could provide some source of revenue.
    Senator Hoeven. Right. Somebody well we're 10 years away. 
We've been 10 years away for the last 10 years.
    We're constantly working to try to get more enhanced oil. 
We do that in our State. I mean, based on electric puts a down 
hold on the waiver and fields get paid for it.
    But we want to do more with conventional coal fired plants. 
We can't seem to find somebody to take the CO2. 
Either it's not concentrated enough. It's too expensive, all 
these kinds of things.
    We want to try to get coal to liquids going. Would that 
help pay for it?
    Mr. Watson. There are other smaller applications like the 
food services industries and others. Mr. Chairman, I'm 
reasonably certain you're not looking to re-litigate climate 
policy here right now. But you know, one of the values of the 
structures that were being considered was that it did create a 
value for that CO2.
    Without a policy like that, absent these other 
applications, you really don't have one.
    Senator Hoeven. Other uses. Anybody? Obviously enhanced oil 
recovery. What else?
    Where do we use the CO2? How do we get it in a 
useable form that generates revenue that helps bring this cost 
equation together?
    Go ahead. Anybody? Any ideas? Any thoughts?
    Ms. Trabucchi. I don't have the technical background to 
answer that specific question. But what I can say is I 
understand where you're coming from which is the financial and 
capital markets are looking for value proposition. 
Fundamentally it's revenue minus costs equals profit. If you 
can't generate a positive margin there has to--just purely on 
the function of price and cost, then there has to be some other 
proposition that fosters the need for the product, the 
technology, whatever it may be.
    So, you know, I hear where you're coming from. I don't 
personally have the expertise to tell you what other 
technologies might be in use. But what I can say is your 
capital markets and your financial markets are very interested 
in this very same question.
    If that's answered you're going to have more investment 
sooner.
    Senator Hoeven. Absolutely. So Mr. Klara, Ms. Greenberg in 
the lab and in your brainstorming sessions, what are we going 
to do with this CO2 that's going to generate some 
revenue for us?
    Mr. Klara. The key obviously and you've addressed it, is 
that we have to come up with technologies that reduce the cost 
of the capture. I mean, at the end of the day it's the cost 
signal that's going to dictate, even if it's used for EOR.
    Just to give you some dynamics. EOR, a lot of those 
agreements are business confidential. But generally speaking 
you can say in the neighborhood of $20 a ton would be what you 
might purchase CO2 for, for EOR.
    Right now with the best technologies we have it will cost 
you $60 a ton or more. But we are looking at sets of 
technologies that we believe can drive those costs down by two-
thirds. So we do believe they're successful in the next 10 
years that will start driving those, the cost of capture down.
    Certainly at least with regard to EOR that the price signal 
might start to approach a price signal that might all of sudden 
it does open the flood gates for those opportunities which then 
just lets the technology base start rolling out.
    Ms. Greenberg. Senator, if I could just add 2 things that 
you touched on in your question that are also important to 
this. That is the purity of CO2. So technologies 
that give you less volatiles and added elements are important. 
Then also transportation and infrastructure that will get 
anthropogenic CO2 from the locations where it is 
being produced to the places where you're going to be doing 
enhanced oil recovery.
    Senator Hoeven. Mr. Chairman, with your indulgence?
    Exactly. Again, that goes to the cost equation. You have to 
have a pipeline to get it to the oil field typically or to the 
wells in the field. You have to have certain maturity on the 
wells. You have to have certain density of the wells. You have 
to have a certain concentration of the CO2.
    All those things are vital to make it, you know, a 
commercially viable proposition. What I'm picking up from you 
and maybe Mr. Klara, I guess, you got there, is we really 
haven't come out with something other than enhanced oil 
recovery. We've got to drive the cost equation down further to 
make that commercially viable.
    That's where you see the situation today.
    Mr. Klara. We do have a small portfolio looking at 
CO2 reuse where you could convert the CO2 
to aggregate plastics, anything that has carbon in it. Again, 
right now the state of that research is that those 
opportunities right now are much more expensive than getting 
those materials off the market today. They are looking at novel 
chemistry approaches etcetera to try to drive that cost down.
    So those are other potential markets. But when you start 
looking at the magnitude of the CO2, those markets 
typically don't have enough capacity, even if we do drive those 
costs down, to make a big dent in emissions. But what they 
could do is, again, promote the idea of CO2 capture 
and promote the idea of there are some opportunities to use 
this CO2 in a value added way.
    Senator Hoeven. Thank you.
    The Chairman. Let me just follow up on the point that you 
made, Ms. Greenberg, about transportation and the need there. 
At the current time there is no Federal agency with authority 
to site CO2 pipelines. Should we change that and 
give FERC that authority?
    Ms. Greenberg. I think that if enhanced oil recovery at the 
use of anthropogenic CO2 is a goal in, as Senator 
Hoeven was saying, in doing something with our CO2. 
Then anything that the Federal Government can do to facilitate 
the siting and building of a pipeline infrastructure is 
certainly advantageous.
    The Chairman. Good. Let me ask, Mr. Klara. You had said 
about $20 a ton is the price that people are--that companies 
are paying for CO2 for enhanced oil recovery. Is 
that what I understood you to say?
    Mr. Klara. Yes, and generally speaking you're like $10 to 
$30 per ton. So I just used $20 as a----
    The Chairman. Right. Because yesterday, one of our 
witnesses said that. I asked him what the price of 
CO2 was in the Permian Basin. He was saying that it 
had been about a dollar an MCF, but that he'd seen a recent 
contract where they had agreed to pay $2 per MCF.
    Is that--I'm not quick enough to tell you how you convert 
MCFs to tons. Can you tell me whether that is pretty much what 
you said or not?
    Mr. Klara. Yes. That should be in the ballpark. Yes.
    The Chairman. OK.
    Mr. Klara. I can't remember the conversion off the top of 
my head. But yes, those are close numbers. But a point I want 
to make is that CO2 pricing is complicated. It's 
often related to the oil prices.
    So how these agreements get made have some complexity to 
it. So if the oil price goes up high or goes down, that also 
impacts, you know, what the price is that somebody pays for the 
CO2. So it's an ever changing, you know, with the 
oil prices, well, it's ever changing what it is.
    But a good number and you kind of got to think in tons, but 
you know, $10 to $30 per ton is a nice range of probably where 
most, if not all, of the price for CO2 for EOR kind 
of resides.
    The Chairman. OK.
    Senator Manchin.
    Senator Manchin. Thank you, sir.
    I think just in general I'm speaking that what does the 
cost of carbon capture add to the price of energy as far as the 
house? Any of you all can talk about that. What is done in the 
legislation that we can continue to pursue? If this is passed 
on what would that be to the consumer? What does it mean to the 
manufacturers?
    I know that in a realm of coal fired electricity being what 
drives most of our industry right now. Manufacturing because of 
its competitive cost, it has gone up dramatically and it seems 
to keep going up dramatically. Can you put a price on that?
    Mr. Klara. If we were to look at off the shelf technologies 
today for CO2 capture and transport and storage, but 
capture by far is 80 percent of the cost for that.
    Senator Manchin. Are you talking about even retrofitting 
existing plants?
    Mr. Klara. Yes.
    Senator Manchin. Such as a mountaineer plant.
    Mr. Klara. So if you were to look at a retrofit 
opportunity, it could add as much as 80 percent to the cost of 
electricity adding CCS. If you were to look at a new technology 
like gasification, and the reason why it gets so much interest 
is that it's more conducive, you'd add maybe about 35 percent 
to the cost of electricity.
    If you look, take a snapshot forward on a road map saying 
what might happen in 10 years if the research portfolio is 
successful? Our desires would be we drive that cost down to 
maybe a 20 percent increase in cost of electricity and a 10-
percent increase in cost of electricity if all is successful. 
But there's still going to be a cost increase.
    Senator Manchin. We understand.
    Here's my concern. We're competing with all these 
manufacturing, these Third World developing countries, whether 
it be China coming on so strong taking most of our jobs, if you 
will. You have India. You have all the different.
    They're dealing with a much lower cost base on their energy 
than what we are as I understand. We used to be in a 4 to 6 
cent range as far as commercial on a kilowatt hour.
    Mr. Klara. Right.
    Senator Manchin. You start driving that up 20, 40, 60, 80 
percent expeditiously before. You just give them a greater 
competitive advantage. That doesn't make sense to us as 
Americans why we would lose more jobs because of our high cost 
of manufacturing when we don't have the proven technology, I 
think, is the point that I'm making. Why the money should be 
put on the technology or on the research to find the 
technology.
    Do you see us putting a very disadvantaged competitive 
situation here with China, India?
    Mr. Klara. I'm a technologist. But certainly it's a 
worldwide issue and just to go to your point. Now, how that 
gets addressed is way beyond my----
    Senator Manchin. Do any of you all want to speak to that? I 
know you knowing what your cost is. At West Virginia we pulled 
out of the FutureGen because of liability at the end result. We 
were on the forward down to the wire and we supported all noise 
at the back. They were willing to take the whole liability.
    You don't have any comment on that one do you? I don't 
blame you. Any of you all have a comment on this competitive 
advantage or disadvantages that we're putting ourselves in by 
moving before we have technology?
    I think what I'm saying we're moving policy before 
technology is readily available and that we can put a cost to 
it, to the point that we can still be competitive worldwide.
    Mr. Watson.
    Mr. Watson. Senator, well I'm not sure I follow you. This 
bill wouldn't mandate anyone to use CCS.
    Senator Manchin. But the reality is is the Federal 
Government is not giving any permits. We're not expanding. You 
can't build anything. You can't do a thing.
    They've got you tied up with EPA and everything else 
because unless it has CCS attributed to it, you're not going to 
get a permit.
    Mr. Watson. I'm not aware that that's the case, Senator. My 
understanding is that power plants are being permitted and 
built.
    Senator Manchin. Oh, please give me the list where ever you 
found one?
    Mr. Watson. I'd be happy to get that for you.
    Senator Manchin. You're saying new coal fired plants 
without CCS is being built?
    Mr. Watson. Yes, sir. I'd be happy to get you something.
    [The information referred to follows:]


