[Senate Hearing 111-50]
[From the U.S. Government Publishing Office]
S. Hrg. 111-50
CARBON CAPTURE AND SEQUESTRATION
=======================================================================
HEARING
before the
COMMITTEE ON
ENERGY AND NATURAL RESOURCES
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
TO
RECEIVE TESTIMONY ON S. 1013, THE DEPARTMENT OF ENERGY CARBON CAPTURE
AND SEQUESTRATION PROGRAM AMENDMENTS ACT OF 2009
__________
MAY 14, 2009
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
BYRON L. DORGAN, North Dakota LISA MURKOWSKI, Alaska
RON WYDEN, Oregon RICHARD BURR, North Carolina
TIM JOHNSON, South Dakota JOHN BARRASSO, Wyoming
MARY L. LANDRIEU, Louisiana SAM BROWNBACK, Kansas
MARIA CANTWELL, Washington JAMES E. RISCH, Idaho
ROBERT MENENDEZ, New Jersey JOHN McCAIN, Arizona
BLANCHE L. LINCOLN, Arkansas ROBERT F. BENNETT, Utah
BERNARD SANDERS, Vermont JIM BUNNING, Kentucky
EVAN BAYH, Indiana JEFF SESSIONS, Alabama
DEBBIE STABENOW, Michigan BOB CORKER, Tennessee
MARK UDALL, Colorado
JEANNE SHAHEEN, New Hampshire
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
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STATEMENTS
Page
Anderson, A. Scott, Senior Policy Advisor, Environmental Defense
Fund, Austin, TX............................................... 38
Barrasso, Hon. John, U.S. Senator From Wyoming................... 2
Batten, Kit, Ph.D., Science Advisor, Office of the Deputy
Secretary, Department of the Interior.......................... 9
Bingaman, Hon. Jeff, U.S. Senator From New Mexico................ 1
Der, Victor K., Acting Assistant Secretary, Office of Fossil
Energy, Department of Energy................................... 3
Freudenthal, Hon. Dave, Governor, State of Wyoming, Cheyenne, WY. 53
Lubnau, Thomas E., II, State Representative From Wyoming, House
District 31, Gillette, WY...................................... 14
Moor, Karl, Vice President & Associate General Counsel, Southern
Company, Atlanta, GA........................................... 32
Murkowski, Hon. Lisa, U.S. Senator From Alaska................... 2
Tombari, John, Vice President, Schlumberger Carbon Services,
Houston, TX.................................................... 30
Trabucchi, Chiara, Principal, Industrial Economics, Inc.,
Cambridge, MA.................................................. 43
APPENDIX
Responses to additional questions................................ 55
CARBON CAPTURE AND SEQUESTRATION
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THURSDAY, MAY 14, 2009
U.S. Senate,
Committee on Energy and Natural Resources,
Washington, DC.
The committee met, pursuant to notice, at 3 p.m. in room
SD-366, Dirksen Senate Office Building, Hon. Senator Jeff
Bingaman, chairman, presiding.
OPENING STATEMENT OF HON. JEFF BINGAMAN, U.S. SENATOR FROM NEW
MEXICO
The Chairman. Ok. Let me ask everyone to please be seated.
I welcome everyone here. We have a distinguished group of
witnesses here.
This is to consider S. 1013 which is the Department of
Energy Carbon Capture and Sequestration Program Amendments Act
of 2009. Senator Barrasso and I introduced this bill along with
Senators Dorgan, Tester, Bayh, Landrieu, Casey, Voinovich,
Udall and Conrad. It establishes a national indemnity program
through the Department of Energy for up to ten commercial
scale, carbon capture and sequestration projects.
Based on the input from industrial and environmental NGO
and other organizations it's been made clear to me that there
is a real need to for liability treatments and adequate project
financing for early mover projects. The creation of an
indemnity program for these large scale, early mover projects
is an important, necessary step to building confidence for
project developers as well as the public. S. 1013 sets
qualifying criteria that will help to ensure that these
critical early mover projects will be conducted safely while
addressing the growing concern of reducing greenhouse gas
emissions from industrial facilities such as coal and natural
gas, hard utilities, cement plants, refineries, other carbon
intensive industrial processes.
This legislation also maps out a clear framework for
closing down a geological storage site. It's essential to
consider the issue of safe, long term storage of carbon
dioxide. It's also critical to take the steps necessary for
site stewardship during the injection phase directly following
closure and for long term, preventative maintenance of the
geologic storage site.
A science based monitoring and verification is required
after the injection of carbon dioxide ends to ensure that the
carbon dioxide remains safely in place throughout the life of
the project and well beyond the closure phase. This topic of
reducing greenhouse gases, particularly carbon dioxide
emissions remains of great concern to me and to all members of
the committee. Carbon capture and geologic storage holds
promise as a measure that can be used to mitigate global
climate change while still allowing the use of fossil fuels at
electricity generating plants and industrial facilities.
I'd like to thank each of our witnesses who've come to
testify as to the merits of the legislation. Also the
administration witnesses as well as Tom Lubnau, who is here
representing the State of Wyoming. The efforts that he and the
Governor, Governor Freudenthal, have undertaken in their State
legislature to rapidly move forward with commercial carbon
sequestration projects in Wyoming serves as a model for other
States to look at as well as a model for us to look at as we
undertake here in the Senate the deployment of such a promising
greenhouse gas reducing technology.
Let me call on Senator Murkowski for any statement she
would have. Then if Senator Barrasso had any statement I would
call on him too, since he's prime co-sponsor on the bill. But
you go right ahead, Senator Murkowski.
STATEMENT OF HON. LISA MURKOWSKI, U.S. SENATOR
FROM ALASKA
Senator Murkowski. Thank you, Mr. Chairman. I want to thank
the witnesses for joining us this afternoon. I think we all
recognize that the advancement of carbon sequestration
technology is a very important task. I think we all recognize
the role that coal has played in the development of our country
as we look to our energy sources and the value that it holds
not only in the past tense, but moving forward.
We've authorized many programs at DOE to advance carbon
sequestration technologies between FutureGen, the Clean Coal
Power Initiative, the Regional Partnerships. There's about $4.1
billion sitting at DOE waiting to be spent. But I think we all
recognize that it's not always just about money.
Sometimes there are other matters to be addressed.
Certainly the responsibility for carbon sequestrationsites over
the long term is one of those issues that is on the list. The
bill before us would place that responsibility squarely on the
shoulders of the Federal Government for a number of
demonstration projects.
This would be a bold decision. But it also raises a number
of questions. I would hope that some of those questions can be
addressed before we mark up this bill.
I'm very supportive of carbon sequestration. I believe that
we must continue to aggressively advance the technology. But I
want to make sure that we go about that task in the most
effective way and responsible way so that the technology can
continue to evolve as quickly as we would like it to do.
So I look forward to hearing from our witnesses on this
very important subject today. Thank you.
The Chairman. Senator Barrasso, did you wish to make an
opening statement?
STATEMENT OF HON. JOHN BARRASSO, U.S. SENATOR
FROM WYOMING
Senator Barrasso. Just briefly, Mr. Chairman. Thank you for
allowing me to co-sponsor this important piece of legislation
with you. Like you I want to make sure that we make American
energy as clean as we can, as fast as we can and do it in a way
that doesn't increase costs for American families.
It's especially a privilege to have with us today
Representative Tom Lubnau. Tom and I served together in the
Wyoming legislature. Tom and I have held town meetings together
in his home community in Gillette, Wyoming which is the coal
capital of the world.
It is also Mike Enzi's, Senator Enzi's hometown. Mike was
mayor of that community. We know how important all the energy
sources are. Coal is a very important part of the energy needs
of this Nation.
Tom has taken a significant leadership role, Mr. Chairman,
in the Wyoming legislature with our carbon sequestration
legislation. It has been a bipartisan effort. The Governor has
been very involved. Tom has been involved and significant
commitment on the part of the entire State because we know how
important this is for the energy security of our Nation.
So thank you, Mr. Chairman. Welcome to Representative
Lubnau.
The Chairman. Thank you again for co-sponsoring this bill
with us.
Let me introduce this first panel.
Dr. Victor Der is the Acting Assistant Secretary in the
Office of Fossil Energy in the Department of Energy. Thank you
very much for being here.
Dr. Kit Batten is Science Advisor with the Office of the
Deputy Secretary in the Department of Interior. Thank you for
being here.
As Senator Barrasso indicated Representative Tom Lubnau,
Thomas Lubnau is a State Representative from Wyoming from House
District 31 in Gillette, Wyoming.
So thank you all for being here. If each of you could take
5 or 6 minutes and give us your views on this legislation and
pros and cons and suggested changes. We would appreciate it.
STATEMENT OF VICTOR K. DER, ACTING ASSISTANT SECRETARY, OFFICE
OF FOSSIL ENERGY, DEPARTMENT OF ENERGY
Mr. Der. I thank you, Mr. Chairman and members of the
committee. I appreciate this opportunity to discuss the
Department of Energy's research efforts in carbon capture and
storage and hope that this information will be helpful to the
committee as you consider ways to address liability issues
associated with CCS.
Our fossil fuels resources, specifically coal, represent a
tremendous and strategic national asset. Based upon current
rates of consumption, the United States probably has sufficient
coal to meet its needs for the next century. Making use of this
domestic asset in a responsible manner will help the United
States meet its energy requirements, minimize environmental
impacts, positively contribute to national security and compete
in the global marketplace.
Our focus must be therefore to develop deployable advanced
technologies necessary to achieve near zero emissions from coal
use including CCS. The Department remains a leader in the
development of advanced technologies that have helped reduce
pollution emissions and have increased power plant
efficiencies. In fact nearly 75 percent of the coal power
plants in the United States employs technologies with roots in
the DOE's program for advanced coal.
These technological successes coupled with substantial
funding from the Recovery Act and our fiscal year 2010 budget
request will help us accelerate the advances and innovations
needed to meet the challenges of CO2 reduction. To
accomplish this goal our advanced coal program is focused on
three important areas:
Technologies for affordable CO2 capture,
Establishing a scientific and technical basis for
safe and effective storage of CO2, and
Substantially improving the efficiency and
reliability of fossil energy systems.
All 3 of these areas are important as we work to make CCS
technologies deployable and cost effective.
We have a good start in this direction. Years of research
and demonstration experience have resulted in new concepts
including the conversion of coal into cleaner, versatile gases
that can be used to generate power or produce fuels.
Additionally our research continues to explore emerging
approaches to clean power generation that hold great promise
for integration with coal based or combined coal and biomass
energy plants for CCS. To that end, we are working on CCS
enabling and transformational technologies including advanced
gasification combined cycle, advanced hydrogen turbines,
advanced materials for ultra high efficiency plants, supersonic
compression and revolutionary concepts for CO2
capture.
With regard to storage we continue to implement large scale
CCS demonstration efforts under the sequestration partnerships
and the Clean Coal Power Initiative programs. For instance, DOE
helped fund the development of the Nation's first large scale
injection and storage site in Decatur, Illinois, which will
hold one million metric tons of carbon. We also continue to
conduct analyses of the CO2 geological storage
capability including a just released study of potential storage
capability beneath Federal lands.
This study builds upon prior studies and data from the DOE
and the United States Geological Survey. Early estimates from
this study indicate that based on our current levels of
CO2 emissions these formations have the potential
capacity to hold about 60 years worth of CO2. So we
are moving forward with valuable CCS R&D analysis.
But the success of our programs will ultimately be judged
by the extent to which emerging, cost effective technologies
are deployed and more importantly that we get it right.
Successful implementation of an economically viable national
CCS system depends on having developed a national set of
workable, enabling policies. Such policies can help establish
definitive standards, practices and procedures, encourage
technology development and investment and address liability
issues related to carbon capture and storage.
Whatever structure is created it must encompass the input
of a broad range of stakeholders in the decision process. DOE
has made great strides toward the goal of effective deployable
CCS systems in a 2020 to 2025 timeframe. With continued
leadership and support from the administration and the
Congress, the Department can move forward with development of
new technologies and policies to meet the requirements of a
safe, secure and clean energy future.
Again, Mr. Chairman, thank you for the opportunity to
testify here today. With that I welcome any questions the
committee may have. Thank you.
[The prepared statement of Mr. Der follows:]
Prepared Statement of Victor K. Der, Acting Assistant Secretary, Office
of Fossil Energy, Department of Energy
Thank you, Mr. Chairman and members of the Committee. I appreciate
this opportunity to provide testimony on the United States Department
of Energy's (DOE's) research efforts in carbon capture and storage. The
Department of Energy has not had an opportunity to fully analyze S.
1013, and therefore, cannot take a position on the bill at this time.
introduction
Fossil fuel resources represent a tremendous national asset. An
abundance of fossil fuels in North America has contributed to our
Nation's economic prosperity. Based upon current rates of consumption,
the United States probably has sufficient coal to meet its need for the
next century. Making use of this domestic asset in a responsible manner
will help the United States to meet its energy requirements, minimize
detrimental environmental impacts, positively contribute to national
security, and compete in the global marketplace.
Fossil fuels will play a critical role in our Nation's future
energy strategy. By developing technologies to mitigate the release of
carbon dioxide (CO2) into the atmosphere, we can continue to
use our extensive domestic coal resource while reducing the impacts on
climate change. Carbon capture and storage (CCS) can play a central
role in fossil fuels remaining a viable energy source for our Nation.
CCS is the primary pathway DOE is pursuing to allow continued use of
fossil fuels in a carbon-constrained future.
Through fossil energy funding under the American Recovery and
Reinvestment Act and annual appropriations, DOE's Coal Program is
working to accelerate the development and industry deployment of CCS to
meet future energy needs.
The remainder of my testimony will highlight CCS activities that
are underway in the Coal Program.
coal program
DOE provides a national leadership role in the development of
advanced coal technologies. DOE Office of Fossil Energy's Coal Program
has returned substantial benefits to consumers and taxpayers across a
broad range of innovative technologies that are now in use throughout
the world. For example, DOE and the private sector responded to the
challenge of dramatically reducing the emissions of particulate,
sulfur, nitrogen oxide, and mercury from coal-based energy systems with
the development of technologies that enable coal-based power plants to
meet environmental controls and limits placed on these pollutants.
These technological innovations have resulted in significant
environmental benefits: reducing pollutant emissions, reducing water
use, minimizing wastewater discharge, and reducing solid wastes. DOE
research and demonstration capabilities are well suited to address new
challenges associated with the reduction of greenhouse gas emissions as
a climate change mitigation strategy.
The Coal Program--administered by DOE's Office of Fossil Energy and
implemented by the National Energy Technology Laboratory--is designed
to address climate concerns of coal usage by developing a portfolio of
revolutionary advanced carbon capture and storage technologies that
will be economically feasible for deployment by industry. In
partnership with the private sector, efforts are focused on maximizing
efficiency and performance, while minimizing the costs of these new
technologies. In recent years, the program has been restructured to
focus on CCS. The program pursues the following two major strategies:
1) capturing carbon dioxide; and
2) storing it in geologic formations.
Capturing and storing carbon dioxide and improving the fuel-to-
energy efficiency of CCS will help address pollutant emissions
reduction, water usage, and carbon emissions on a per unit of
electricity basis. These plans strive to achieve dramatic reductions in
emissions and ensure that current and future fossil energy plants will
meet all emerging requirements for a safe and secure energy future.
Coal research has resulted in important insights regarding future
innovations. New engineering concepts have been developed to convert
coal into gases that can be cleaned and then used to generate power or
produce fuels. New approaches to clean power generation are emerging
that hold promise for integration with coal-based or combined coal and
biomass energy plants. Technologies for achieving CCS are stretching
beyond basic research, defining pathways in which greenhouse gas
emissions can be permanently diverted from the atmosphere. With these
building blocks, a new breed of coal plant can be created--one that
generates power and produces high-value energy with much less
environmental impact. DOE's work includes a focus on high priority CCS
enabling technologies, such as advanced integrated gasification
combined cycle, advanced hydrogen turbines, carbon capture, and fuel
cells. These research areas provide the supporting technology base for
all CCS development.
carbon capture & storage innovations
As part of our Coal Program, we are addressing the key technology
challenges that confront the wide-scale industrial deployment of CCS
through industry/government cooperative research on cost-effective
capture technologies; monitoring, verification, and accounting
technologies to assess permanence of storage; permitting issues;
liability issues; public outreach; and infrastructure needs. As an
example, today's commercially available CCS technologies will 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
advanced gasification-based plant.\1\ The program is aggressively
pursuing developments to reduce these costs to less than a 10 percent
increase in the cost of electricity for new gasification-based energy
plants, and less than a 30 percent increase in the cost of electricity
for pulverized coal energy plants.\2\
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\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.
\2\ The goal for pulverized coal is under development.
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The existing research program has been performing CCS field tests
for many years, where the seven Regional Carbon Sequestration
Partnerships are drilling wells in potential storage locations and
injecting small quantities of CO2 to validate the potential
of key storage locations throughout the country. Substantial progress
has occurred in the area of monitoring, verification, and accounting of
CO2 storage with the development and refinement of
technologies to better understand storage stability, permanence, and
the characteristics of CO2 migration.
Research is also focused on developing technology options that
dramatically lower the cost of capturing CO2 from fossil
fuel energy plants. This research can be categorized into three
pathways: post-combustion, pre-combustion, and oxy-combustion. 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 synthetic 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. This
research is exploring a wide range of approaches: 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 enzyme-based systems, in conjunction with basic
research in these areas now being conducted by the DOE's Office of
Science.
A central piece of our CCS research is DOE's field test program,
which is being implemented through the Regional Carbon Sequestration
Partnerships. DOE's field test program reflects the geographic
differences in fossil fuel use and potential storage sites across the
United States and targets the use of regional approaches in addressing
CCS. It encompasses field tests representative of approximately 97
percent of coal-fired and industrial CO2 emissions, about 96
percent of the total U. S. land mass, and essentially all the geologic
storage sites in the country that can potentially be available for
carbon sequestration. The field tests are conducted through
partnerships comprised of state agencies, universities, and private
companies, with the goal of developing the knowledge base and
infrastructure for the wide-scale deployment of CCS technologies. The
Regional Partnerships represent more than 350 unique organizations in
42 States, three Native American Indian Nations, and four Canadian
Provinces. It is important to note that the non-Federal cost share for
the field test program is greater than 35 percent, which is a key
indicator of industry and other partner interest that will lead to the
success of this program. Each partnership is focused on a specific
region of the country with similar characteristics relating to CCS
opportunities.
DOE is addressing key infrastructure issues related to permitting,
pore space (underground reservoir) ownership, site access, liability,
public outreach, and education. DOE works closely with the
Environmental Protection Agency (EPA) and others in developing CCS
regulation strategies, which will provide additional certainty for
future CCS deployments.
Over the course of these research initiatives, DOE will jointly
develop Best Practice Manuals on topics such as site characterization,
site construction, operations, monitoring, mitigation, closure, and
long-term stewardship. These Manuals, which will be developed in
conjunction with DOE's Office of Science and the U.S. Geological
Survey, will serve as guidelines for a future geologic sequestration
industry in their regions, and help transfer the lessons to all
regional stakeholders.
demonstrations at commercial-scale
The success of the Coal Program will ultimately be judged by the
extent to which emerging technologies are deployed in domestic and
international marketplaces. Both technical and financial challenges
associated with the deployment of new advanced coal technologies must
be overcome in order to be capable of achieving success in the
marketplace. Commercial-scale demonstrations help the industry
understand and overcome start-up issues and component integration
issues associated with the implementation of a new technology and
systems, and gain the early learning commercial experience necessary to
reduce risk and secure private financing and investment for subsequent
plants.
DOE is implementing large-scale projects through the Regional
Partnerships and CCS demonstrations including the most recent round of
the Clean Coal Power Initiative (CCPI). The Development Phase (Phase
III) of the Regional 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 addresses the liability, regulatory,
permitting, and infrastructure needs of these projects. The
Partnerships have brought an enormous amount of capability and
experience together to work on the challenge of infrastructure
development. CCPI is primarily focused on component and subsystem
testing at commercial scale to gain operational integration experience.
The CCPI Round 3 solicitation specifically targets advanced coal-based
systems and subsystems that capture or separate CO2 for
sequestration or for beneficial use, and is also open to any coal-based
advanced carbon capture technologies that result in co-benefits with
respect to efficiency, environmental, or economic improvements.
the american recovery and reinvestment act
The American Recovery and Reinvestment Act (Recovery Act)
appropriates $3.4 billion for ``Fossil Energy Research and
Development.'' These Recovery Act funds will help fund activities
targeted at expanding and accelerating the commercial deployment of CCS
technology to provide a key thrust to the Coal Program to accelerate,
by many years, the advances needed for future plants with CCS.
The Conference Report accompanying the Recovery Act identifies the
following major initiatives that will complement and accelerate efforts
in the Coal Program:
Maintain Fossil Energy R&D Program: $1 billion to be used to
conduct fossil energy research and development programs.
Additional Funds for the CCPI Round 3: $800 million to be
used to augment funding for the CCPI Round 3 competition.
New CCS Initiative for Industrial Applications: $1.52 billion
to be used for a competitive solicitation for a range of
industrial carbon capture and energy efficiency improvement
projects, including a small allocation for innovative concepts
for beneficial CO2 reuse.
Expand Geologic Site Characterization: $50 million to be used
for site characterization activities in geologic formations.
DOE expects to require projects to complement and build upon
the existing characterization base created by the Regional
Partnerships, looking at broadening the range and extent of
geologic basins that have been studied to date.
Initiate a Geologic Sequestration Training and Research Grant
Program: $20 million for geologic sequestration training and
research grants. This program will emphasize advancing
educational opportunities across a broad range of colleges and
universities.
These Recovery Act investments will also be complemented by the
Carbon Sequestration research efforts of the baseline Fossil Energy R&D
program. In particular, the efforts of the Regional Carbon
Sequestration Partnerships highlighted earlier, can be viewed as
another form of federal partnership in infrastructure investment. These
Partnerships efforts, spanning our Nation and parts of Canada, will aid
in understanding all the critical aspects that would be needed to
support wide-scale deployment of CCS technology, taking into
consideration the regional differences in geology, infrastructure
development needs, and industrial activity that can affect the
deployment of carbon sequestration technologies. The Partnerships have
also supported studies by the Interstate Oil and Gas Compact Commission
(IOGCC) that have resulted in the recent development of a model for a
regulatory framework to support CCS deployment.\3\
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\3\ Storage of Carbon Dioxide in Geologic Structures, A Legal and
Regulatory Guide for States and Provinces, September 25, 2007
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Just recently, under DOE's sponsorship, the Southeast Regional
Carbon Sequestration Partnership (SECARB), in partnership with the
IOGCC, began a new study, to evaluate the legal and regulatory
feasibility of developing a pipeline infrastructure in the U.S.
specifically dedicated to the transport and storage of CO2.
The primary objective of the study is to identify barriers and
opportunities associated with the wide-spread construction of pipelines
for the transport of CO2 for the purposes of carbon
sequestration, enhanced oil recovery and other commercial purposes. A
CO2 Pipeline Task Force\4\ will be formed as part of this
18-month activity to leverage the combined expertise of the oil and gas
community to create guidance documents that encompass regulatory,
legal, environmental, and educational aspects. A particular focus will
be to incorporate the federal entities having key roles in these
matters such as the Federal Energy Regulatory Commission, various
elements of the Department of Transportation, and the Bureau of Land
Management as part of the study.
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\4\ A project ``kick-off'' meeting for the Task Force is expected
to occur at the IOGCC Mid-Year Meeting scheduled for May 11-13, 2009 in
Anchorage, Alaska and plans for a review of their final report to occur
at the IOGCC Mid-Year Meeting scheduled for May 23-25, 2010 in
Lexington, Kentucky.
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conclusions
In order to shift to a low-CO2 emission energy future in
the U.S., we must create an economically viable national CCS system.
This can only occur in parallel with the development of a national set
of definitive policies and incentives that encourage technology
development and reward investments in and capital formation around
improved carbon performance.
CCS requires a systems approach that includes not only site
evaluation, characterization and selection, but must also address rules
for liability throughout a project's short-, medium-, and long-term
life. Nation-wide industrial CCS deployment will also require an
infrastructure for CO2 transportation and storage and the
development of an agreed upon set of measurement, validation and
accounting standards, practices, and procedures. Finally, whatever
structure is created must encompass the input of a broad range of
stakeholders in the decision process on proposed projects (developers,
regulators, financiers, insurers, project operators, policymakers, and
the affected public).
Today, nearly three out of every four coal-burning power plants in
this country are equipped with technologies that can trace their roots
back to the Department's Coal Program. These efforts helped accelerate
production of cost-effective compliance options to address legacy
environmental issues associated with coal use. Clean coal and CCS
technologies will likely play a critical role in mitigating
CO2 emissions under potential future carbon stabilization
scenarios. DOE's program is ensuring that enabling technologies will be
available. The United States must continue to show leadership in
technology development and future deployment to bring economic rewards
and new business opportunities both here and abroad.
I applaud the efforts of this Committee and its Members for taking
a leadership role in addressing these timely and significant issues. I
would be happy to respond to any questions members of the committee may
have.
The Chairman. Thank you very much, Dr. Der.
Dr. Batten, go right ahead.
STATEMENT OF KIT BATTEN, PH.D., SCIENCE ADVISOR, OFFICE OF THE
DEPUTY SECRETARY, DEPARTMENT OF THE INTERIOR
Ms. Batten. Thank you, Mr. Chairman, members of the
committee. Thank you for the opportunity to testify for the
Department of the Interior on S. 1013. I will also discuss the
Department's forthcoming report on a framework for geologic
carbon sequestration on public lands.
I am Kit Batten, Science Advisor in the Office of the
Deputy Secretary of the Interior. This position was created at
the beginning of this administration because Secretary Salazar
strongly feels that our future both as a Department and a
Nation is inextricably linked to our understanding through
science of the world around us. I ask that my entire testimony
be included in the record and I, excuse me. I am accompanied
today by Tim Spivak of the Bureau of Land Management who will
be glad to answer any questions related to the draft report.
The challenges of addressing CO2 accumulation in
the atmosphere are significant. S. 1013 calls for the Secretary
of Energy to carry out a program to demonstrate the commercial
application of integrated systems for long term geological
CO2 storage. The legislation addresses key issues
such as long term liability, monitoring and stewardship.
The Department of the Interior supports the goals of S.
1013 and we look forward to working together to resolve legal
and policy questions as we learn more about the technologies
and geologic information.
The Department supports the need for a large scale carbon
storage program and the need for liability treatments.
The Department also supports the requirement of science
based monitoring and verification of the injected
CO2 throughout the life of a project to beyond the
closure phase.
Drawing upon its long history with injecting CO2
into geologic formations, the Department could offer a
significant value to these efforts. For example, enhanced oil
recovery taking place on lands managed by the Bureau of Land
Management is a CO2 injection technique to allow
recovery of energy resources from older oil and gas fields.
This technique provides valuable data and information that will
facilitate future efforts to effectively capture and sequester
CO2 in geologic formations.
The BLM's existing administrative and regulatory framework
will help facilitate future carbon sequestration demonstration
projects and potentially leasing. In addition to experience in
administering a large scale mineral leasing program, the BLM
has the realty experience for issuing rights of way that could
help serve the needs for CO2 pipelines on public
lands. The United States Geological Survey also plays an
important role in recommending geologic criteria that could be
incorporated into a set of best practices for geologic site
selection for sequestering CO2. The USGS has
released a new assessment methodology for evaluation of carbon
storage which helps to identify the best places to use geologic
CO2 sequestration.
The Secretary of the Interior will be submitting a report
to Congress containing a recommended framework for geological
sequestration on public lands in the near future. The
Department, in coordination with BLM, USGS, EPA and DOE
examined criteria for identifying candidate geological
sequestrationsites. This draft report describes Federal
liability issues related to the release of CO2
underground.
A few key findings include:
At this early stage in the development of CO2
storage technologies many unknown factors may impact the
development of a regulatory framework.
Carbon sequestration may conflict with other land uses such
as oil and gas or geothermal fields or with drinking water.
The framework must recognize the long term liability of
sequestering CO2 and the required commitment for
stewardship of facilities over an extended period of time.
Geological carbon sequestration on split estate lands
presents other complications due to ownership issues of pore
space. Limitations may need to be placed on surface and
subsurface uses to ensure integrity of storage. Addressing the
challenge of reducing atmospheric CO2 and
understanding the effect of global climate change will be a
lengthy and complex challenge.
The Department stands ready to assist Congress as it
examines these challenges and opportunities. Thank you for the
opportunity to testify today. I will be happy to answer any
questions. Thank you.
[The prepared statement of Ms. Batten follows:]
Prepared Statement of Kit Batten, Ph.D., Science Advisor, Office of the
Deputy Secretary, Department of the Interior
introduction
Mr. Chairman and Members of the Committee, thank you for the
opportunity to be here today to discuss S. 1013, the Department of
Energy Carbon Capture and Sequestration Program Amendments Act of 2009.
I also will discuss the forthcoming Department of the Interior Report
to Congress: Framework for Geological Carbon Sequestration on Public
Land, created in compliance with section 714 of the Energy Independence
and Security Act of 2007 (EISA).
I am Kit Batten, Science Advisor in the Office of the Deputy
Secretary of the Department of the Interior. This position was created
at the beginning of this administration because Secretary Salazar
strongly feels that our future--as a Department and as a nation--is
inextricably linked to our understanding, through science, of the world
around us.
S. 1013 calls for the Secretary of Energy to carry out a program to
demonstrate the commercial application of integrated systems for long-
term geological storage of carbon dioxide. The Department of the
Interior has not had an opportunity to fully analyze S. 1013, and
therefore, cannot take a position on the bill at this time. However,
the Department supports the need for large-scale demonstrations to
address key questions surrounding long-term carbon storage.
Additionally, the Department supports the requirement of science-based
monitoring and verification of the injected carbon dioxide plume
throughout the life of the project to beyond the closure phase. The
Department, through our on-the-ground land managers and scientists,
believes we could offer a significant value added to these efforts.
the role of the bureau of land management and the u.s. geological
survey
As the Nation's largest land manager, the Bureau of Land Management
(BLM) is entrusted with the multiple-use management of 258 million
acres of land, and administers 700 million acres of sub-surface mineral
estate of which the surface owners are Federal agencies, states, or
private entities. Of the 1.2 billion acres inventoried by the U.S.
Geological Survey (USGS) in its National Oil and Gas Assessment, 279
million acres are under Federal management. The Department diligently
executes our responsibilities to make these resources available in an
environmentally-sound manner. Within the framework of a transparent
public process, we carefully consider habitat, groundwater, air and
other resources; mitigate impacts through best management practices,
stipulations and conditions of approval; and balance development with
other uses across the landscape.
All of these considerations remain consistent as the Department
contemplates our role in the use of public lands to sequester carbon.
challenges of addressing geologic carbon storage
The challenges of addressing carbon dioxide accumulation in the
atmosphere are significant. A variety of strategies are being
investigated to reduce emissions and remove carbon dioxide from the
atmosphere. Such strategies include the facilitated capture and storage
of carbon dioxide through sequestration using plants, or by physical
capture from major sources and injection into geologic formations.
The Department of the Interior has a long history with injecting
carbon dioxide into geologic formations. Carbon dioxide injection
techniques have useful practical applications in processes known as
enhanced oil recovery (EOR), which currently take place on some public
lands managed by the BLM. These processes allow the recovery of
additional energy resources from older oil and gas fields.
EOR's use of carbon dioxide injection will continue to yield
valuable data and information that will facilitate future efforts to
effectively capture and sequester carbon dioxide in geologic formations
found on public lands. A critical issue for evaluation of storage
capacity is the integrity and effectiveness of formations for sealing
carbon dioxide underground, thereby preventing its release into
underground sources of drinking water, mineral resources, or the
atmosphere. Current EOR efforts will enhance our understanding of these
types of critical scientific and geologic issues. The Department
expects that new information on these issues will continue to be
generated from activities on BLM-managed lands. As such, we anticipate
the need for the BLM to play a leadership role in collaborating with
other Federal agencies, tribes, states, the private sector, and public
interest groups as we move forward in addressing legal and policy
issues that arise during development.
carbon capture and sequestration (ccs)
The current atmospheric carbon dioxide concentration is
approximately 380 parts per million and rising at a rate of
approximately 2 parts per million annually, according to the most
recent information from the Intergovernmental Panel on Climate Change
(IPCC). The 2005 IPCC Special Report on Carbon Dioxide Capture and
Storage concluded that in emissions reductions scenarios striving to
stabilize global atmospheric carbon dioxide concentrations at targets
ranging from 450 to 750 parts per million, the global storage capacity
of geologic formations may be able to accommodate most of the captured
carbon dioxide. However, the extent to which this storage capacity is
economically viable depends on the price of carbon. Also, geologic
storage capacity may vary widely on a regional and national scale. A
more refined understanding of geologic storage capacity is needed to
address these knowledge gaps.
Geological storage of carbon dioxide in subsurface rocks involves
injection of carbon dioxide into the pore space of permeable rock
units. This principle operates in all types of potential geological
storage formations such as oil and gas fields, deep saline water-
bearing formations, or coal beds. Most of the potential carbon dioxide
storage capacity in the U.S. is in deep saline formations.
carbon capture and sequestration (ccs)--doi's management role
The BLM's existing administrative and regulatory framework will
help facilitate future carbon sequestration demonstration projects and
potentially, leasing geologic storage capacity. In addition to
experience in administering a large-scale mineral leasing program, the
agency has the realty expertise and an existing framework for issuing
rights-of-way on public land that could serve future needs for carbon
dioxide pipelines across public lands. Other programmatic and land
management expertise, such as the BLM's experience in evaluation of
potential environmental impacts of projects, will facilitate this
effort. In addition, the USGS will also play an important role in
recommending geologic criteria that could be incorporated into a set of
``best practices'' for geologic site selection.