----------------------------------------------------------------------------------------------------------------
                                                                                            Current Generating
         Power Plant                      Owner             State     Operating Status           Capacity
----------------------------------------------------------------------------------------------------------------
Dry Fork Station               Multiple                    WY       Under  Construction  385.00
----------------------------------------------------------------------------------------------------------------
Edwardsport IGCC               Duke Energy Indiana Inc.    IN       Under  Construction  618.00
----------------------------------------------------------------------------------------------------------------
Formosa Point Comfort          Formosa Plastics Corp       TX       Under  Construction  286.20
----------------------------------------------------------------------------------------------------------------
Goodland Energy Center         Goodland Energy Center LLC  KS       Under  Construction  25.00
----------------------------------------------------------------------------------------------------------------
John W. Turk, Jr. UPC          Multiple                    AR       Under  Construction  600.00
----------------------------------------------------------------------------------------------------------------
Longview Power                 Multiple                    WV       Under  Construction  700.00
----------------------------------------------------------------------------------------------------------------
Plant Ratcliffe IGCC (David)   Mississippi Power Co.       MS       Under  Construction  596.10
----------------------------------------------------------------------------------------------------------------
Prairie State Energy Campus    Multiple                    IL       Under  Construction  1,600.00
----------------------------------------------------------------------------------------------------------------
Sandy Creek                    Multiple                    TX       Under  Construction  900.00
----------------------------------------------------------------------------------------------------------------
Spiritwood Energy Cogen Plant  Great River Energy          ND       Under  Construction  99.00
----------------------------------------------------------------------------------------------------------------
Two Elk One                    North American Power Group  WY       Under  Construction  290.00
----------------------------------------------------------------------------------------------------------------
Virginia City Hybrid Energy    Virginia Electric & Power   VA       Under  Construction  585.00
 Center                         Co.
----------------------------------------------------------------------------------------------------------------

    Senator Manchin. Please, please, please.
    Ms. Greenberg, do you know of any?
    Ms. Greenberg. Not off the top of my head.
    Senator Manchin. I don't either. I don't either.
    Mr. Klara, how about you? Do you know any new power plants 
being built, coal fired power plants?
    Mr. Klara. I'd have to look into that.
    Senator Manchin. OK.
    The Chairman. Thank you all very much. Think it's been a 
useful hearing. Appreciate your excellent testimony.
    That will conclude our hearing.
    [Whereupon, at 10:12 a.m., the hearing was adjourned.]

    [The following statement was received for the record.]
 Prepared Statement of Ben Lubbon, Managing Director, Jude Benedict & 
   Associates, in behalf of OriginOil and the Algal Biomass Industry
    Thank you Chairman Bingaman, Ranking Member Barrasso, and members 
of the Committee; I appreciate the opportunity to submit public comment 
for the record to promote algae-to-oil technology's capability and its 
rapid development of carbon capture and storage (CCS).
    After listening to the hearing and reading written testimony; one 
item was apparent; algae-to-oil technology's capability to capture and 
sequester carbon was unfortunately not mentioned. Yet, this was not a 
fault of any one individual; the technology is advancing in great 
strides ahead of communicating these efforts to Capitol Hill. 
Fortunately, due to the avenue of public comment; I am able to inform 
you of the attributes of this promising technology.
                   s. 757 applies to algae technology
    Algae carbon bio-capture technology is a post-combustion process. 
It involves no geo-sequestration; a pre-combustion process injecting 
CO2 into the ground. Therefore, S. 699 does not apply to 
Algae Technology.
                        s. 757 is a great start
    First, the bill needs a short title: the Direct Air Carbon Capture 
Act would suffice.
    S. 757 has two provisions: (1) a direct air carbon dioxide capture 
prize and (2) the initiation of a nine member Carbon Capture Task Force 
appointed by the administration.
    However, ``algae carbon bio-capture'' is at a pilot-to-commercial 
stage at three coal-fired power plants in Australia. In the Land Down 
Under, they are advancing free enterprise deploying US technology. In 
the Land of the Manhattan Project and putting Men on the Moon, a prize 
short sells our proprietary knowledge. We as a Nation are better than 
this. Amending this bill should include financial and legislative 
support.
 algae-to-oil direct air carbon capture is safer and produces multiple 
                            revenue streams
    Geo-sequestration: Injecting anything into the ground and not 
thinking it will end up in the water table defies common sense. 
Environmental groups, with just cause; will tie up geo-sequestration 
projects in the environmental study and review process. And then, there 
will be the challenges in the Courts.
    Algae Carbon Bio-Capture: Direct-air carbon capture is a multiple 
proactive ``win-win-win!''
    The post-combustion process sucks CO2 directly from the 
flue stack. Algae growth thrives in closed-loop industrial bolt-on bio-
reactors and reclaims dirty polluted brackish water. A multitude of 
products from drop-in biofuels, pharmaceuticals, neutraceuticals, oil-
based chemicals, plastics, human food and supplements, animal feed and 
fertilizer; are just a few of algae's revenue producing drivers. 
Research has proven algae cures blindness in mice; cures for cancer are 
soon to follow. The final kicker, the remaining biomass left in the 
closed-loop system, is burned as ``biochar'' which sequesters the 
CO2 and is used as a soil supplement.
    Algae Technology is also a major job creator. With wind, solar and 
geo-sequestration technologies; once a project is constructed, there 
are few jobs to maintain the facility. Algae technology, on the other 
hand, is labor intensive throughout construction, maintenance and 
production phases of the co-located power plant algae refinery. Jobs 
downstream from supply distribution networks will be exponential.
                      algae technology's negative
    Skeptics and cynics claim if algae technology is so great; then why 
isn't it a thriving free market enterprise? Yet, this rings true for 
all promising technology to overcome throughout History. Fossil fuels 
still get subsidies; the algae industry just wishes for an even playing 
field. Furthermore; legislative government support is far more 
imperative than federal financial aide. Long-term legislative federal 
stability is what the investment community demands to minimize risk 
before they will support the free-market.
    The pre-combustion geo-sequestration process is also an unproven 
technology with challenges to overcome.
                               conclusion
    Previous CCS legislation includes billions of dollars to be 
allocated. ``Bio-capture'' and geo-sequestration are both viable 
choices and deserve parity. Both bills deserve further review at the 
committee level before going to a floor vote. There are several regions 
worthy of geo-sequestration; and, there are some that are questionable. 
There are no silver bullets in our pursuit for energy independence; 
there's just a lot of silver buckshot. We must promote them all in a 
full climate capitalism approach rather than argue about the ideologies 
of climate change. Before any decisions are made per energy policy; our 
government leaders need to hear more from its entrepreneurial energy 
leaders who are taking monumental risks in the name of energy 
independence and national security.
    Thank you for your consideration.
                                APPENDIX