The USGS released to the public and interested parties a new
probabilistic assessment methodology for evaluation of carbon dioxide
storage. Use of the methodology can help us identify the best places in
the country to use geologic carbon sequestration and is an important
step in understanding how much carbon dioxide can be stored
underground.
A number of challenges will need to be addressed moving forward,
and we must make use of current information to inform future
discussions. For example, the Department has the results of research at
international non-EOR sites at which large quantities of CO2
have been injected for as long as 12 years. These sites have operated
safely and shown no sign of leakage. We believe that the DOI land
managers and scientists who are on the ground have expertise to offer
on monitoring carbon sequestration and we would like to work with the
Committee to facilitate inter-agency coordination.
energy independence and security act carbon capture provisions
Relating to section 711 of the Energy Independence and Security Act
(EISA; Public Law 110-140), the USGS, as mentioned above, recently
completed a draft methodology to assess geologic CO2 storage
resources with input from DOE, EPA, state geological surveys, and
others. Currently, the USGS is in the process of assembling review
comments and expert evaluations of the methodology so that it can be
finalized. The USGS plans to apply this methodology in a national
assessment of geologic storage resources in depleted oil and gas fields
and saline formations. The initial stages of this assessment are funded
in the President's Budget for Fiscal Year 2010.
Section 713 of EISA directs the BLM to maintain records on, and an
inventory of, the quantity of carbon dioxide stored within Federal
mineral leaseholds. The BLM is currently implementing the carbon
capture and storage provisions of the EISA and is nearing completion of
an initial inventory of carbon dioxide stored within Federal lands up
to the end of Fiscal Year 2008 and will update this inventory annually.
framework for geological carbon sequestration on public lands report
Section 714 of the EISA directs the Secretary of the Interior to
submit a report to Congress containing a recommended framework for
geological sequestration on public lands. This report is expected to be
released in the near future. Through the BLM, in coordination with the
USGS, the Environmental Protection Agency, the Department of Energy,
and other appropriate agencies, the Department examined criteria for
identifying candidate geological sequestration sites in several
specific types of geological settings. Additionally, the BLM reviewed
the Interstate Oil and Gas Compact Commission's model regulations for
carbon capture and sequestration to determine if they are applicable to
public lands or could serve as a model for the requirements contained
in Section 714 of EISA.
In reviewing these model regulations, the BLM considered the
following criteria and objectives:
Criteria for identifying candidate geological sequestration
sites in several specific types of geological settings;
A proposed regulatory framework for the leasing of public
land or of an interest in public land for the long-term
geological sequestration of carbon dioxide;
A procedure for ensuring any geological carbon sequestration
activities on public land provide for public review and protect
the quality of natural and cultural resources;
If appropriate, additional legislation that may be required
to ensure that public land management and leasing laws are
adequate to accommodate the long-term geological sequestration
of carbon dioxide; and
If appropriate, additional legislation that may be required
to clarify the appropriate framework for issuing rights-of-way
for carbon dioxide pipelines on public land.
The report also will describe the status of Federal leasehold or
Federal mineral estate liability issues related to the release of
carbon dioxide stored underground in public land, including any
relevant experience from enhanced oil recovery using carbon dioxide on
public lands. In addition, the report will identify issues specific to
the issuance of pipeline rights-of-way on public land, and legal and
regulatory issues specific to carbon dioxide sequestration on split-
estate lands, where title to mineral resources is held by the United
States, but title to the surface estate is not.
regulatory issues
At this early stage in the development of carbon dioxide storage
technologies, especially in the absence of large-scale demonstration
projects of more than 1 million tons of carbon dioxide per year, many
unknown factors may impact the development of a regulatory framework
and best management practices.
A proposed regulatory framework must recognize carbon dioxide as a
commodity, resource, contaminant, waste and pollutant. Any regulatory
or management regime adopted for CO2 should accommodate all
these realities. For instance, the geologic sequestration of
CO2 should distinguish between the sequestration of pure
CO2 and CO2 mixed with other gases such as
hydrogen sulfide, carbon monoxide, methane, and oxides of nitrogen and
sulfur. These impurities have the potential to impact the economics,
technical feasibility, location preferences, land use planning
requirements, environmental impact mitigation, multiple-resource
conflict potential, and regulatory oversight of geologic CO2
sequestration. In this regard, DOI recognizes that the EPA has issued a
proposed rule regarding carbon sequestration and storage and intends to
coordinate as necessary as the EPA rule is finalized.
Carbon sequestration may potentially conflict with other land uses
including existing and future mines, oil and gas fields, coal
resources, geothermal fields, and drinking water sources. In addition
to the existing geophysical and scientific barriers to commercial
carbon sequestration, a proposed statutory and regulatory framework
must recognize the long-term liability of any permitting decision to
sequester CO2 and the required commitment for stewardship of
facilities over an extended period of time. The scope of liability and
term of stewardship will be among the longest ever attempted, lasting
up to hundreds of years or more. Relevant experiences from enhanced oil
recovery using carbon dioxide on public lands can assist in examining
this issue.
Lastly, geological carbon sequestration on split estate lands or
lands where the surface is managed by other Federal agencies presents
other complications due to ownership issues of pore space and
limitations that may need to be placed on surface and subsurface uses
to ensure integrity of storage.
s. 1013
S. 1013 directs the Secretary of Energy to carry out a program to
demonstrate commercial application of integrated systems for long-term
geological storage of carbon dioxide. The goal of this carbon storage
program is to provide financial and technical assistance of up to 10
large-scale carbon dioxide storage projects.
The Department of the Interior supports DOE's work in conducting
large-scale carbon storage demonstrations. Additionally, we support
efforts to ensure science-based monitoring and verification of the
injected carbon dioxide plume throughout the life of a project to
beyond the closure phase. It must be recognized that effective risk
management of any geologic sequestration decisionmaking and regulation
of consequent activity is limited by the current state of the art of
scientific assessment, monitoring, measurement, verification, and
mitigation of any potential undesirable consequences occurring on or
beneath the surface of the land. Additional investment in ongoing
scientific and engineering research will be essential as geological
sequestration is a rather new option to reduce greenhouse gas
emissions.
Currently, the Department is reviewing the legislation in greater
detail and we look forward to working with the Committee on these
issues in the future.
conclusion
Addressing the challenge of reducing atmospheric carbon dioxide and
understanding the effect of global climate change is a complex issue
with many interrelated components. The assessment activities called for
in EISA should ultimately increase the information base upon which
decision makers will rely as they deal with these issues. It is clear
that the discussion on this subject will continue and the Department
stands ready to assist Congress as it examines these challenges and
opportunities.
S. 1013 addresses key issues--long-term liability, monitoring, and
stewardship--that must be resolved in any regulatory framework for
carbon sequestration. The Department supports the goals of S. 1013 but
has not had time to fully analyze the bill and establish a position on
specific provisions. We look forward to working together to resolve
outstanding legal and policy questions as we continue to learn more
about the technologies and geologic information necessary in moving
forward with a carbon sequestration program.
Thank you for the opportunity to present this testimony. I am
pleased to answer questions you and other Members of the subcommittee
might have.
The Chairman. Thank you very much.
Representative Lubnau, go right ahead.
STATEMENT OF HON. THOMAS E. LUBNAU, II, STATE REPRESENTATIVE
FROM WYOMING, HOUSE DISTRICT 31, GILLETTE, WY
Mr. Lubnau. Thank you, Mr. Chairman and members of the
committee and to my old friend, Senator Barrasso who is often
times a co-sponsor of bills with me in the Wyoming legislature.
It's a pleasure to work with you again.
I bring you greetings from the State of Wyoming where we
applaud this effort. We have had a bipartisan effort for about
2 years working on this. Wyoming quietly and without incidence,
supplies about 10 percent of the Nation's total energy.
Wyoming supplies annually about 10.01 quadrillion BTUs of
energy to the United States. To put that into perspective
that's more than Saudi Arabia, Venezuela, Nigeria and Iraq
combined supply to the United States. Primarily those resources
are coal resources, but they're very, very important to the
State of Wyoming.
Wyoming has a tradition and a history of trying to be ahead
of the curve and doing things the right way. An example, it
wasn't too long ago that one of my predecessors was here
testifying about Wyoming's Mine Reclamation Act which
ultimately served as the pattern for the Federal Surface Mine
Reclamation Acts, SMCRA. For the past 2 years we've been
working to develop the legal infrastructure to make geologic
sequestration possible.
Frankly we fought some really difficult political battles.
But in the end I think we've got a legislative product upon
which the State of Wyoming can be proud. I'd like to share some
of our political experience so that the United States doesn't
have to travel the same dead end roads that we traveled to get
to where we are now.
Wyoming has established a comprehensive legal framework for
carbon sequestration. The first question we answered was who
owns the right? In Wyoming on fee land we adopted the American
rule which is the majority rule that says that the pore space
is owned by the surface owner.
Our philosophy in creating the legislation was, as we all
know, property rights are a bundle of sticks that everybody
left the legislative session with the same bundle of sticks
that they came into the legislative session with. So that there
wasn't a property grab going on. Because when you have the
property grab, you create a lot of political opposition. So
that was an important goal.
We confirmed that the mineral estate is dominant over the
servient surface estate and the pore space estate. We left
split estate issues to a matter of contract between the parties
because we thought that people could deal with their own
property rights better than government officials sitting in a
legislative chamber in Cheyenne. We established a comprehensive
regulatory and permitting process so that those questions were
answered.
We established liability with the injector. So that that
cost shifted to the ultimate consumer. We set up a unitization
process to protect correlative rights and to allow a process to
bring in recalcitrant folks who wanted to stop development.
In looking at this bill, I'm impressed. I had to think long
and hard about things that I might do differently. This bill
encourages development.
It addresses one of the great barriers to deployment
because we don't have a structure in place. If we ultimately
impose carbon caps, one of two things is going to happen
because we're so dependent on coal. Either the carbon caps are
going to fail or we're going to lose the source of about 50
percent of our energy because if you look at the timeframes for
deployment of the other energy sources, it just doesn't happen.
So two things need to happen for carbon sequestration to be
developed. We need to define ownership of the pore space under
Federal lands because the States can't do that. We need to set
forth some sort of process for liability. Those things this
legislation does.
What I would do differently with this bill.
I'd more clearly define the process. When does the
indemnification commitment occur? I can't tell from reading
this legislation when that happens.
I think that you need to decide as a policy matter whether
you define enhanced oil recovery in the process or out of the
process. Right now there's a process in Wyoming, ongoing,
currently where 40 million tons of carbon dioxide is being
injected under the ground at the famous Depot Dome oil field.
I'd demand more specifics onsite characterization because
nobody has ever done this before. We only have one chance to do
it right.
I'd implement a process for removing the inept or
unscrupulous operator. I don't see that in the legislation. If
your commitment happens at the beginning of the project you've
got a long period of time where you're married to that
operator, I think under this legislation.
I'd proceed prudently and carefully to allow generational
advancements.
I wouldn't nationalize the pore space or aquifers because I
think that buys litigation chances to form and decreases the
motivation for people to proceed with these projects.
Thank you. I'd stand for any questions.
[The prepared statement of Mr. Lubnau follows:]
Prepared Statement of Thomas E. Lubnau, II, State Representative From
Wyoming, House District 31, Gillette, WY
Mr. Chairman, Members of the Committee:
Thank you for the opportunity to share my thoughts on Carbon
Capture and Sequestration (CCS). Creation of a legal infrastructure to
make carbon capture and sequestration possible is a key component in
domestic security, economic recovery and environmental protection.
I come to you, today, from Campbell County, Wyoming, where we
supply the raw materials to generate 30% of the nations electricity,
and 10% of the nations total energy. Annually, Wyoming generates 10.01
Quadrillion BTU's of energy. That is more energy than Saudi Arabia,
Venezuela, Nigeria and Iraq, combined.\1\ The bulk of that energy is
produced in the form of coal, but Wyoming also contributes significant
oil, natural gas and uranium to the national energy picture.
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\1\ Source: Ron Surdam, State Geologist, State of Wyoming
Geological Survey, A Prospective on the Geologic Sequestration of
Carbon Dioxide in Wyoming.
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As you know, a secure energy source is one of the keys to domestic
security. The security of the Wyoming resources are best illustrated by
the fact few people know that less than 50,000 people, working quietly
and efficiently, produce ten percent of the nation's energy supply,
every hour of every day of every year.
The energy is produced in the U.S. for consumption in the U.S.
Dollars are not being spent overseas to support entities and
governments who's motivations are not necessarily aligned with the
interests of the United States.
About two years ago, the Wyoming legislature sensed a change in the
political tide in the country. We anticipated that no matter which
party won the presidential election, the policies of the United States
Government were going to be ``greener'' than the policies of the past
three decades. Working together in a bipartisan manner, the Governor's
Office worked with legislative leadership to craft the legal
infrastructure necessary to operate geologic carbon capture and
sequestration sites inside the State of Wyoming. As a result, the State
of Wyoming has put in place the most comprehensive package of
legislation in the country to establish the legal framework for
geologic sequestration activities.
We felt carbon caps or other regulation of carbon dioxide emissions
are adopted by this country, the tools should already be in place to
meet the requirements of such legislation. Without both the legal and
technical infrastructure in place to take the steps to reduce carbon
dioxide emissions, such legislation is doomed to failure. While the
State of Wyoming would never mandate carbon dioxide caps, we felt we
should take the lead in establishing a paradigm for the geologic
sequestration of carbon dioxide.
Wyoming's approach has been to anticipate what questions the large
finance houses might ask prior to financing a large-scale carbon
sequestration project, and to answer those questions. As a result, we
have passed 5 pieces of legislation establishing the legal framework
for CCS development in Wyoming. At this point, there are a few pieces
of legislation at the state level needed to round out the package
(finalizing the form of financial assurances and risk assessment), and,
as I see it, two things that need to happen at the federal level to
make geologic sequestration activities possible (addressing the issue
of long term liability and determining the ownership of pore space on
federal properties).
Creating the legal infrastructure necessary for the geologic
sequestration of carbon dioxide in Wyoming took more than two years to
and thousands of hours of work to establish. The five bills the Wyoming
legislature passed to create the legal framework were pore space,
permitting and regulation, we really mean it, you inject it, you own
it, and pore space unitization.
pore space
The first bill Wyoming passed was entitled ``Pore Space.'' With
that bill, we tried to answer the question, who owns the rights to
authorize geologic sequestration activities under the surface of the
land. Our underlying philosophy was that everyone who came into the
legislative session with property rights, left the legislative session
with the same property rights with which they arrived. In other words,
as any first year law student knows, property rights are a bundle of
sticks. Our goal was that everyone who showed up with a bundle of
sticks, left the legislative session with the same sticks in their
bundle.
We determined that the majority rule in the United States was the
American Rule, which said that the surface owner owns the voids--or as
we later came to know--pore space under the surface. That determination
makes sense, when you think the process all the way through. One of the
first cases dealing with subsurface rights was a case about a salt
mine. Salt had been mined out of the subsurface, except for a few salt
pillars that were necessary to keep the roofs of the caverns from
collapsing. After all the salt that could be mined, was mined, the
empty salt mine was going to be converted to deep storage.
The question was who owns the rights to the deep storage?
The law in the United States, which we adopted from old England,
says that the mineral owner has the right to use so much of the surface
and subsurface as is necessary to extract the minerals. Since the salt
miners were no longer extracting minerals, the court reasoned the salt
miners did not have the right to use the voids for storage.
Wyoming codified that rule. We adopted a bill, known as HB89, which
codified ownership of pore space on fee lands in Wyoming.\2\ In that
bill, we confirmed that the surface owns the pore space. We declared
that unless specifically severed, transfers of the surface included
transfers of the pore space. We confirmed the mineral estate was
dominant over the servient surface estate, we required a specific
description of the pore space to be included in the instrument of
grant, or the instrument was void, and we required, in the instrument
of transfer, that the instrument specifically describe the rights of
use of the surface by the pore space owner in the instrument, or no
rights to utilization of the surface were transferred.\3\
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\2\ HB 89 is now codified as W.S. Sec. 34-1-152.
\3\ We confirmed the mineral estate was dominant over the severed
pore space estate in a HB 58, the ``we really mean it bill.''
---------------------------------------------------------------------------
In so doing, we created some interesting political coalitions. The
Agriculture industry was generally happy because they were the owners
of the pore space. Their ownership of an asset was confirmed. They had
control over what happened on the surface of their ranches. The mineral
industry was sort of happy, or maybe agnostic, because their rights to
extract the minerals were confirmed. The environmental movement in
Wyoming found itself in an interesting dichotomy. Wyoming was taking
the lead in establishing a framework for the carbon-friendly
utilization of coal. On one hand, they found themselves applauding the
infrastructure we were creating. On the other hand, they were sad that
we were making the continued utilization of coal possible.
permitting and regulation
In the early 1970's, Wyoming passed the strictest mining
reclamation law in the country. We tried to learn from the experience
of our sister states, who had been overcome with mining related
environmental problems. As a result, we passed the Wyoming Mine
Reclamation Act. That law formed the pattern for the United State
Surface Mine Reclamation Act.
We are proud of our tradition of environmental protection in
Wyoming. We love our State, our unique wide open spaces and beautiful
environment. As much as we love our friends from the Federal
Government, we think we do a pretty good job of taking care of our
environment.