                   Responses to Additional Questions

                              ----------                              

  Responses of Sallie E. Greenberg to Questions From Senator Bingaman
    Question 1. In the project that you have been involved with in 
Illinois that partners with Archer-Daniel Midland, have you encountered 
any unexpected events or unknown risks that your project team did not 
expect to? Is there anything that has impacted your views of the risks 
associated with geologic CCS?
    Answer. Three categories of unexpected events or risks have 
occurred during the course of the Illinois Basin--Decatur Project 
(IBDP) in Decatur, Illinois: 1) Geologic/Operational, 2) Material 
Compliance, and 3) Regulatory Response.
    Geologic/Operational events occurred during the drilling the 
injection well at IBDP when we encountered a carbonate rock unit with 
dissolution features, which caused a loss of circulation of drilling 
mud. Mitigating this ``lost circulation zone'' resulted in the loss of 
time and increase in cost to drill the well. Risks such as this are 
common when little direct geologic information, such as stratigraphic 
well logs and samples, is available. Risk mitigation for the second, 
deep monitoring well, benefitted from the knowledge of the lost 
circulation zone and a mitigation strategy was put into to place, such 
that minimal time was lost and limited cost incurred. Events such as 
these speak to the necessity of Applicants under S.699 needing to have 
substantial geologic data available when applying for liability 
assurance from the Secretary.
    Material Compliance with Underground Injection Control (UIC) Class 
VI regulations may prove to be difficult. An example from the IBDP is 
in our preemptive decision to use chrome steel in the lower 2,000' of 
the injection interval. This decision was made in anticipation of the 
Class VI regulations (which were in the rulemaking process at the time) 
that would require the use of carbon dioxide (CO2) resistant 
well construction materials. We were initially unable to find chrome 
steel casing for the injection well and ultimately found the material 
in a yard in Aberdeen, Scotland. The material was shipped to our 
location, inspected, and approved for use. This material shortage 
potential may result in operators using materials that do not meet the 
UIC regulations and will have to be closely monitored.
    Lastly, while not an environmental or operational risk, but a 
significant risk for researchers and future commercial investors, is 
the lack of knowledge of dense-phase CO2 and oil field (or 
deep subsurface) technologies applicable to carbon capture and storage 
(CCS) on the part of regulators. To date, our permitting process has 
extended over 3+ years and continues to be extended as the Class VI 
regulations are put into place. That lack of knowledge has to be 
remedied by targeted training, otherwise wider deployment beyond the 
research phases and the long-term monitoring responsibility of the 
Environmental Protection Agency will be hampered.
    Question 2. I am aware that you have worked very deeply in the 
areas of public outreach, awareness, and acceptance issues of geologic 
CCS. Based on your research--what have been the biggest areas of 
concern for public stakeholders? Do you have any recommendations for 
project developers as they undertake these types of large-scale CCS 
projects?
    Answer. The most commonly expressed concerns we encounter relate to 
two areas: 1) subsurface misconceptions, and 2) surface technical and 
nontechnical issues.
    Public concerns about the concept of CCS stem from misconceptions 
about the nature of the subsurface. Members of the general public often 
perceive that CO2 will be stored in large underground 
caverns and lack knowledge of the actual process of storage, which 
takes place in small rock pore spaces. This perception is further 
compounded by the perceived uncertainty of earthquake impacts on stored 
CO2. In fact, the most frequently asked questions we 
encounter are, ``What will happen to stored CO2 in the event 
of an earthquake?'' and ``Will CO2 injection cause 
earthquakes?'' Additional subsurface concerns focus on the displacement 
of brine during CO2 injection and the perception that brine 
migration will result in contamination of fresh water or migration to 
the surface. With careful explanation, physical models, and 
demonstration tools, these concerns can be addressed and alleviated. 
Future project developers should avail themselves of CCS communication 
experts and utilize best practices manuals to develop public engagement 
strategies. Engaging and informing the public will be essential to 
commercial deployment.
    Surface technical and nontechnical issues are also of great concern 
to the public, especially landowners in close proximity to CCS 
projects. We have experienced landowners who after discussions express 
no further concern with the subsurface storage concept of CCS, but 
rather are concerned with what bringing a CO2 pipeline 
through their driveway will do to their property values and/or ability 
to use the area. Issues such as the perceived decrease in property 
value due to stored CO2, liability over stored 
CO2 after the close of a project, and distrust of government 
to adequately regulate project developers and protect citizens are 
often expressed. Project developers will need to be held to the highest 
performance standards in order to warrant the trust of the public. In 
addition, liability funds or other financial mechanisms will need to be 
adequately managed, regulators properly trained, and commercial 
projects successfully operated for long periods of time in order to 
minimize public concerns.
                                 ______
                                 
    Responses of Chiara Trabucchi to Questions From Senator Bingaman
    Question 1. Can you speak briefly on what you think the real vs. 
perceived risks for a given geologic CCS project are?
    Answer. There are a number of studies which have attempted to 
identify and assess the range of risks potentially related to CCS 
during the project lifecycle, and which give rise to the need for 
financial responsibility (see, for example, Donlan and Trabucchi, 2010; 
Trabucchi et al., 2009; Trabucchi and Patton, 2008; Bacanskas et al., 
2009; WRI, 2008; DOE, 2007; OSPAR, 2007).
    Briefly stated, CCS may adversely impact human health and the 
environment through a variety of pathways (see, IPCC, 2005 for a broad 
based discussion of these impacts from the operational phase of a 
CO2 capture unit, and Bacanskas et al., 2009 for how adverse 
impacts could impact human and ecological receptors during the 
lifecycle of a CO2 storage operation). Specifically, CCS 
risks include, but are not limited to: (1) groundwater contamination; 
(2) surface/subsurface trespass, (3) asset infringement, (4) bodily 
injury; (5) property damage; (6) ecological damage; and/or (7) business 
interruption.
    Delimiting factors that will influence the degree of injury at a 
particular CCS project include site-specific geology and geochemistry, 
proximity to population centers, infringement of valuable (sub)surface 
resources, increasingly scarce sources of potable surface and ground 
water, and protected or sensitive (endangered) habitats. The nature and 
degree to which one or more of these factors are applicable to a 
particular CCS project will shape its risk profile and create the 
potential for financial consequences in the form of corrective action 
(e.g., mitigation, remediation expenses) and/or compensatory damages. 
Establishing permitting and performance-based standards to ensure sound 
siting, design, operation and management of the CCS project will 
contribute to risk mitigation and limit the degree to which harm or 
injury, and attendant compensatory damages arise.
    Question 2. Where do you think the hardest economic step or gap is 
for project developers? CCS project financiers? What can project 
developers do to reduce the risks perceived by project financers? In 
other words, what is the financial community the most concerned with 
for CCS projects?
    Answer. When considering whether or not to invest in a project, 
developers and financiers will assess the degree to which the project 
will realize a net positive return on investment. A generally accepted 
practice in investment valuation is conducting a discounted cash flow 
analysis. This type of analysis considers the present value of the 
project's forecasted cash flows, net of the project's initial 
investment. If the net present value (NPV) is greater than zero, then 
the project is accepted. If the NPV is less than zero, then the project 
is rejected. Essentially, developers and financiers are seeking value 
creation which will result in positive cash flows, and therefore 
positive return on investment.
    Project financing that relies on this type of analysis necessitates 
the ability to identify and value the stream of a project's cash flows. 
To effectively assess the project's NPV, a degree of certainty is 
required with respect to: (1) the cash flows generated by the project; 
(2) the cost of investing in the project; and (3) the terminal value of 
the assets comprising the project, i.e., either salvage, or sale. 
Projects with positive cash flows, minimal costs, and high terminal 
value represent strong investment potential to project financiers.
    In my view, the limited analytic evaluation of the range of 
potential impacts, and corresponding financial consequences 
attributable to individual CCS projects, has hindered project 
financing. On a project-specific basis, answers are needed to the 
questions: ``What are the dollar amounts that need to be managed?'' 
``Under what set of circumstances, will amounts present?'' ``Across 
what time frame will these dollars be needed?'' I believe that focus on 
anecdotal references with respect to possible financial consequences 
arising from CCS projects has contributed to unreasonable expectations 
and misunderstandings with respect to the amount and timing of funds 
necessary for the responsible deployment of CCS. As a result, the 
developer and project financier's ability to accurately forecast key 
variables in the project's NPV, i.e., the `cost of investing in the 
project' and `the terminal value of the project's assets', is limited. 
As long as financiers are unable to reduce a CCS project to its net 
present value, they are unlikely to place their investment capital 
behind the technology.
    In addition, the public debate on `liability' as it relates to the 
long-term stewardship of CCS projects, i.e., who should bear financial 
responsibility for paying claimants when damages occur, has clouded the 
ability of project financiers to accurately assign a risk premium to 
their calculus of whether CCS represents a viable business venture. In 
my view, S. 699 is a measurable step forward in offering a measure of 
certainty with respect to this issue.
    Question 3. You state in your testimony on page 5 that the bill 
should include a requirement for the explicit evaluation of potential 
human health and environmental impacts from a financial perspective. 
Would a requirement for a financial risk analysis on a per applicant/
project basis fulfill this need?
    Answer. Yes, as long as the requirement for a financial risk 
analysis explicitly includes consideration of the financial 
consequences arising from possible human health and/or environmental 
impacts on a per applicant/project basis.
References
    Bacanskas, Lisa, Anhar Karimjee, Kaylene Ritter, Toward practical 
application of the vulnerability evaluation framework for geological 
sequestration of carbon dioxide, Energy Procedia, Volume 1, Issue 1, 
Greenhouse Gas Control Technologies 9, Proceedings of the 9th 
International Conference on Greenhouse Gas Control Technologies (GHGT-
9), 16-20 November 2008, Washington DC, USA, February 2009, Pages 2565-
2572, ISSN 1876-6102, DOI: 10.1016/j.egypro.2009.02.021.
    Donlan, Michael and Chiara Trabucchi, Valuation of Consequences 
Arising from CO2 Migration at Candidate CCS Sites in the 
U.S., Energy Procedia, Volume 4, Proceedings of the 10th International 
Conference on Greenhouse Gas Control Technologies (GHGT-10) (2011) 
Pages 2222-2229, doi:10.1016/j.egypro.2011.02.110.
    Intergovernmental Panel on Climate Change (IPCC). 2005. Special 
Report on Carbon Dioxide Capture and Storage. Prepared by Working Group 
III of the Intergovernmental Panel on Climate Change [Metz, B.,O. 
Davidson, H. C. de Coninck, M. Loos, and L. A. Meyer (eds.)] Cambridge 
University Press, Cambridge, United Kingdom and New York, NY, USA.
    OSPAR Commission. 2007. OSPAR Guidelines for Risk Assessment and 
Management of Storage of CO2 Streams in Geological 
Formations. OSPAR Convention for the Protection of the Marine 
Environment of the North-East Atlantic. Reference Number: 2007-12
    Trabucchi, Chiara, Michael C. Donlan, Sarah Wade, A Multi-
Disciplinary Framework to Monetize Financial Consequences Arising from 
CCS Projects and Motivate Effective Financial Responsibility. 
International Journal of Greenhouse Gas Control: GHGT9 Special Issue. 
October 2009.
    Trabucchi, Chiara and L. Patton. 2008. Storing Carbon: Options for 
Liability Risk Management, Financial Responsibility. The Bureau of 
National Affairs, Inc., Daily Environment, Vol. 2008, No. 170, 09/03/
2008.
    U.S. Department of Energy (DOE). December 22, 2006; (Revision 1 
April 2007); (Revision 2 October 2007). Final Risk Assessment Report 
for the FutureGen Project Environmental Impact Statement; Contract No. 
DE-AT26-06NT42921.
World Resources Institute (WRI). 2008. CCS Guidelines: Guidelines for 
            Carbon Dioxide Capture, Transport and Storage. Washington 
            DC: WRI.
                                 ______
                                 