Carbon sequestration activities are regulated under the Clean Water
Act. Presently, the carbon sequestration wells are regulated as Class V
experimental wells, or in the case of enhanced oil recovery, Class II
wells. The EPA has proposed regulations which will create a new class
of wells, Class IV carbon sequestration wells. Those regulations are
slated to be finalized somewhere in the summer of 2011.
The State of Wyoming found that the Underground Injection Control
(UIC) program was inadequate, in many respects, in protecting the
environment, and in assuring that carbon sequestration activities were
conducted in a responsible, ethical and safe manner. As a result, the
Wyoming State Legislature passed HB 90, now codified as W.S. Sec. 35-
11-313. That statute creates a comprehensive permitting and regulatory
scheme which regulates, from cradle to grave, carbon sequestration
activities. The legislation, and the concomitant regulations which are
forthcoming, create a paradigm in which the carbon sequestration
operator must operate safely and according to law.
The essential provisions of the regulation include a general
prohibition against carbon sequestration activities in the State of
Wyoming unless permitted in accordance with this chapter.
Enhanced oil recovery activities (``EOR'') are exempted from the
Act, because they are governed, and have been governed for the past 40
years by the Wyoming Oil and Gas Conservation Commission. During the
last 40 years, enhanced oil recovery activities have been conducted in
the State of Wyoming without incident. One of the weaknesses of the
legislation pending in front of this committee is there is no a
distinction between EOR activities and geologic sequestration of carbon
dioxide for pure geologic sequestration purposes. Currently in Wyoming,
there is an Enhanced Oil Recovery project in which, ultimately, 40
million tons of CO2 will be injected and sequestered
underground. If the intent of this committee is to finance those types
of projects, then the legislation is fine. If not, then the legislation
may need modification.
In order to obtain a Wyoming permit for geologic sequestration of
carbon dioxide, one must describe the geology, including i)
geochemistry, structure and faulting, fracturing and seals,
stratigraphy and lithology including petrophysical attributes; ii) a
characterization of the injection zone and aquifers above and below the
injection zone which may be affected, including the applicable pressure
and fluid chemistry data to describe the projected effects of injection
activities; iii) the identification of other drill holes and operating
wells that exist within and adjacent to the proposed sequestration
site; iv) an assessment of the impact to fluid resources, the
subsurface structures and the surface of land that might reasonably be
expected to be impacted and the measures required to mitigate such
impacts; v) plans for environmental surveillance and excursion
detection, prevention and control programs; vi) site and facilities
descriptions, including documentation sufficient to demonstrate the
applicant has all legal rights to sequester carbon dioxide and
associated constituents into the proposed geologic sequestration site;
vii) proof the wells are deigned to the minimum standards set forth by
the Wyoming Oil and Gas Conservation Commission; viii) a plan for
periodic integrity testing of all wells; ix) a monitoring plan to
assess the migration of injected carbon dioxide; x) proof of financial
assurances; xi) a detailed plan for post-closure monitoring; xii) proof
of notice to surface owners, mineral claimants, mineral owners, lessees
and others of record of the subsurface interest; xiii) a requirement
that any excursions are immediately reported; xiv) a procedure for
terminating the permit if excursions cannot be controlled; and, xv)
such other conditions or requirements as the department of
environmental quality deems necessary to carry out the purposes of this
section.
Given that the United States Government is accepting long term
liability for carbon sequestration activities under this legislation,
my suggestion is at a minimum, insure that such a permitting process is
in place in each of the states where geologic sequestration activities
are to occur. I would not recommend federal preemption of state's
rights in this area. If the voters of a state do not want geologic
sequestration activities conducted with the borders of their state, and
the elected representatives of that state are unwilling to establish a
permitting process, and if the consumers of power are willing to pay
the increased costs of industrial applications which do not utilize
geologic sequestration, then I believe it is not the obligation of the
United States Government to force such activities to occur within the
borders of those states.
The legislation pending in front of this committee does not take
into account the existence of comprehensive, and in many cases,
stricter state requirements for Carbon Sequestration activities. I
would suggest the legislation be amended to include the possibility
that the several states can regulate geologic sequestration activities.
I would also suggest, as is contained in the UIC program, that the
states take a primacy role in regulating these pilot CCS programs so
long as they meet the minimum standards set forth by the United States
government.
Whether by regulations, or by legislation, I would urge this body
to include the minimum standards for permitting set forth in the
Wyoming legislation. Frankly, at this stage, no one knows, in great
detail, how to sequester carbon dioxide in large quantities. We only
have one chance to do this right. We must proceed cautiously and with
measured steps, rather than rushing headlong into carbon sequestration
activities.
For example, there is much discussion in the scientific community
regarding pressurization of formations. When one injects supercritical
carbon dioxide into a formation that is already full of a brine
solution, pressures in that formation build. The fluid dynamics mean
that something is going to change. When CCS was initially contemplated,
those fluid dynamics had not been fully explored. The Wyoming State
Geologist has not modeled those fluid dynamics. His suggestion, to
preserve homeostasis in the formation is, for every gallon of carbon
dioxide that is injected into the formation, a gallon of brine is drawn
out and purified. The waste is reinjected back into to the formation it
came from with the carbon dioxide, trace minerals are stripped out and
marketed, and the water from the saline formation is purified and used
for domestic or agricultural water supply purposes. Now, that is a
proposal on the table. We have not thought all of the ramifications
completely through. But, you can see the science is dynamic. With
dynamic science, we must proceed prudently and cautiously.
you inject it, you own it
Wyoming has taken the policy position that it does not make sense
for the 550,000 citizens of the State of Wyoming to take liability for
injected carbon dioxide, when, by and large, the ultimate consumers of
the power generated from Wyoming resources are from out of state. Given
that position, the Wyoming State Legislature passed HB 58, which will
become law on July 1, 2009. That bill creates a rebuttal presumption
that if a person injects carbon dioxide, that person owns it for all
purposes, including liabilities of such ownership. This position is one
from which Wyoming can retreat, but it can never return to this
position, once the position has been abandoned. Our belief is the risks
of the project are allocated, through the rate base, back to the user
of the power. If the federal government provides indemnification, then
all the better. In that way, a paradigm is created in which the
injector owns the liabilities, but if certain conditions are met, the
federal government will assume those liabilities, and the rebuttal
presumption included in the statute will be overcome, and the liability
will be assumed by the United States of America.
One consideration might be that carbon dioxide, in and of itself,
is a valuable commodity. If the United States government is taking the
liability for the asset, consideration should be given for taking the
value of the asset as well--either in the legislation, or in the
agreements authorized by the legislation.
unitization
Wyoming passed HB 80, which will become law on July 1, 2009,
provides for the exercise of Wyoming's police power to protect
``corresponding rights.'' The statute is based upon oil and gas
unitization principles. In much the same way there are oil and gas
units formed under state law as well as federal law, I anticipate both
federal and state carbon sequestration units. The exercise of the
police power is justified to protect the rights of all pore space
owners in the unit, and to not waste valuable pore space.
Under Wyoming's unitization concept, 80% of the owners of the pore
space consent to the unitization, 20% of nonconsenting landowners can
be brought into the unit.
The unitization concept is much more palatable than eminent domain
to pore space owners who's pore space is involuntarily included in the
unit, because the pore space owner has the right under the unitization
concept to participate in the income stream from the unit for the life
of the unit, rather than being compensated for the value of the pore
space taken at the outset of the carbon sequestration project.
Additionally, the pore space owner, through the administration of the
Wyoming Oil and Gas Conservation Commission has the right to object or
otherwise have input into the operation of the unit.
The unitization concept allocates ``economic benefits'' throughout
the life of the unit, to all parcels of the unit in and equitable
fashion.
the last two steps at the federal level
Wyoming has created as much legal infrastructure for carbon
sequestration as it can, alone. There will be fine tuning of this state
legislation for years, but the basic legal infrastructure is there. Two
things need to happen to make carbon sequestration possible on a large
scale. The first issue is addressed by S. 1013. Since this process is
unknown, and the liabilities are unknown, and since the carbon dioxide
will be under the surface of the earth for geologic time, long term
liability needs to be allocated. This bill does exactly that. Insurance
vendors have created a product for the short term liability, but no
project will proceed until the long term liabilities have been
addressed.
The second decision that needs to happen is for the federal
government to determine the ownership of pore space under federal
surface and federal minerals. While the several states can determine
fee property ownership, unless the federal government makes its
determination regarding federal lands, no project will proceed. States
cannot preempt the federal government's ownership of its property, and
so that determination will be key to the development of carbon
sequestration projects, particularly in the west.
comments regarding this bill
I commend the sponsors of this bill for bringing forward thinking
legislation which takes a significant step toward proving carbon
sequestration technologies. At the root of every successful economy is
cheap and available energy. In order to spur economic recovery and to
capitalize on the strengths of this country, we need to focus on the
assets we have, instead of becoming dependent upon the assets of other
countries. This technology will allow the country to develop its assets
in a way that is both economically sound and environmentally friendly.
This bill is a great step in the right direction. Frankly, I had to
think long and hard about things that I might do differently were I in
this committee's position.
Some considerations on the language of this bill are as follows:
1. This body should make a determination as to whether or not
enhanced oil recovery activities will be included as projects
which qualify for this legislation.
2. Either by regulation, or by the language of the bill,
consideration should be given to many of the factors included
in the Wyoming model permitting scheme. I would suggest minimum
permitting requirements. Factors which might be included in
section 963(e) are:
i) a characterization of the injection zone and
aquifers above and below the injection zone which may
be affected, including the applicable pressure and
fluid chemistry data to describe the projected effects
of injection activities;
ii) an assessment of the impact to fluid resources,
the subsurface structures and the surface of land that
might reasonably be expected to be impacted and the
measures required to mitigate such impacts,
iii) plans for environmental surveillance and
excursion detection, prevention and control programs
iv) a requirement that any excursions are immediately
reported,
v) a procedure for terminating the or substituting
the operator of the geologic sequestration facility if
certain operating parameters are not met. I do not
believe that termination of indemnification obligations
will encourage financing, but there should be some sort
of process by which incompetent or unscrupulous
operators can be removed, and others substituted in
their stead if operations are not being conducted as
required.
3. The following concept was first put forth by David Victor
from Stanford University. He urges that we do not proceed with
too much haste in development of these projects. We need to
insure development is done in a logical fashion, and that we do
not force all of the projects to be built at the same time.
Instead, we allow the projects to proceed successively, and
that we are allowed to learn from the mistakes from others,
rather that charging headlong into the process all at once.
While the situation may be perceived as critical, we need to
proceed carefully and prudently. We need to account for
unexpected consequences of large scale geologic sequestration,
which has never been accomplished before at scale, and to work
through the process logically and safely.
4. I urge you to not force a cookie cutter approach on the
entire country. Instead, I would defer to the collective wisdom
of each of the states. Let each of the states serve as a
laboratory for the United States as a whole. The good ideas
will rise to the surface.
5. I have heard proposals, primarily in the halls of
academia, to nationalize aquifers and pores space, and to
impose a common scheme for carbon sequestration on the entire
country. I would urge you not to take this approach. Our
strength is in our diversity. Rather than an inbred single
thought system, I would urge this technology be allowed to
develop in broad and varied ways. The strength in the
competition and diversity of ideas will allow us all to benefit
by the best process and product available. If we do it the
cookie cutter way, there is no motivation to cut costs, compete
and provide the highest quality, lowest cost product.
conclusion
Should carbon caps become a reality, the technology for carbon
sequestration needs to be in place. The United States has vast coal
resources, and to write them off without developing clean coal
technologies is, to my way of thinking, short sighted and will have
serious economic consequences to the country. This legislation is a
giant step forward, and I wholly support it.
Thank you for the honor and opportunity to share my thoughts with
this committee.
The Chairman. Thank you all very much for your testimony.
Let me particularly thank you, Representative Lubnau. You've
obviously spent a great deal of time on this subject. We can
learn from your insights.
Dr. Batten, let me ask you. One of the things we did in the
2007 bill we passed was to request policy recommendations be
provided to the Congress for carbon capture and storage
development on public lands. As far as I can tell there are no
policy recommendations in the report that you've done I was
wondering is there any prospect that we could receive some
recommendations of that sort prior to marking up this bill?
Ms. Batten. Thank you, Mr. Chairman. We are working on a
report that the first draft of which was prepared in December
2008. However because of the change of administration it's been
held up a bit.
It's currently under review. We are expecting to issue it
to you very soon. The report asserts that the BLM has adequate
statutory and regulatory authority to issue leases and permits
for geologic carbon sequestration activities on public lands
with the possible exception of the establishment of trust funds
to manage the long term, post closure phase of
sequestrationsites. The report recommends that research be
undertaken in a number of areas to address the many unknowns
related to carbon dioxide sequestration so that proper
mitigating measures to protect the environment can be included
in the land use authorizations.
It discusses existing law and the authority under that law
that provides for potential CO2 policy development.
But it also identifies gaps. So we look forward to sharing that
final report with you.
The Chairman. Ok. Let me ask if after looking at this
proposed legislation that we've introduced as S. 1013. Do you
believe that the role of the Department of Interior with regard
to carbon capture and storage on public lands is adequately
defined in the bill in order for us to proceed with this
liability program that we've proposed or do you think we need
to make some changes?
Have you been able to reach a conclusion on that?
Ms. Batten. We are still reviewing S. 1013 at the
Department of the Interior. So what I'd like to do is to get
back to you soon with some greater clarification on that
question.
The Chairman. That would be great if you could do that.
Ms. Batten. Absolutely.
The Chairman. Also on page 8 of the report that you've
referred to this section 714 report. It stated that many
authorities currently exist to address CCS needs such as for
managing pipelines, roads and infrastructure and various other
issues. It goes on to state that existing authorities are not
likely to address all of the unique issues that carbon
sequestration presents.
Could you also get back to us and elaborate a bit more on
any gaps that you think exist in current authority that we
ought to try to fill?
Ms. Batten. Absolutely, Senator. Thank you.
The Chairman. Mr. Lubnau, Representative Lubnau, it's clear
of course that Wyoming is the national leader in this area of
developing CCS law that enables this technology to continue to
progress to full scale deployment. Let me ask about
unitization. I don't think you discussed that in your oral
testimony.
But I gather you've got a provision in your law that makes
an 80/20 split on unitization. Can you describe that? How you
arrived at that? What opposition you encountered to the
unitization provisions that you put in your law?
Mr. Lubnau. Certainly. Thank you, Mr. Chairman. We do have
an 80/20 unitization bill. Surprisingly it went through with
little opposition. I think there were out of 90 members in the
Wyoming legislature, 2 no votes in both Houses.
Here's why. There are two options for bringing in
recalcitrant owners. There's unitization. Then there's eminent
domain.
I challenge anybody right now to determine what the value
of pore space two miles under the surface is. I mean, you just
can't make that determination. It could either be a lot or it
could be nothing depending on what the market bears.
So for eminent domain purposes you get one payment, up
front. As a surface owner you don't have a property right
anymore. So what the unitization bill did was it changed that
so that you're entitled to a portion of the economic benefits
as determined by the Wyoming Oil and Gas Commission and by the
market over the life of the project. So instead of losing the
property right forever, there's payment over the life of the
project.
Additionally if there's the unscrupulous or inept operator,
you can petition in front of the Oil and Gas Commission. Have
some say in the way that the unit is operated. So for land
owners that was a more palatable method of including folks than
the eminent domain was because you lose absolute control.
For the mineral industry they were just happy to have a
process where none existed. If you look at Wyoming's
Constitution there's enumerated a series of things for which
you can condemn private property. The only thing that comes
close is sanitary purposes, roads, mines. But there's nothing
in Wyoming.
So it was unconstitutional in Wyoming. So we were faced
with the choice of nothing or unitization. That's where the
unitization came from.
As we've thought through it. We think that's a better use
of our scarce asset and scarce resource because we can allocate
equitably through our unitization process. I think we've tried
to parallel. I mean starting a new industry entirely from
scratch and using your imagination is hard.
We've tried to use as many parallels to oil and gas as we
can because that's something we know. We have the case law and
the infrastructure legally there. So I think it also provides
an option to the Federal Government as well to set up a Federal
unitization statute not unlike the oil and gas Federal
unitization statutes we have.
The Chairman. Thank you very much.
Senator Murkowski.
Senator Murkowski. Thank you, Mr. Chairman. I apologize
that I had to slip out and miss the oral testimony of you, Dr.
Der and Dr. Batten. Let me ask a question about just who
assumes ownership and liability for the injected CO2
in competing for the FutureGen site selection.
Both the State of Illinois and the State of Texas passed
State laws to assume that liability and to assume ownership of
the injected CO2. What's the administration's
opinion on this, and Representative, I'll also ask you your
opinion on the role of the States in terms of the long term
stewardship of the CCS sites as compared to the Federal role
that we see outlined in the legislation that's been drafted.
I'll ask each of you.
Dr. Batten, do you want to go first? Thank you.
Ms. Batten. Sure. Thank you, Senator. I don't believe--
we've done a lot of research on the issue of the various
components of the liability question that we need to consider
both short term liability, long term liability, looking at the
various CO2 is not necessarily always the same
thing.