      Responses of Scott Klara to Questions From Senator Bingaman
    Question 1. While you state in your testimony that the official DOE 
position is that the bills are still under review, is it your opinion 
that a program such as that S. 699 is a program that your office could 
oversee and facilitate? In other words, do you have workforce and 
technical capabilities to administer the indemnity program laid out in 
the bill?
    Answer. The Administration is still reviewing S. 699 and S. 757 and 
does not have a position on either bill at this time. However, as part 
of the plan proposed by the Interagency Task Force on Carbon Capture 
and Storage:

          ``Efforts to improve long-term liability and stewardship 
        frameworks should continue. By late 2011, EPA, DOE, Department 
        of Justice (DOJ), DOI, and Treasury should further evaluate and 
        provide recommendations to address long-term liability and 
        stewardship in the context of existing and planned regulatory 
        frameworks. Of the seven options identified by the Task Force, 
        the following four approaches, or combinations thereof, should 
        be considered: (1) reliance on the existing framework for long-
        term liability and stewardship; (2) adoption of substantive or 
        procedural limitations on claims; (3) creation of an industry-
        financed trust fund to support long-term stewardship activities 
        and compensate parties for various types and forms of losses or 
        damages that occur after site closure; and (4) transfer of 
        liability to the Federal government after site closure (with 
        certain contingencies). Open-ended Federal indemnification 
        should not be used to address long-term liabilities associated 
        with CO2 storage.''