We need to be looking at CO2 as a commodity, as
a resource, as a waste product, as a pollutant, etcetera. So
there are many different ways to consider CO2 and so
when coming up with liability recommendations we need to
consider all of those different definitions. In terms of
exactly who should assume liability, we have not come out with
a position on that yet, but we're looking forward to working
with you on providing as much information as we can in terms of
the Department's role in this and moving forward.
Senator Murkowski. Dr. Der, anything further from the
administration perspective?
Mr. Der. I want to echo what Dr. Batten has said. I think
that currently the administration will probably go through some
interagency reviews on the processes and to try to address
those various concerns and natures of CO2 relative
to liability on the Federal part.
Senator Murkowski. What about your opinion on State verses
Federal ownership?
Mr. Lubnau. Thank you, Senator. Our State has taken a
position and actually passed a bill that says if you inject it,
you own it. So the injector owns it.
Here's why. If the injector owns the liability they pass it
through their charges to the power plant who passes it through
their charges and their rate base to the ultimate consumer of
the electricity. It didn't make sense to us for the 550,000
people of the State of Wyoming, who are not the ultimate
consumers of the power, to pay for those liabilities and assume
those liabilities for our children and grandchildren. So
ultimately I think that that liability should be best borne by
the consumer of the power so that we don't build in an
artificial, economic incentive one way or another.
I think that this bill is structured much the same way.
Although backed with the full faith and credit of the United
States. Because the United States provides indemnity, but they
charge back to the injector the present value of those
liability premiums which gets passed on through the rate base
to the consumer so that the consumer pays. I think that that's
appropriately where it should be.
Senator Murkowski. Dr. Der, the Department has struggled
with calculating the risk profile of loan guarantees for clean
energy projects. Potential liabilities associated with carbon
sequestration are probably even less certain. Is the Department
comfortable with calculating--maybe comfortable is not the best
word--calculating the fees that will be necessary to cover the
potential liabilities required by this.
Have you given any thought about how you even begin the
task of calculating that liability?
Mr. Der. To be honest with you I don't think we have
because the----
Senator Murkowski. How difficult do you imagine it will be?
Mr. Der. I think it will be very difficult because of the
assessment of the risk and how you value that risk. We talk
about bringing things to present value. It takes, I think, in
my opinion some very sophisticated economic models and also
risk models associated with this and long term storage
liability.
That being said, I think there are probably some models
that we could draw upon to see what has been done in the past,
not only in the United States and overseas. Other models that
have been put into place for long term liability and see how
those yielded the results. The worst thing we want to do is to
create a situation of unintended consequences both from the
government's part and on the public's part.
Senator Murkowski. In the 2007 energy bill there were 7 CCS
demonstration projects, and this legislation provides for an
additional 10 more. So you've got, well, my notes here say 19
demonstration projects. I guess that also includes FutureGen,
representing another and then CCPI, presumably, at least
another.
So we're talking about 19 demonstration projects. Is this
about the right number? Is it too high or is it too low in
terms of the number of demonstration projects that will be
necessary to prove out the viability of carbon capture and
sequestration?
Mr. Der. We have seven partnerships. But I believe that
there are 9 projects as part of that partnership and these 10.
I think that's how you got your number on 19.
Senator Murkowski. Yes.
Mr. Der. It actually depends on the nature of the
integration of the source and the sink. We had different
geologic formations. We have different types of sources.
What we really need to do is sit down and look at the
matrix of what is covered and what needs to be covered so that
there's confidence in these various sources and sinks to move
forward to say that there are commonalities that we can draw
upon for an amount of the projects. But there are some specific
aspects of each project that we need to be able to
characterize. So an additional ten is at least the minimum that
we would need to take a look at.
Senator Murkowski. An additional 10 on top of the 19.
Mr. Der. On top of what we had, yes.
Senator Murkowski. Now, wait. I'm not clear. Indicated by
this bill?
Mr. Der. As indicated by this bill.
Senator Murkowski. Yes.
Mr. Der. An additional 10 would be very helpful in trying
to increase the knowledge base.
Senator Murkowski. Great. Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Dorgan.
Senator Dorgan. Mr. Chairman, I've been at an
Appropriations mark up on the Omnibus. So I have not been here
for the testimony. But this is a really important area and
appreciate the hearing.
I will not ask questions because I've not heard the
witnesses' testimony. Thank you very much.
The Chairman. Senator Barrasso.
Senator Barrasso. Thank you, Mr. Chairman. Representative
Lubnau, a couple things about pore space ownership. You
mentioned in your testimony the need for determination of pore
space ownership under Federal surface, Federal minerals.
You know we come from a State where half of the surface
area is owned by the Federal Government. Two-thirds of the
minerals under the ground is owned by the Federal Government,
so where we have a State like Wyoming and a number of States
where there is a significant amount of Federal ownership of the
land, what are the ramifications of leaving the Federal pore
space ownership unaddressed?
How important is it that we make sure that we address this
thing fully?
Mr. Lubnau. Thank you, Senator. If you don't make the
determination as to who owns the pore space under Federal lands
or around, whether it's the surface owner or the mineral owner,
these projects won't proceed because you can't make the
determination. You don't know who to ask.
You've got conflicting property rights. In a sixth of our
State we've got fee surface over Federal minerals. So who do
you ask?
In Wyoming we say that the surface on onerous the pore
space. We've adopted the American rule which is generally the
case law in the country. So Wyoming's law says that the pore
space owner would be the surface owner.
If you make the determination here that the mineral owner
owns it then you've got a conflict of laws. Of course, you have
priority. But you can't know until you all make that
determination one way or another.
I'd urge you to adopt the American rule.
No. 1 for consistency sake.
No. 2 because it avoids grabbing sticks from one bundle and
moving it to somebody else's bundle. Because under the law it
makes the most sense. A mineral owner should own the right to
extract minerals on that much of the surface and subsurface as
is necessary to extract minerals.
I don't think in the definition of a mineral right that
through any kind of constructed oil other than to recover oil
and gas or other kind of minerals you have the right to inject
anything because you're putting something back in instead of
taking something out. That's clearly under the case law surface
owner right, I think.
Senator Barrasso. So based on what you're saying it's very
critical then that we make sure that we must address pore space
ownership on Federal land.
Mr. Lubnau. Yes, Senator.
Senator Barrasso. Then for the States, 11 or so that have
more than 40 percent owned by the Federal Government, what are
the implications if we don't adequately go ahead and address
that ownership of the pore space in those States?
Mr. Lubnau. Senator, I don't think that these projects go
forward because of just the sheer scale. I mean what you're
talking about here is millions--I mean, right now it's a
million tons of carbon dioxide. But if these projects go
forward, Wyoming supplies 400 million tons of coal a year, if
you do the chemical reaction--if you do the chemistry that
turns into about 800 million tons of carbon dioxide a year.
So you compress that down to a liquid. You stick it down
into the formation. There are some problems with the formation
in that it pressurizes the formation.
So that the latest philosophy we have in Wyoming is for
every gallon of compressed carbon dioxide you put in, you pull
out a gallon of saline, purify it, put the non-disposable stuff
back down into the formation it came from and sell the water,
so that you don't over pressurize the formation. Those are a
lot of philosophies that you have to work with to get this
done. But if you don't have a Federal partnership you can't do
it on fee land alone and without the determination of ownership
it doesn't get done.
Senator Barrasso. Could we then go to that question of the
water? You said for every gallon of the liquid carbon dioxide
you putting down you're getting a gallon of water purified. Get
rid of the saline and then you have the water. Then you said
sell it.
Talk about a little bit about the proposals for Federal
ownership of the deep saline aquifers. What are your thoughts
on that?
Mr. Lubnau. A couple of things. No. 1, I think we're too
far down the road for the government to do it without it being
a taking. Those saline aquifers, for many years, have been
used.
We've been doing carbon sequestration for many years, just
not at scale. We call it either enhanced oil recovery or acid
gas injection depending on where you put it. If it's in to the
deep saline aquifer, it's acid gas injection.
We do it under Class II and I think Class I UIC permits.
So, but it's not at scale. So there is a valuable asset and has
been for a long time.
Now that the pore space ownership has been determined under
fee lab. There are people who are creating leases and leasing
their pore space already. So there is a value there. So that's
a taking.
The second thing I would say about nationalizing the
aquifers is that those aquifers are valuable particularly in
the West where we're short of water. As technology and energy
and demand for water becomes greater and greater and greater,
those saline aquifers become more and more valuable to those
States that already have that water. Taking that water, I
think, is bad public policy.
Then the last thing I would say is that if you nationalize
aquifers you nationalize the pore space because they are the
same thing, essentially. So you discourage development. Even
though the Federal Government would say that they own the pore
space.
The surface owner who doesn't have any say in the game and
doesn't have any income motivation to develop the pore space
does everything in their power to stop that development.
Prohibits access to surface monitoring facilities, litigates
for years and years and years to keep the project out. There's
a whole series of things that I think nationalization of the
aquifers is just generally bad public policy.
Senator Barrasso. Thank you, Representative Lubnau. Thank
you, Mr. Chairman.
The Chairman. Thank you very much.
Senator Corker.
Senator Corker. Thank you, Mr. Chairman. Another great
hearing. I want to thank the witnesses.
I realize that we've been using carbon for enhanced oil
recovery for years and many other things. I know that sometimes
I use the term when donkeys fly. I don't mean that using
CO2, sequestering CO2 is not something
that can be done. I realize we are doing that today and have
for years to benefit oil recovery and other ways.
I guess what I have trouble imagining and I could see why
Wyoming is the center of this activity today. We just had a
transmission siting hearing talking about a bill. So as I think
about us trying to capture and sequester carbon, all carbon,
that's generated through coal produced energy or any other way.
I think about the myriad of pipelines throughout our country,
the right of ways, the pumps that I understand need to exist,
at least every 100 miles or maybe more.
Is this a reality to think about on a commercial scale our
country looking at pumping CO2 throughout our
country using it where we can for oil recovery in other cases
just sequestering it and getting rid of it? Is this a when
donkeys fly type of thing or is this reality? Representative
Lubnau, you seem to be the most knowledgeable person here
regarding that.
Mr. Lubnau. Senator, that's--I'll be honest. That's a tough
question for me to answer. I come to you from the State that
produces--I come to you from the county that produces the most
carbon of any county anywhere in the world.
But that's not true. My county isn't the largest emitter of
carbon in the State of Wyoming, Yellowstone Park is.
Senator Corker. During certain seasons. Some seasons not,
but some seasons yes.
Can you imagine these pipelines running throughout our
country and us pumping carbon throughout the country on a scale
that makes any sense? Are we just all doing this to make coal
to those who oppose coal, seem like something that's doable
under a cap and trade scheme and will make sense? Just tell me.
I mean are we smoking something or is----
[Laughter.]
Mr. Lubnau. Senator, we can do it. It will be expensive. I
think that if you cap carbon, it has to be a reality because we
don't have enough energy sources to do it otherwise.
Let me give you an example. Wind has been touted in my part
of the country as a panacea. You know, we've got thousands and
thousands of acres where sage brush doesn't grow because the
wind blows so hard.
It's also prime sage grouse habitat. Sage grouse are
endangered, well, I don't know whether they're--there's no
endangerment finding. But it's a big debate. It shuts down the
oil and gas industry in the spring when the sage grouse lek.
Sage grouse are notoriously stupid animals. That's the way
they are. So they are preprogrammed that if there's something
seven or ten feet tall, standing in the middle of the prairie,
that's a raptor perch. They don't lek anywhere near it.
You put 100,000 acres of wind towers out in the middle of
Wyoming prairie, you've now put 100,000 acres of what the sage
grouse perceive to be raptor perches. So they don't lek. So now
all of a sudden what's touted as a panacea becomes an
endangered species hazard in the State of Wyoming.
So you've got a conflict between the Endangered Species Act
and the clean energy that you want. So do we exempt wind from
the Endangered Species Act. That doesn't make much sense.
So things that have been touted as a panacea have
unintended consequences. What does that lead me to believe?
That leads me to believe that we continue to need to burn coal.
If we don't burn coal we just shut off about 50 percent of
the Nation's energy supply, primarily not on the West Coast and
not on the East Coast, but in the Rocky Mountain West and the
industrial Midwest. Those are the people that lose their power.
So if you put caps on carbon we have to have something like
this or we just cripple our economy.
One of 2 things is going to happen. Either the carbon caps
aren't going to work or the economy is going to fall apart. I
don't see any other option.
Senator Corker. You know, I hope this is a solution. I
think what I hear you saying is that in the interim since coal
is an important part of our energy production we need to at
least make believe that it can happen.
[Laughter.]
Senator Corker. So is that until we figure out something? I
mean, I again, I just have--I don't know who is going to own
these pipelines. I don't know who is going to pay for these
pipelines. I don't know who is going to monitor these
pipelines.
But I have this vision of tremendous amounts of pipelines
running throughout from every urban area of the country and
every part of the country into these caverns that we have all
these legal issues. I hope there's a solution because I'm one
of those who understands the importance of coal.
So back to DOE. I actually sense that a better solution for
us is going to be figuring out something to do with
CO2 molecules that is beneficial. I think all this
other stuff, candidly, is a nice past time, but I think that
scientists, our better solution, is for scientists to find
something beneficial to do with CO2 by breaking it
down and turning it into something else.
I'm just wondering what DOE's thoughts are in that regard.
Whether we feel like we're investing enough in research to sort
of circumvent this thing that we are talking about that has
lots of problems.
Mr. Der. I think we have looked at various ideas and basic
sciences in the past and to look at ways to break up the carbon
molecule. The issue there is that from a chemical bonding, the
energy it takes to remove that is fairly high. There may be
some revolutionary technologies out there that we don't
currently know about that could be on the horizon that let us
do that.
There are ideas about mineral carbonization, using the
CO2 to regenerate products. But in the end when you
look at the volume of the CO2 that's generated from
coal plants, fossil plants and any other type of industrial
processes, it is a large quantity. I don't see us being able to
subtract this carbon storage issue out of the equation.
I could be wrong. But if I am wrong, I would be glad to be
wrong if there was a way to make use of that carbon in such a
way that it would be of a beneficiary use. We do support
research in those areas from a science basis, from the
technology basis.
Senator Corker. But you do see us solving it because of the
mass of CO2 that's going to be generated and this
being common. You do see us solving it by piping carbon
throughout our country and putting it in the ground.
Mr. Der. I think I would rather defer to some of the
industry folks that would be possibly coming up after. But I
think it is a feasible thing. For example, in terms of gas
pipeline transmission, we have over 300,000 miles of
transmission of gas pipelines today. It seems to be able to be
dealt with in terms of right of ways and the like.
It will be a challenge. It depends on how the
transportation network is designed relative to where the source
and the sink goes to, whether or not it's a local prospect of a
short distance of the transport of the CO2 to a
storage site or whether or not there will be large common areas
where we feed CO2 into a common pipeline. Those
things need to be looked at. I probably would rather defer to
industry to see what those best solutions might be.
Senator Corker. Thank you.
The Chairman. Let me ask if Senator Barrasso or Senator
Murkowski have additional questions. Senator Barrasso.
Senator Barrasso. Just one, Mr. Chairman, if I could maybe
to Representative Lubnau. The State of Wyoming and General
Electric are engaged in a project. They're building a $100
million plant in Wyoming.
Isn't the idea to have a plant right at the location where
you do sequester the carbon dioxide without having to go with
all these hundreds of miles of pipeline. I mean, I thought that
was the principle behind this is to try to put the facility
where the coal is made into electricity at the same site where
the carbon is sequestered. I think North Dakota has some
similar intentions. Then ship the electricity with the
transmission lines that we're working on through this
legislation.
Mr. Lubnau. Senator, I thought that was the philosophy too.
The State of Wyoming has just announced that that plant is
going to be in Cheyenne. The prime geologic place in Wyoming is
the Rock Springs uplift which is 4,000 square kilometers
bounded on four sides. The prediction is there's 465 years
worth of carbon sequestration in that uplift.
There's a serious, as you know, there's the Jim Bridger
Power Plant right in the middle there. That is the initial
plan, just to locate them where there's point sources. Right
now carbon dioxide is a valuable commodity. It's valuable for
enhanced oil recovery. If we can get the carbon dioxide to the
oil fields, it's a valuable commodity.
The problem is that the sheer volumes of carbon dioxide
mean that pretty soon that market goes away. Then it becomes a
waste product. So initially it's economical just to put them,
well, at the power plants and the Powder River Basin so that
you can rejuvenate the Powder River Basin oil fields.
They say that you can get about as much oil out of the oil
field with the enhanced oil recovery techniques as you got
during the first life of the oil fields. So out of Teapot Dome
in the Salt Creek oil field, they think another 200 million
barrels of oil by re-injecting the carbon dioxide that they're
getting from the Exxon plant in western Wyoming.
Senator Barrasso. Thank you, Mr. Chairman.
The Chairman. Thank you. I was given a note here. Allison
indicated that in this American Recovery Act we put $100
million in toward beneficial re use of CO2 at the
Department of Energy.
That's in response to Senator Corker's concern about
whether we're doing research in this. I do think we're trying
to look at all options. I think that's the wise course.
It's been very useful testimony. Thank you all for being
here. We have another excellent panel which I would call
forward at this point.
Let me introduce our additional panel.
It's Mr. John Tombari, who is Vice President with
Schlumberger Carbon Services in Houston.
Mr. Scott Anderson, who is Senior Policy Advisor with
Environmental Defense in Austin, Texas.
Mr. Karl Moor, who is Vice President and Associate Counsel
with the Southern Company in Atlanta.
Ms. Chiara Trabucchi, who is the Principal with Industrial
Economics in Cambridge, Massachusetts.
Thank you all very much for being here. Again, I apologize
for the somewhat delayed hearing. But I think we're still in
good time.
Mr. Tombari, if you could take 5 or 6 minutes and give us a
summary of the main points. Then we'll just go across the panel
and hear from each of you. Then we'll have some questions.
Go right ahead.
STATEMENT OF JOHN TOMBARI, VICE PRESIDENT, SCHLUMBERGER CARBON
SERVICES, HOUSTON, TX
Mr. Tombari. Mr. Chairman, members of the committee, thank
you for having me here today. I'm here to tell you that the
technology for the safe storage of CO2 is ready.
There is an industry waiting to develop. We need to start this
now for the sake of future generations.
Now I've been with Schlumberger Carbon Services,
Schlumberger, for the past 28 years. I spent the last 5 years
dedicating my life to CO2 storage. Schlumberger has
been around for 80 years.
We've consistently spent in research. Last year we spent
more than $800 million in research. We understand the
subsurface of the earth. We understand its characteristics, the
layers, the compartments. We understand how fluids can move in
and out of the earth.
Based on our experience, the technology we've developed and
the projects we've participated in, we're ready to start a
business to own and operate CO2 storage sites in
saline formations. Now let me be clear. Saline formations are
actually rocks that exist miles underneath the earth. They're
filled with salt water. They're perfect places to put carbon
dioxide for safe, long term storage.
Now before we move into this business. We do move
cautiously because it's not something easy to do. It's
difficult for us and it pushes the envelope of our technology.
So there's four things that we need to get started.
No. 1, is this whole technology won't just work anywhere.
So site selection is critical. We have ourselves a very strict
criteria for the types of saline formations where we would be
willing to do this. So that's No. 1, site selection.
No. 2, obviously and it's been said before is we need to be
able to get the rights to the pore space where the
CO2 will eventually evolve. We're hopeful that those
issues will be resolved.
No. 3 is we believe there needs to be a very strong
regulatory framework developed. We would be unwilling to
participate in an industry that might not be properly regulated
that might involve bad practices. We support and we're
encouraged and we've been involved in the EPA's Class VI UIC
regulatory work. We hope that proceeds.
No. 4, and what this act is here to address is the notion
of long term stewardship. So we believe once again that if the
site is selected properly and if good characterization work is
done early with good technology and before injection starts,
that the operational period of injection, the 10, 20, 30 years
when CO2 is injected, this operational period is
manageable. In fact we're willing to take the responsibility
during this period of time and manage the challenges that will
occur.
Now once you stop injecting the CO2, the
CO2 will continue to move in the formation. But if
you have selected your site well, and if you've used good
practices, it will come to equilibrium in a predictable time,
in a predictable place. So we still would be willing to take
responsibility through that time period.
Now once the CO2 comes into equilibrium however,
in order for an industry to properly form the public will
demand and they should demand that an entity like the Federal
Government takes on the hundreds or perhaps thousands of years
of long term stewardship of the CO2. That's what
this Act puts forward. It gives encouragement and hope and
incentive for companies who had used good practices like
Schlumberger to actually get into this business.
Thank you.
[The prepared statement of Mr. Tombari follows:]
Prepared Statement of John Tombari, Vice President, Schlumberger Carbon
Services, Houston, TX
I would like to open by describing what Schlumberger Carbon
Services does. This is particularly relevant since the proposed
legislation will encourage companies such as ours to fill a necessary
industry role. Schlumberger Carbon Services is a division of
Schlumberger, the world's leading oilfield services company.
Schlumberger was founded in 1926 and employs more than 82,000 people of
over 140 nationalities working in approximately 80 countries.
Schlumberger invented the first instruments which take measurements
deep below the earth's surface and allow the understanding of the
properties of the earth's layers.
Since its inception, Schlumberger has spent consistently and
heavily inesearch and development. In 2008, Schlumberger's R&D expense
was $819 Million USD. It is in large part due to these efforts that
today we canee with great clarity into the depths of the earth and
visualize its content. Miles beneath our feet we can identify features
much like those we observe today on the earth's surface such as:
rivers, beaches & reefs. These features moved from the surface to the
depths of the earth over millions of years. Despite the alterations
that took place over this time, we can maphem, evaluate them and follow
them as if we were hiking through history. These technologies have been
used by the oil gas industry for decades to find & produce
hydrocarbons. As you might imagine they also have extreme relevance to
the challenges of geologic carbon sequestration.
It is important that I point out, at this time, that Schlumberger
does not and never will take equity or production sharing contracts in
the oil and gas businesses.
I appear today however, on behalf of Schlumberger Carbon Services
and my comments relate not to oil and gas but more specifically to the
prospects for the development of a geologic carbon sequestration
industry. I joined Schlumberger Carbon Services in 2005 having worked
elsewhere in Schlumberger since 1981.
Schlumberger Carbon Services has been involved in carbon
sequestration since the mid 1990s. In 2005 this became a business
initiative with the intent of providing comprehensive geological
sequestration solutions to major point source emitters of
CO2. Our technical expertise, project management capability
and technology portfolio in Carbon Services are leveraged from
Schlumberger's 80 year history. We draw from the existing skills and
technologies used for safe hydrocarbon exploration, production and
reservoir management and apply them to sequestration site exploration
and operations including injection and monitoring of CO2.
Schlumberger Carbon Services plans to design, build and operate
sequestration sites in a safe and environmentally friendly manner. We
hope this can be a business opportunity in the near future. We have
participated in almost all of the geologic carbon sequestration
initiatives around the world and are a member of most related
consortiums and partnerships including all seven of the DOE's Regional
Carbon Sequestration Partnerships. We are also investing significantly
in the conversion of existing oil and gas technologies and the
development of new technologies to fill gaps so that the entire
lifecycle of a carbon sequestration project can be properly managed.
If carbon sequestration is to have an impact on the CO2
concentrations in the atmosphere, we will need to inject billions of
tons of CO2 underground over the next 40 to 50 years and
store them for very much longer. The sheer scale of the challenge is
daunting, and the industry that will need to develop to achieve this
will be massive. It will require many other companies similar in
capability to Schlumberger. Hundreds of thousands of technical and non-
technical jobs will be created, and it is not unthinkable that one day
it will be a sector of a ``clean-energy'' industry that could itself
reach the scale of today's oil and gas business.
Despite the enormous potential for the creation of a carbon
sequestration industry and the hundreds of thousands of clean-energy
jobs that could be created, progress today is slow, but this is not due
to the readiness of technology. In my opinion and through our project
experience, the needed technology is ready for safe and large-scale
deployment. The risks involved have been thoroughly studied and
documented. Financial mechanisms for large-scale demonstrations appear
to be in place and are growing in availability. Regulatory frameworks
are under development through the EPA and in the State legislatures.
The final issue to be resolved is the question of who will handle the
long-term stewardship of a sequestration site. Such stewardship will
likely extend for hundreds of years and is beyond the likely lifespan
of any corporation.
Government legislation and policy must protect the public's
interests and the taxpayers' money by allowing for the long-term
stewardship of what will be a diminishing risk. Further, legislation
should mandate good project practices that will be a condition for
achieving the desired handover. Companies who manage sequestration
projects properly must be able to hand them over to the federal
government once regulatory requirements have been met.
One suggestion we bring is to provide more clarity around the
conditions under which the handover would occur. We believe that early
projects such as the 10 covered by the legislation you are considering
should be held to the highest of standards with the greatest possible
protection afforded to the public. DOE estimates show enormous
potential for sequestration sites throughout the United States so we
can be highly selective for the first ten. Site selection should be
heavily weighted by the simplicity of the geologic environment, and the
minimization of geologic uncertainty. To evaluate this uncertainty, and
to properly select sites, a minimum standard of site characterization
and qualification should be set--with the use of the best available
technologies encouraged. Without naming specific technologies,
stewardship should only be an option for projects that use the best
possible site characterization technologies available at the time of
baseline site description and modeling--prior to injection.
In closing we are hopeful that the investments we are making may
soon be put to use, and that the beginning of a new clean energy
business may be around the corner.
The Chairman. Thank you very much.
Mr. Moor.
STATEMENT OF KARL MOOR, VICE PRESIDENT & ASSOCIATE GENERAL
COUNSEL, SOUTHERN COMPANY, ATLANTA, GA
Mr. Moor. Senator Bingaman, good to see you, sir.
The Chairman. Good to see you.
Mr. Moor. Senator Corker. I am Karl Moor with the Southern
Company. We have 42,000 mega watts of generated capacity. About
half of that is coal fired. So we're amongst the hopeful.
We have found over time that the possibility of
sequestering carbon into something that we had an obligation to
study and pursue in every way possible. We were very encouraged
by the introduction of S. 1013. We're here today to endorse the
bill because we feel it is an important first step in the road
to making sequestration a real possibility of the lives, our
lives, our children's lives, our grandchildren's lives.
John's a very hard act to follow. When you think about
Schlumberger, the type of company they are, their worldwide
reputation. They help give all of us confidence that with this
kind of technological sophistication, this type of commitment
and these kinds of resources that we can create an environment
under which sequestration can be made to work.
It's a daunting task. I was impressed by our State
representative of Wyoming. A great, articulate spokesman for a
view that I think all of us hold which is 50 percent of the
Nation's energy derives from this resource. Our most valuable,
domestic resource of energy, long term obligation to make sure
that it's available.
It's been the secret to economic growth in the Southeast
and the Tennessee Valley. It is a driving force in our economy
both through rail, of the infrastructure in and around power
plants, all that comes with it. It's the thought that we would
abandon this resource, leave it unused, leave it untapped. Deny
it to our children and our grandchildren when we in turn had
already received the benefit of it would seem to me to be a
terrible waste of a potential that America holds.
So when we've looked at this issue we've tried to take the
view that we've had these benefits. What do we do to ensure
that our children enjoy these benefits as well? So today I
would tell you that the Southern Company has taken this
responsibility very seriously by pursuing, really, four things,
really five things.
Let me characterize the four first.
On the technology side there are four things that we
decided that we had to do.
First of all we had to do large scale sequestration
projects to figure out if we knew how to do this where we could
employ this technology. So we've been pursuing those.
We also had to learn whether or not we could do this from
conventional coal fired power plants. So we have a number of
projects underway under the sponsorship of DOE that we think
will give us the experience to do that over time.
The other thing that we said that we needed were working
partnership with DOE as an opportunity to work at the
fundamental research basis to understand what the challenges
will be, not just in the next 5 years, but in the next 50
years.
Then finally we thought on the large scale we had an
opportunity and a requirement really to bring IGCC into
fruition. So just recently Mississippi Power Company which is
one of the operating companies of Southern Company, has
announced that we're going to attempt to build, if the Public
Service Commission approves it, a 582 mega watt IGCC facility
in Kemper County, Mississippi with a 50 percent carbon capture
potential.
The great news there is the happy coincidence between the
EOR and carbon capture is a good one for the Southeast. Much
like the story in Wyoming, we're hoping that we can enhance oil
recovery even as we sequester carbon. From our experience and
the experience that we've had from others, we've concluded that
risk management is at the very heart of this enterprise that we
have to exercise great care because we are talking about an
intergenerational creation of risk.
We've worked with Scott Anderson and others in the
environmental community diligently to communicate the idea that
because we take on our stewardship obligation very seriously,
because we take that obligation very seriously, we want to see
this policy unfold in a way that creates the maximum
opportunity for its success. We've also over time concluded, as
have been talked by the geologists in the industries in and
around the oil and gas industry as well as through the
Willfield Services, is that the declining risk curve is a big
part of this.
We'd have embraced early in the work of Dr. Sally Benson of
Stanford University who tells us that the tail is long but it
narrows. So what we're hoping to do is, as with John and his
company, take on early responsibility through a combination
effect. We found over time that we can manage risk, slight risk
with large negative consequences through products like
insurance and mutualization.
We believe those keep the private sector first and foremost
in the place where they're managing the risk and managing the
resources that allow you to deal with small risk. That being
said, you'd say well why then would you support S. 1013? The
idea that the DOE should be involved in the indemnification
process and take on a responsibility that private industry
really should have.
Our answer that is straightforward. We're at an interesting
moment in history. The demand for carbon capture and
sequestration is great. The timeframe that we have to implement
it is relatively short.
We find ourselves in a place where we need the experience,
frankly, of large scale projects which we're committed to as
well, to teach us what we need to know about risk management,
about the engineering, about the science. Using that and the
possibility that these projects will be backward funded using
risk mechanisms that you'll hear about from Chiara. But we have
the opportunity to combine all of the elements of both the
research community and to borrow a phrase from Chiara, all
three legs working together, the science and technology, the
law and policy and public policy as well as the engineering.
If we do those things and we create an environment in which
early running projects like those that we have planned are
given the chance to enjoy the umbrella that DOE could provide
then there's a greater chance that carbon capture and
sequestration will be deployed. That was why we were excited to
see the bill. That's why we wanted to congratulate the Chairman
and all his co-sponsors on the fine work done.
It is a great product and a wonderful start for an
enterprise that we, like John, believe needs to begin tomorrow.
[The prepared statement of Mr. Moor follows:]
Prepared Statement of Karl Moor, Vice President & Associate General
Counsel, Southern Company, Atlanta, GA
Chairman Bingaman, Ranking Member Murkowski, and members of the
Committee, thank you for the opportunity to speak with you today about
carbon capture and sequestration and, in particular, S. 1013, the
Department of Energy Carbon Capture and Sequestration Program
Amendments Act of 2009.
I am Karl Moor, Vice President & Associate General Counsel for
Southern Company Services, and while my testimony is only on behalf of
our Company today, I do serve as Chair of our industry's CCS task force
through the Edison Electric Institute and as co-chair of the Carbon
Sequestration Council, a multi-industry group working to further CCS.
Southern Company is a super-regional energy company serving
customers in Alabama, Florida, Georgia, and Mississippi and is one of
the largest generators of electricity in the United States with 42,000
megawatts of generating capacity. Over 21,000 megawatts of that
capacity is coal-fired. Southern Company has a long history of
cooperative work with the U.S. Department of Energy in development of
technologies for the utility industry, including work on low NOx
burners and selective catalytic reduction (SCR) systems for NOx
emissions reductions, flue gas desulfurization (FGD) systems for sulfur
oxide reductions, mercury control technologies to reduce mercury
emissions, and various others.
Southern commends Senator Bingaman and the other sponsors of S.
1013 for taking this important first step in resolving some of the risk
management questions surrounding carbon capture and storage. CCS is a
critical element in the full portfolio of technologies and methods
needed to address greenhouse gas emissions. Unresolved questions about
risk have hampered the CCS demonstration projects that are the
necessary predicates to the commercial deployment of this technology.
The proposed bill is the beginning of our national conversation on how
best to answer these questions, while appropriately balancing federal,
state, commercial and industry roles and responsibilities. Southern
appreciates this opportunity to comment on the bill and discuss its
perspective on CCS risk management.
As we face a future with possible legislation and/or regulations
that would limit emissions of greenhouse gases, including carbon
dioxide (CO2), we believe that coal must continue to play a
role in the energy future of the country. It currently represents about
fifty percent (50%) of the electricity generated in the nation and its
ample (two hundred years at current usage rates) and relatively low-
cost domestic supply means it must continue to play a role in our
energy future. We believe, moreover, that coal can and must play a role
in a carbon-constrained future. For that reason, Southern Company is
committed to advancing the development and deployment of carbon CCS, in
order to facilitate coal's fulfillment of this role.
As a charter member of the Department of Energy's (DOE) Southeast
Regional Carbon Sequestration Partnership--or SECARB, Southern Company
has both co-funded and directly participated in its activities, as well
as served as a host site for a Phase II project injecting 3,000 tons of
CO2 into a saline reservoir at Plant Daniel, one of our
power plants in southeast Mississippi. We are continuing to expand our
work with SECARB through Phase III of its sequestration demonstration
program. In this project, Southern Company will not only participate in
sequestration activities but capture CO2 at one of our coal-
fired power plants as the source of CO2 for the
sequestration program. This proposed project would feature a 25 MW
scale CO2 capture plant at one of our power plants, built
with the technology vendor Mitsubishi Heavy Industries (MHI). This
capture process will supply approximately 125,000 tons per year for
four (4) years for sequestration in a saline aquifer.
We have a further goal of developing a larger scale-up of this
sequestration project that would feature injection of 1 million tons of
CO2 per year for at least 4 years into one of the many large
capacity and safe saline reservoirs in the Gulf Coast Region. This
project would include a 170 MWe CO2 capture plant to supply
the CO2 for the proposed sequestration project. This project
was submitted by Southern Company in response to both the Restructured
FutureGen and Clean Coal Power Initiative (CCPI) Round 3 solicitations.