    Question 2. Are there currently projects in the CCS program that 
would be of the scale and caliber that would qualify for the program 
specified in S. 699?
    Answer. The DOE has multiple CCS demonstrations projects underway 
(through the Clean Coal Power Initiative, FutureGen 2.0, and Industrial 
Carbon Capture and Storage) as well as a set of large-scale injection 
tests through the Regional Carbon Sequestration Partnerships (RCSPs) 
that would likely fit the project definition contained in the bill. 
However, the Administration is still reviewing S. 699 and S. 757 and 
does not have a position on either bill at this time.
                                 ______
                                 
      Responses of Matt Watson to Questions From Senator Bingaman
    Question 1. EDF has worked very closely with the states in helping 
to develop the regulatory mechanisms for geologic CCS projects. Is 
there one state in particular that has most accurately quantified risk 
and liability for these projects that we could use as model or example 
for thinking about this federal legislation?
    Answer. Although no state has created a fully adequate model, North 
Dakota and Texas each have experience to share that the Committee could 
find useful. Both states have examined these issues in the context of 
setting fees for trust funds and processing of permits.
    Question 2. Have you encountered any CCS projects that have 
incurred liabilities (even at the pilot to demonstration scale)?
    Answer. We are not aware of any CCS projects that have incurred 
liabilities.
    Question 3. You mentioned the coal plants and siting at the 
hearing--to get specifically at the issue of coal plant siting--what 
are the requirements for new coal plant construction under BACT 
regulations? Can you provide a list of coal plants under siting and 
construction?
    Answer. Senator Manchin raised the issue of coal plant permitting 
during the hearing. If I understood him correctly, his belief is that 
CCS is not a fully-developed, commercially-available technology and, 
yet, EPA regulations are requiring permit applicants for coal-fired 
generating units to employ CCS--and that permits were being denied 
because applicants weren't planning to use CCS.
    To our knowledge, there has been no case in which a permitting 
agency has denied an air permit for a coal-fired power plant on the 
grounds that the applicant failed to employ CCS as a control technology 
for greenhouse gas emissions.
    Under the Clean Air Act's Prevention of Significant Deterioration 
(PSD) Program (Sec. Sec.  165-169), any major stationary source of air 
pollutants that is to be constructed or undergo a major modification 
must obtain a permit that includes an emissions limitation for each 
pollutant regulated under the Clean Air Act. The emissions limitation 
is based on a source-specific analysis, conducted by the state or 
federal permitting authority, to identify the Best Available Control 
Technology (BACT) for that source. In Step 1 of a BACT analysis, all 
available pollution control options are identified. In Step 2, 
technically infeasible options are eliminated. In Step 3, the list of 
available and technically feasible controls are ranked in terms of 
environmental effectiveness. In Step 4, economic, energy, and 
environmental impacts are considered in determining whether each 
control option is ``achievable.'' After identifying the most 
environmentally effective control option that is achievable, the 
permitting authority then specifies an emissions limitation for the 
source that reflects the maximum degree of reduction achievable for the 
pollutant considering economic, energy and environmental impacts. 
Although a source is required to meet the emissions limitation, it is 
not required to install the control technology used in the BACT 
analysis to derive the emission limit.
    After conducting extensive stakeholder outreach, the Environmental 
Protection Agency released guidance for state permitting authorities to 
use in identifying BACT for sources requiring PSD permits for their 
greenhouse gas emissions. In that guidance, EPA specifically discussed 
the potential for CCS to be identified as BACT by a permitting 
authority:

          [A]lthough CCS is not in widespread use at this time, EPA 
        generally considers CCS to be an ``available'' add-on pollution 
        control technology for facilities emitting CO2 in 
        large amounts and industrial facilities with high-purity 
        CO2 streams. Assuming CCS has been included in Step 
        1 of the top-down BACT process for such sources, it now must be 
        evaluated for technical feasibility in Step 2. CCS is composed 
        of three main components: CO2 capture and/or 
        compression, transport, and storage. CCS may be eliminated from 
        a BACT analysis in Step 2 if it can be shown that there are 
        significant differences pertinent to the successful operation 
        for each of these three main components from what has already 
        been applied to a differing source type. For example, the 
        temperature, pressure, pollutant concentration, or volume of 
        the gas stream to be controlled, may differ so significantly 
        from previous applications that it is uncertain the control 
        device will work in the situation currently undergoing review. 
        Furthermore, CCS may be eliminated from a BACT analysis in Step 
        2 if the three components working together are deemed 
        technically infeasible for the proposed source, taking into 
        account the integration of the CCS components with the base 
        facility and site-specific considerations (e.g., space for 
        CO2 capture equipment at an existing facility, 
        right-of-ways to build a pipeline or access to an existing 
        pipeline, access to suitable geologic reservoirs for 
        sequestration, or other storage options).