Southern Company believes it is important to integrate CO2
capture from electric generating facilities, transportation, and
sequestration in our demonstration programs in an effort to accelerate
the deployment of safe and cost efficient commercial-scale CCS, and
that is why we welcome the introduction of the Department of Energy
Carbon Capture and Sequestration Program Amendments Act of 2009.
While these two projects will focus on carbon capture technology
for pulverized coal plants, we are also extremely active in developing
carbon capture systems for the Integrated Gasification Combined Cycle
(IGCC) power plant of the future. For IGCC, Southern Company's
Mississippi Power has recently filed for a certificate of public
convenience and necessity with the Mississippi Public Service
Commission (MPSC) to build a 582-megawatt IGCC power plant in Kemper
County, Mississippi using lignite and designed for fifty percent (50%)
CO2 capture. The captured CO2 would be
sequestered through enhanced oil recovery operations in Mississippi oil
fields. This new power plant will be partially funded with DOE funds
from CCPI Round 2 and with investment tax credits authorized by the
Energy Policy Act of 2005.
Also in partnership with the DOE, Southern Company operates a
research station in Wilsonville, Alabama, that has focused on
developing advanced power generating technologies, including
fundamental research and development (R&D) for coal gasification. It is
now moving its focus towards fundamental R&D and scale-up of
technologies to research the capture and separation of CO2
from both conventional and IGCC coal plants.
You can see that Southern Company is working on all of the four
technical areas we believe to be critically important for commercial
deployment of carbon capture and sequestration: large scale
sequestration pilot projects, CO2 capture from conventional
coal plants, IGCC with carbon capture, and fundamental R&D for next-
generation technologies.
Southern Company is also engaged in advancing the legal and policy
framework needed to move forward with CCS. We are a member of the
Carbon Sequestration Council (CSC) that was formed to provide a forum
for inter-industry communication around key issues related to CCS
including policy, funding, and legal issues. CSC has developed and
participated in coordinated, multi-stakeholder approaches for providing
input to a number of processes, including;
EPA's technical and rule development workshops leading to
the Agency's proposed rule regarding geologic sequestration of
carbon dioxide under the Safe Drinking Water Act;
the development of recommendations by the Ground Water
Protection Council; and
the development of regulatory frameworks by a number of
states. CSC has also convened and shared ideas with a broad
range of interested stakeholders including environmental groups
to further discuss issues and build consensus on key CCS
matters.
Risk management is a significant CCS issue. From our experience and
that of others, we are learning that appropriate site characterization
and other risk management efforts mean that CCS projects can be done
safely and effectively, but there is a need to minimize risk. During
these early days of pilot projects--and even when CCS is widely
deployed in the future--risk mitigation issues must be addressed in
order to procure financing and insurance and to address public concerns
about siting and the acquisition of property rights.
Southern Company believes there are four distinct areas of risk
management that needs to be addressed to facilitate the demonstration
and deployment of CCS:
1. Property (including pore space) ownership and issues of
trespass--These issues have not been consistently addressed to
date, making it difficult to move forward with both commercial
scale sequestration as well as with demonstration-scale R&D
projects. We believe that interested states and groups are
pursuing solutions to these issues and that, over time, given
economic incentives, porespace ownership and compensation
issues will be addressed. There, however, may be a role for the
federal government in encouraging resolution of these issues if
a lag develops that would impede full and timely implementation
of CCS.
2. Long-term maintenance and monitoring for closed sites--
This includes responsibility for the routine inspection and
repairs necessary to insure the long-term integrity of all
equipment and wells at a closed injection site.
3. Environmental remediation--This includes the active or
passive cleanup of environmental ecosystem damages that may be
related to geologic sequestration, such as the impacts
associated with CO2 accumulations in groundwater or
damages resulting from fluid movements resulting from the
injection of CO2.
4. General tort liability--This includes claims of damage to
health, property, or to the environment, as embodied in the
definition of liability found in S. 1013.
In thinking about risk, we generally agree with Dr. Sally M. Benson
of the Energy Resources Engineering Department and Executive Director
of the Global Climate and Energy Project at Stanford University, that
the environmental risk profile of carbon dioxide storage declines over
time.\1\ Accordingly, we believe that the probability of high-risk
events decreases as time passes after an injection site has closed.
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\1\ http://pangea.stanford.edu/research/bensonlab/presentations/
Carbon-Dioxide-Capture-and-Storage-in-Deep-Geologic-Formations.pdf
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Typically, Southern Company uses insurance--a combination of
private insurance and industry mutual insurance--to manage risks in its
operation, including long-term risks. We have experience with the
approach of pooling the risks of very low probability negative events
across many industry participants. We think that, likewise, this model
will be appropriate for carbon sequestration, and therefore we are in
favor of a risk management strategy for CCS that follows this
combination approach. Encouragingly, insurance companies have started
offering limited policies for CCS projects. These policies generally
cover property damage for the first few decades of operation, but will
not provide long term coverage. Additionally, these policies are annual
policies that must be renewed every year.
Southern Company has categorized five phases of the typical CCS
project timeline and the associated levels of risks for each.
Pre-injection siting and permitting. This phase is unlikely
to pose many risk issues, but the work done in this stage will
be critically important in the design of a successful project
with a minimal risk profile. Insurance providers must be
intimately involved with the site selection and
characterization in order to be able to underwrite the
policies.
Injection inception. The start of injection is a fairly high
risk phase during the project. Gross failures of the geology
for its intended purpose of containment could be revealed
during startup. Risks arise from unexpected or unprecedented
CO2 movement and leakage, as well as unanticipated
fluid movement. Southern Company has concluded that the risk
management for the operator will likely be a combination of
private and industry mutual insurance.
Operations. The operations phase is also a high-risk time
for the project. As the CO2 continues to be
injected, and despite the best site characterization possible,
flaws in the containment may be revealed that could result in
unprecedented CO2 leaks and intrusion into drinking
water. Again, Southern Company believes that a combination of
private and industry mutual insurance would be the preferred
risk mitigation tool.
Closure and stabilization. The closure and stabilization
phase includes the time after injection stops, when the risks
of unintended CO2 and fluid movement should decrease
sharply as the CO2 starts to stabilize and stop
spreading. We would expect the risks to be handled by the same
approach of private and industry mutual insurance, but with
less expensive instruments that presumably would recognize the
reduced risks of this phase.
Long-term care. The long-term care phase begins once the
site has stabilized and the CO2 has stabilized in
the storage reservoir. At this point, the risks come from
decaying infrastructure and the residual risks of
CO2 movement and leakage or displaced formation
fluids. Southern Company feels that the best approach for this
phase is a third-party caretaker for the long-term maintenance
of the wells and infrastructure. For commercial-scale
deployment, however, we do not believe that this structure is
the most efficient way to address the risk and remediation. We
would prefer that the industry--those with the most CCS
experience--be responsible for the risk and remediation instead
of delegating this to a third-party. Southern has come to this
conclusion after much careful consideration and review of
existing mechanisms meant to address long-term risk in other
aspects of our industry. We note, however, that other utilities
do support the transfer of risk to a third-party, likely a
governmental entity, to ensure appropriate monitoring and to
undertake possible remediation of CCS projects in the long-term
care phase. We are actively engaged in discussions about how
best to apportion risk and responsibility with other interested
parties.
In light of our preference for an insurance/mutualization approach
to risk management, some might ask why we support DOE's involvement in
risk management for pilot projects. Internally, we refer to this as the
``first movers' paradox'' or more simply the chicken and the egg.
Anticipated climate legislation and/or regulation requires accelerating
the development and deployment of commercial scale sequestration, but
the private insurance and mutualization mechanisms are not developing
as quickly as necessary for rapid sequestration deployment. The lack of
an industry mutual and private insurance can hinder commercial scale
sequestration and development initially by stifling demonstration-scale
projects. As noted, the need for risk management mechanisms is greatest
now, while other more desirable approaches are maturing. This paradox
must be addressed before commercial scale sequestration can be deployed
and play its necessary role in meeting carbon constraints. This is why
Southern Company commends Senator Bingaman and his co-sponsors of S.
1013 for addressing these complicated but necessary issues for early
movers of sequestration projects. We agree that the risk management
approach taken by S. 1013 is a positive step for building confidence
for project developers, state regulators, as well as the public.
In offering our support for S. 1013, we would respectfully note
several ways in which it could be improved to further its laudable
goals.
Southern Company is concerned about the length of time
between ceasing injection for a sequestration project and
complying with the site closure requirements under section
(e)(5). We support the need for science-based proof of site
closure, but we also recognize that the demonstration that a
CO2 plume has reached equilibrium with the geologic
formation that comprises its geologic storage unit will vary by
geological formation. If equilibrium, as it is used in section
S. 1013, is not appropriately defined, it is possible
equilibrium would not be demonstrated for an unjustifiably long
time period. During this time period, the four requirements
under section (f) could have already been demonstrated,
rendering the consecutive ten year period unnecessary. We would
like the opportunity to work through this issue internally and
propose to the sponsors of S.1013 possible other approaches for
demonstrating that a sequestration project complies with the
site closure requirements.
Southern Company supports the indemnity agreement included
in S.1013, but would be more confident in the agreement if
section (g)(2) was changed to ``The Secretary shall agree. .
.'' Changing the wording from ``may'' to ``shall'' will
guarantee that a recipient who complies with all the terms and
conditions set forth in the bill will be provided indemnity.
Regarding the financial protection that must be maintained
under section (e)(7), Southern Company would suggest that the
appropriate amount of required protection be defined as the
maximum private insurance available in the market for the
particular project. The Secretary of Energy would determine the
maximum level of coverage available in the private insurance
market.
In addition, we note that there are a few clarifications that would
eliminate confusion and ensure that the electric power industry, the
source of about forty percent (40%) of our national CO2
emissions, can be best positioned to use S. 1013 to demonstrate CCS on
integrated power plants. First, the bill needs to recognize that flue
gas is not pure CO2. Second, it may be appropriate to
require that some of the ten projects are integrated power plants that
capture and sequester CO2. Finally, to ensure that the fees
paid are available in the event that indemnification is needed, the
funds should be deposited into a segregated account instead of the
general Treasury.
Southern Company commends the Chairman and his co-sponsors of S.
1013, the Department of Energy Carbon Capture and Sequestration Program
Amendments Act of 2009, for addressing some the vital issues that need
to be addressed to further the development of commercial scale carbon
sequestration. S. 1013 is an indispensable step in the carbon
constrained future facing the United States. We look forward to working
with the Committee and assisting in any way we can. Thank you for this
opportunity to testify in support of S. 1013.
The Chairman. Thank you very much.
Mr. Anderson.
STATEMENT OF A. SCOTT ANDERSON, SENIOR POLICY ADVISOR,
ENVIRONMENTAL DEFENSE FUND, AUSTIN, TX
Mr. Anderson. Yes. I'm Scott Anderson, Environmental
Defense Fund. It's not very often that an Environmental Defense
Fund finds itself in agreement with Southern Company. But I'm
almost tempted to just endorse his statement and pass the mike
to Chiara which I'm sure you guys would love me to do. But I
think I will stick to my text.
We appreciate the opportunity to be here. We wanted to
begin by stressing, as others have said, that as a technical
matter, CCS is ready to begin deployment now. I'm not saying
it's commercial. But it's ready to begin deployment.
All the necessary technologies exist. What's missing is
market drivers to cause companies to put those pieces together.
With experience, cost will come down and project development
more routine. We believe that cap and trade legislation can and
should be the chief market driver. The complementary measures
such as you have here today are also important.
We applaud Chairman Bingaman as well as the co-sponsors for
introducing this legislation. We're pleased, for example, that
the bill helps clarify the difference between two issues that
are in fact separate, but frequently confused.
The first issue is the need for a long term site
maintenance after sequestration projects are successfully
closed. Your big policy questions on that issue are who should
perform that function. How should you define that function and
how should you fund that function? So that's one issue.
The second of these 2 issues that's frequently confused is
the need for project developers to manage the risk of liability
for damages that result from their activities. It seems that
you're key policy questions here include the relative roles of
government and the private sector risk management tools. How
the relationship between government and the private sector
should change with time as the CCS industry matures.
The bill addresses both of these issues. It's a measured
response to barriers faced by some early mover projects at a
time when private sector insurance options are not fully
developed. The bill helps project developers manage risk while
guarding against so called moral hazard.
In other words the bill provides coverage for losses while
creating what I would call underwriting standards, provisions
such as essential requirements for rigorous geologic
characterization that will encourage project operators to
operate responsibly and not cut corners. In this regard and in
other important respects detailed in my written statement, the
bills approach to risk management is similar to the insurance
model as well as other financial instruments that have evolved
in the private sector. Moreover by establishing a program
similar to models that exist in the marketplace and by
restricting the program to a limited number of early projects,
S. 1013 will encourage the development of market based
solutions to the emerging CCS industries need to spread risk at
a reasonable cost.
In the long run we believe a market based solution should
be our goal. That model is healthier for taxpayers. It's a prop
for people who might suffer damages and for the industry itself
then would be a system where firms routinely depend on the
government to absolve them from their problems.
Unlike the enhanced oil recovery industry, unlike the gas
storage business and unlike the underground injection of
hazardous waste business, the CCS business, the geologic
sequestration business has not had time to develop the kind of
instruments which make it possible for them to approach the
business in the same way these other industries do. The EOR
business, the gas storage business, the hazardous waste
injection business, none of them have any special liability
relief. Yet they have no problems attracting investment
capital.
The only liability relief they have is the expiration of
statutes of limitation. So just because someone is in an
injection business of sending large volumes of CO2
into the underground area, it doesn't automatically follow in
our judgment that they need special reliability relief in the
long run. Early project is different.
So as the industry matures and needed risk management tools
develop we should evaluate what roles government in private
industry should play. We should make use of the competitive
market forces as much as possible. We should also remember that
liability rules grounded in common law and in statutes serve an
important function in our society. These rules encourage people
to act as their fellow citizens expect them to act. So we
should tinker with them and only cautiously.
One other issue I'd like to touch on is that the bill
proposes to give money to States for training regulators. I
think that's an extremely important part of the bill. We're
glad to see that. CCS regulation does raise a lot of novel
issues that need to be approached in a sophisticated way. The
State regulators could use that help.
While this bill may not be the right vehicle, it would also
encourage the Senate to consider giving additional
appropriations to the States for their actual permitting and
enforcement work as well. The Ground Water Protection Council
has estimated that in order for States to fully implement the
pending CCS rule at EPA it will require some tens of millions
of dollars of additional financing that they don't have unless
the Federal Government gives it to them.
So thank you very much.
[The prepared statement of Mr. Anderson follows:]
Prepared Statement of A. Scott Anderson, Senior Policy Advisor,
Environmental Defense Fund, Austin, TX
Environmental Defense Fund (EDF) appreciates the opportunity to
speak to you today 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. We believe that successful deployment of
geologic sequestration is a critical path for accommodating coal, the
world's most abundant but carbon-intensive fossil fuel, to a carbon-
constrained future.
Climate change is the most critical environmental issue of our
generation. The chief action the Senate can take to address this
problem is to adopt cap and trade legislation, which would create a
market value for avoiding carbon dioxide emissions, and a market
mechanism for achieving these needed reductions at the lowest cost
across the economy. The simple fact is that CCS has not been
commercially deployed because there is currently no commercial reason
to deploy CCS. A cap on carbon will create the market for this
technology.
As part of this national cap and trade legislation, EDF supports
reasonable complementary measures to help accelerate CCS deployment.
With SO percent of our nation's electricity coming from coal, it is
critical to have technologies that enable significant CO2
reductions from coal fired power plants.
Fortunately, as a technical matter, CCS is ready to begin
deployment today. All of the necessary technologies exist. What is
missing are the market drivers to cause companies to put the pieces
together. With experience, costs will come down and project development
more routine.
Geologic sequestration of carbon dioxide is feasible under the
right conditions. It has been successfully demonstrated in a number of
field projects, including several large projects. The IPCC Special
Report on Carbon Capture and Storage concluded in 2005 that the
fraction of CO2 retained in ``appropriately selected and
managed geological reservoirs'' is likely to exceed 99% over 1000
years.
The IPCC also concluded that the local health, safety and
environmental risks of CCS are comparable to the risk of current
activities such as natural gas storage, enhanced oil recovery and deep
underground storage of acid gas 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.'' The IPCC and others have also noted that the risk of
leakage will tend to decrease with time.
The fact that EDF supports the deployment of CCS does not mean that
we are champions of coal. We are pleased that people increasingly
recognize that energy efficiency and renewable energy should play a
leading role in energy and climate policy. As indicated by McKinsey and
Company's U.S. Greenhouse Gas Abatement Mapping Initiative, there are
many efficiency and renewable energy strategies that are cost-effective
and can be pursued even before CCS is deployed on a widespread basis.