          While CCS is a promising technology, EPA does not believe 
        that at this time CCS will be a technically feasible BACT 
        option in certain cases. As noted above, to establish that an 
        option is technically infeasible, the permitting record should 
        show that an available control option has neither been 
        demonstrated in practice nor is available and applicable to the 
        source type under review. EPA recognizes the significant 
        logistical hurdles that the installation and operation of a CCS 
        system presents and that sets it apart from other add-on 
        controls that are typically used to reduce emissions of other 
        regulated pollutants and already have an existing reasonably 
        accessible infrastructure in place to address waste disposal 
        and other offsite needs. Logistical hurdles for CCS may include 
        obtaining contracts for offsite land acquisition (including the 
        availability of land), the need for funding (including, for 
        example, government subsidies), timing of available 
        transportation infrastructure, and developing a site for secure 
        long term storage. Not every source has the resources to 
        overcome the offsite logistical barriers necessary to apply CCS 
        technology to its operations, and smaller sources will likely 
        be more constrained in this regard. Based on these 
        considerations, a permitting authority may conclude that CCS is 
        not applicable to a particular source, and consequently not 
        technically feasible, even if the type of equipment needed to 
        accomplish the compression, capture, and storage of GHGs are 
        determined to be generally available from commercial 
        vendors.\1\
---------------------------------------------------------------------------
    \1\ Environmental Protection Agency, ``PSD and Title V Permitting 
Guidance for Greenhouse Gases,'' p. 35-36 (March 2011).

    In discussing consideration of CCS under Step 4 of the BACT 
---------------------------------------------------------------------------
process, EPA noted that:

          [A]t present CCS is an expensive technology, largely because 
        of the costs associated with CO2 capture and 
        compression, and these costs will generally make the price of 
        electricity from power plants with CCS uncompetitive compared 
        to electricity from plants with other GHG controls. Even if not 
        eliminated in Step 2 of the BACT analysis, on the basis of the 
        current costs of CCS, we expect that CCS will often be 
        eliminated from consideration in Step 4 of the BACT analysis, 
        even in some cases where underground storage of the captured 
        CO2 near the power plant is feasible. However, there 
        may be cases at present where the economics of CCS are more 
        favorable (for example, where the captured CO2 could 
        be readily sold for enhanced oil recovery), making CCS a more 
        viable option under Step 4. In addition, as a result of the 
        ongoing research and development described in the Interagency 
        Task Force Report noted above, CCS may become less costly and 
        warrant greater consideration in Step 4 of the BACT analysis in 
        the future.\2\
---------------------------------------------------------------------------
    \2\ Id. at 42-43.

    EPA's analysis of control options was primarily focused on power 
plant efficiency measures that could be put in place as a means to 
reduce the quantity of greenhouse gases emitted per unit of energy 
produced.\3\
---------------------------------------------------------------------------
    \3\ Environmental Protection Agency, ``Available and Emerging 
Technologies for Reducing Greenhouse Gas Emissions from Coal-Fired 
Electric Generating Units,'' p. 26-35 (October 2010).
---------------------------------------------------------------------------
    While there have been several coal plant cancellations over the 
past two years, these cancellations have primarily been the product of 
reduced energy demand resulting from the increasing costs and financing 
difficulties, the economic downturn and low natural gas prices--not 
regulatory requirements relating to greenhouse gases. Further, the 
requirement to obtain an air permit for greenhouse gases under the 
Clean Air Act only recently took effect, becoming operative on January 
2, 2011. And while natural gas power plants are increasingly considered 
a more financially attractive option for new fossil fuel-based 
generation, there are coal-fired projects pending in various stages of 
development. The SNL Financial power plant data base describes the 
twelve coal fired power plants listed below as under construction.


----------------------------------------------------------------------------------------------------------------
                                                                                            Current Generating
         Power Plant                      Owner             State     Operating Status           Capacity
----------------------------------------------------------------------------------------------------------------
Dry Fork Station               Multiple                    WY       Under  Construction  385.00
----------------------------------------------------------------------------------------------------------------
Edwardsport IGCC               Duke Energy Indiana Inc.    IN       Under  Construction  618.00
----------------------------------------------------------------------------------------------------------------
Formosa Point Comfort          Formosa Plastics Corp       TX       Under  Construction  286.20
----------------------------------------------------------------------------------------------------------------
Goodland Energy Center         Goodland Energy Center LLC  KS       Under  Construction  25.00
----------------------------------------------------------------------------------------------------------------
John W. Turk, Jr. UPC          Multiple                    AR       Under  Construction  600.00
----------------------------------------------------------------------------------------------------------------
Longview Power                 Multiple                    WV       Under  Construction  700.00
----------------------------------------------------------------------------------------------------------------
Plant Ratcliffe IGCC (David)   Mississippi Power Co.       MS       Under  Construction  596.10
----------------------------------------------------------------------------------------------------------------
Prairie State Energy Campus    Multiple                    IL       Under  Construction  1,600.00
----------------------------------------------------------------------------------------------------------------
Sandy Creek                    Multiple                    TX       Under  Construction  900.00
----------------------------------------------------------------------------------------------------------------
Spiritwood Energy Cogen Plant  Great River Energy          ND       Under  Construction  99.00
----------------------------------------------------------------------------------------------------------------
Two Elk One                    North American Power Group  WY       Under  Construction  290.00
----------------------------------------------------------------------------------------------------------------
Virginia City Hybrid Energy    Virginia Electric & Power   VA       Under  Construction  585.00
 Center                         Co.
----------------------------------------------------------------------------------------------------------------