CCS is an important part of the solution, but it is only a part.
summary of comments on s. 1013
EDF applauds Chairman Bingaman and the co-sponsors of S. 1013
(Senators Barrasso, Dorgan, Tester, Bayh, Landrieu, Casey and
Voinovich) for introducing this legislation. The bill has a number of
strengths. We are pleased, for example, that the bill helps clarify the
difference between two issues that are in fact are separate but are
frequently confused: (1) the need for long-term site maintenance after
sequestration sites are successfully closed; and (2) the need for
project developers to manage the risk of liability for damages that
result from their activities. The bill addresses both issues. It is a
measured response to barriers faced by some early mover projects at a
time when private sector insurance options are not fully developed. The
bill helps project developers manage risk while guarding against
``moral hazard.'' In other words, the bill provides coverage for losses
while creating what in essence are ``underwriting standards''--
provisions that will encourage project operators to operate responsibly
and not cut corners. In this regard, and in other important respects
that are detailed below, the bill's approach to risk management is
similar to the insurance model that has developed over time in the
private sector. Moreover, by establishing a program similar to models
that exist in the marketplace and by restricting the program to a
limited number of early projects, S. 1013 will encourage the
development of market-based solutions to the emerging CCS industry's
need to spread risk at a reasonable cost. In the long-run, we believe a
market based solution for risk management should be our goal. This
model is healthier for taxpayers, parties who may suffer damages, and
the industry itself than would be a system where firms routinely depend
on the government to absolve them of the consequences of their actions.
We will continue to analyze this legislation and discuss the issues
raised with other stakeholders. We look forward to the opportunity to
continue working with members of the committee to make recommendations
and suggest changes should the need arise.
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 they
present little risk. 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. 1013 (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 and/or duties 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. In the future it may be desirable to charge fees for
long-term stewardship that differ based on a given operator's track
record. Even where closed sites are concerned, it may not be desirable
for all industry participants to pay for expensive remediation projects
(as distinct from routine site infrastructure maintenance) where the
problem is due to a single operator and statutes of limitation have not
yet expired.
a measured response to risk management
By limiting the number of projects eligible for the indemnity
program, by basing fees for participation on the estimated risks
relating to particular indemnification agreements, and by providing
that projects are not eligible at all unless they meet certain
criteria, the bill constitutes a measured response to an identified
problem--the barriers that some early-stage CCS projects face due to
the lack of fully-developed financial risk management tools in the
marketplace.
Many people appear to take it as a forgone conclusion that
indemnification or ``liability relief' must be a permanent feature of
the legal system governing carbon capture and sequestration. EDF is not
convinced that any ``liability relief'' will be needed for the industry
in the long-run, although we do see some role for special rules and
institutions for early projects.
There is no special ``liability relief'' for the enhanced oil
recovery business or the underground injection of hazardous waste
business. 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
three of these businesses inject material into geologic formations and
appear to have little trouble attracting investment in the marketplace.
The emerging carbon capture and sequestration industry, on the
other hand, has not had time to develop a robust approach to risk
management regarding potential damages that might be caused by its
actions. Banks and other sources of investment capital are still coming
to terms with the nature of risk presented by CCS projects and with the
steps that project operators can take to minimize risks. Private sector
insurance products recently have become available for CCS projects, but
it is not yet clear how well this privately available insurance will
meet the needs of developers. It is not yet clear how rapidly the
insurance industry will be able to develop expanded offerings should
additional offerings be necessary or how much competition there will be
to provide this sort of coverage. We believe it is likely that
additional insurers will enter this market, and perhaps that the CCS
industry itself will develop mutual insurance arrangements, but these
options are not yet in place.
In this context, we support appropriate efforts to resolve
regulatory and risk management bottlenecks to technology deployment.
Since we will need to learn by doing, protections for early movers make
sense as the technology begins to be deployed--provided proper
safeguards are in place. However, as the industry matures and needed
risk management tools develop, we should reevaluate what roles
government and private industry can and should play.
minimizing ``moral hazard'' is essential
To privatize economic benefits while socializing the associated
risks is not a policy that is likely to yield efficient results or
encourage workmanlike behavior. Current liability rules, grounded in
common law and statutes, serve an important purpose--encouraging people
to act as their fellow citizens, their investors and competitors, and
policymakers expect them to act.
S. 1013 clearly was drafted with these principles in mind. Damages
arising from gross negligence or willful misconduct are excluded from
coverage. In order to be eligible for indemnification, projects must
meet a number of standards that can be thought of as underwriting
standards. One key requirement is that project selection must be based
on detailed geological information, which is absolutely essential if
CCS is to become a widespread technology worthy of significant
government and industry investment. Other important requirements
include the bill's rigorous criteria for determining whether a site
qualifies for site closure and participation in the long-term
stewardship program. It is one thing to for taxpayers to assume
management for a well-executed sequestration project, and something
else entirely to relieve the risk of liability from an operator who has
created a project that presents significant risks.
s. 1013 emulates the private sector approach to liability risk
management and sets the stage for a private sector solution in the
long-term
The programs established by S. 1013 would function much like
private insurance and other financial market instruments: developers
are free to apply or not to apply; risk management assistance is based
on a contract; the program has what I would call ``underwriting
standards'' designed to minimize risk; there are exclusions that ensure
that the risks of certain types of damages are borne by the operator
alone; risk is pooled and participants pay a fees commensurate with the
risk profiles of their projects. (It is important to note, however,
that fees based on discounting future costs to present values will not
be commensurate with the risk if the fees are deposited into the
Treasury as miscellaneous receipts, as is proposed by S. 1013 in its
current form, rather than being invested in order to grow at a rate
equal to the discount rate used to calculate the present value).
By establishing programs similar to risk management models that
exist in the marketplace and by restricting the programs to a limited
number of early projects, S. 1013 should encourage the development of
market-based solutions to the emerging CCS industry's need to spread
risk at a reasonable cost.
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. Although this particular
bill may not be the right vehicle, we encourage Congress also to go
beyond training assistance and provide more financial assistance than
is being provided currently for state permitting and enforcement
activity. The Ground Water Protection Council has estimated that
implementation of CCS rules under the Underground Injection Control
program it will increase state regulatory costs by several tens of
millions of dollars per year.
conclusion
In conclusion, I would again like to commend the Chairman and the
co-sponsors for bringing this measure forward. It is sound approach to
an important policy challenge. We look forward to continuing to work
with you on this matter in the future.
The Chairman. Thank you very much.
Ms. Trabucchi, thank you for being here.
STATEMENT OF CHIARA TRABUCCHI, PRINCIPAL, INDUSTRIAL ECONOMICS,
INC., CAMBRIDGE, MA
Ms. Trabucchi. Thank you. Chairman Bingaman, members of the
committee, thank you for introducing S. 1013 and for the
invitation to testify at today's hearing.
I'm a principal with Industrial Economics Incorporated
located in Cambridge, Massachusetts. My expertise relevant to
this matter is in financial insurance and long term indemnity
models. My remarks today focus on the financial insurance and
indemnification framework proposed by the bill and specifically
on the assessment, collection and use of fees for CCS
developers.
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, with time
will gain value. In the case of CCS the very long time horizon
and the use of taxpayer dollars demands a financial insurance
structure that blends the strength of private and public risk
sharing.
To be effective a financial insurance structure that
implements a private/public risk sharing as that proposed in
the bill should achieve four clear goals.
First, it should ensure funds are adequate when needed.
Second, it should ensure these funds are readily accessible
when needed.
Third, it should establish minimum standards for companies
that choose to self insure or for financial institutions
managing funds or underwriting risk.
Fourth, it should ensure continuity of financial assurances
when ownership of sites is transferred.
The long term indemnity model proposed in S. 1013 is a
notable step forward in achieving these goals. Appropriately
limits indemnification to certain types of damages. In my view
if the intent of S. 1013 is to establish a financial assurance
framework that insures sufficient resources are available to
pay for long term stewardship at the time ownership of the
demonstration projects is transferred then the following
elements of the bill would benefit from additional
clarification and should not be left to interpretation.
First, in the section addressing collection of fees in 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.
Simply stated the amount of money collected from each CCS
developer should clearly correlate to the amount of money that
may need to be paid in the future once ownership of their
specific site is transferred. The analytic tools exist to
estimate dollar values for potential damages from CCS and are
routinely used by experts in financial and natural resource
economics.
Second, 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.
Third, in the section addressing use of fees consistent
with basing fees on a net present value analysis the fees
collected should not be deposited in the Treasury and credited
to miscellaneous receipts. Rather the fees should be set aside
in a dedicated interest bearing trust fund similar to other
financial assurance models legislated by Congress. Otherwise
the fees collected may disappear into the Treasury resulting in
an intergenerational transfer of costs to future taxpayers.
In my view clarifying the language of S. 1013, as I have
suggested, will help to ensure the continuity of financial
assurances for long term stewardship, offer a measure of
financial certainty to the developers of CCS demonstration
projects and send a positive signal to the private capital
markets interested in investing in CCS technology.
My written testimony elaborates on these areas and
highlights my views with respect to other elements of the
financial assurance and indemnification structure proposed by
S. 1013. Thank you.
[The prepared statement of Ms. Trabucchi follows:]
Prepared Statement of Chiara Trabucchi, Principal, Industrial Economics
Inc., 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 1013 is a
notable step forward in achieving these goals, and appropriately limits
indemnification to certain types of damages.
However, if the intent of Senate Bill 1013 is to establish a
financial assurance structure that ensures sufficient resources are
available to pay for long-term stewardship at the time ownership of the
demonstration projects is transferred, then 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. 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. In the section addressing Use of Fees, consistent with
basing fees on Net Present Value analysis, the fees collected
should not be deposited in the Treasury and credited to
miscellaneous receipts. Rather, the fees should be set aside in
a dedicated, interest-bearing Trust Fund similar to other
financial assurance models legislated by Congress. Otherwise,
the fees collected may disappear into the Treasury, resulting
in an inter-generational cost to future taxpayers.
4. The same financial assurance provisions should exist
regardless of whether the CCS demonstration project is sited on
private lands, public lands or tribal lands.
In my view, clarifying the language of Senate Bill 1013 as I have
suggested will help ensure continuity of financial assurances for long
term stewardship.
introduction
Thank you for the opportunity to testify in today's legislative
hearing on Senate Bill 1013, Department of Energy Carbon Capture and
Sequestration Program Amendments Act of 2009. I am a Principal with
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 1013. Below, I offer
my overall assessment of Senate Bill 1013, 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 1013, 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 1013. Where appropriate, I highlight elements of the proposed
language that are well designed; and I offer suggestions where the
language of Senate Bill 1013 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. Financing CCS ventures requires a long-
term capital horizon, and therefore investors are likely to have a low
tolerance for risks. 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).
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 1013 should accomplish these goals.
project selection criteria
The science-based criteria and provisions for project selection as
proposed by Senate Bill 1013 are necessary but not sufficient to
underpin the financial management structure defined in later sections
of Senate Bill 1013. Additional provisions requiring the explicit
evaluation of potential human health and environmental impacts from a
financial perspective--deriving expected 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 two 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.
terms and conditions (financial assurance)
In my view, as proposed by Senate Bill 1013, 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 1013 appropriately limits
indemnification to certain types of damages. The exception provided in
Senate Bill 1013 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 and fee calculations.
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 1013 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 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 1013 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 necessary. In my opinion, this fee should be based on the
Net Present Value of the future expected losses for each individual
demonstration project. 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 amount of damages that might be required for remediation and to
compensate for harm or injury.
The use of Net Present Value analysis, as proposed in Senate Bill
1013, is accepted practice for funds management within the financial
community. The analytic tools exist to estimate the expected range of
dollar values for potential damages. 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,
postinjection, 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 1013 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 1013 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
1013 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 1013, 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, Net Present Value analysis should be used to underpin
the financial management framework proposed in Senate Bill 1013.
However, Net Present Value analysis presumes that money set aside today
will earn interest and gain value over time. Thus, the use of Net
Present Value analysis is effective only if the money that is collected
is set aside in a dedicated, interest-bearing account, and does not
form part of the miscellaneous receipts of the general Treasury, as
currently proposed by Senate Bill 1013. Clarifying language is
warranted in the Bill if, in fact, the expectation is that fees
collected from developers of CCS demonstration projects will be set
aside in a dedicated account. In the absence of doing so, the fees
collected may disappear into the Treasury, and result in an inter-
generational transfer of costs to future tax payers, if claims are made
in the future and the fees collected are not set aside and allowed to
gain value.
Based on my experience with financial assurance frameworks, and
other long-term indemnity models legislated by Congress, the fees
collected from developers of CCS demonstration projects should be set
aside in a dedicated, interest-bearing account that generates a rate of
return at least equal to the rate of inflation. Specifically, the fees
collected from CCS developers should be deposited in a dedicated fund
defined by Senate Bill 1013 as a ``Fund'' or ``Trust Fund'' for
purposes of paying claims and monitoring costs arising after transfer
and acceptance of title of the CCS demonstration projects by the
Federal government. Conforming legislation establishing the Fund under
Title 26, Subtitle I, Chapter 98, subchapter A of the Internal Revenue
Code is necessary.\1\ Duty for managing investments collected and
deposited in the Fund should be the purview of the Department of the
Treasury. The portion of funds vested in the Fund that is not required
to meet annual withdrawals should be invested in interest-bearing
obligations of the United States.\2\ Other long-term liability and
federal indemnity models, including the Hazardous Substances
Superfund,\3\ the Oil Spill Liability Trust Fund,\4\ and the Harbor
Maintenance Trust Fund,\5\ 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 1013, 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\ See 26 U.S.C. 9501 through 26 U.S.C. 9510 for dedicated Trust
Funds established by the federal government under the Internal Revenue
Code.
\2\ 26 U.S.C. 9602
\3\ 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).
\4\ See Oil Pollution Act Sec. 1001(11), 33 U.S.C. 2701(11)
(2007). 26 U.S.C. 9509 (Oil Spill Liability Trust Fund).
\5\ 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 1013 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.
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.
training program
To the degree authority for financial management or investment of
fees collected under Senate Bill 1013 is transferred to a federal
agency other than the Treasury Department, appropriate training
programs in financial and economic analysis should be provided.
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 1013 is
a step forward in accomplishing this objective.
However, if the intent of Senate Bill 1013 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 1013 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. I think you all have
provided very useful testimony. Let me just ask any of you that
would want to respond.
One of the points Representative Lubnau made was that we
need to be more specific about what we do with unscrupulous
operators of CCS projects. Is that something that makes sense?
Something we need to be addressing in more specific terms?
If so, what do we do if an operator of a CCS project goes
belly up or leaves town or becomes untrustworthy. What should
we put in legislation to solve that problem? Mr. Anderson, Mr.
Moor, do either of you have a thought about that?
Mr. Anderson. We've thought a lot about it. My first part
of my answer would be one of my final statements. Don't be
quick to throw away the current liability system. That is
something we have that encourages good behavior.
Don't be too quick to relieve people of liability on a
permanent basis unless you've identified a genuine problem with
capital formation and targeted a policy response to that. The
insurance companies and the people who loan money to projects,
invest in projects are a great ally on this. People who, in the
private sector, are not likely to invest lots and lots of money
unless they have some confidence, a lot of confidence in the
quality of the operations.
Conversely to the extent of the investment community
doesn't have confidence that an operator is going to be a good
operator, that operator is going to have to pay more for its
capital and that's a good thing.
The Chairman. Mr. Moor, did you have a thought?
Mr. Moor. Yes, Mr. Chairman. I associate myself with
Scott's remarks. We--this is, I think, why we've concentrated
on the mutualization model. Because we believe that the
mechanisms inherent in that kind of model can help guard
against the rogue activity and reassessment of risk associated
with either bad behavior or a bad risk profile can be guarded
against by using the forces of the markets.
We've had some concern about the use of trust funds where
it would simply be as, I think we've called it, Joe's Crab
Shack and CO2 sequestration operation would simply
show up and begin to pay the fee and say we're in who can stop
us. Whereas in mutualization and insurance with insurance
products, there's a certain level of guardianship of capital
that should keep those kinds of operators out of the business.
Ms. Trabucchi. Can I actually offer something else?
The Chairman. Yes, please.
Ms. Trabucchi. I think it's extremely important as you
consider this bill and in my view developers of CCS projects
should remain fully financially responsible during the
operating act of injection period of the project and for a
defined period post injection. In so doing you're rendering
them financially accountable for their actions. That will
foster sound site selection, sound operating decisions because
they're the ones who remain responsible.
So any thinking about loan term indemnity really should be
about long term stewardship. It shouldn't take place during the
operational period.
The Chairman. Ok. Let me call on Senator Corker for any
questions he has.
Senator Corker. Ok. Mr. Chairman, first of all these
witnesses are outstanding. They're very concise and understand
well. I thank each of you for your testimony.
While I have some concerns about the viability of CCS I
want to thank you for offering this title. I strongly support
us researching in this area and developing standards. I just
have concerns about the viability.
But I realize coal is a very, very important part of what
we do power production wise. I think we need to be numbers of
things to figure out a way to solve this issue. But it's always
nice to get an emperor check on all those involved as to its
reality.
Let me just--as it relates to the Southern Company. When
you--one of the reasons that you use coal is its abundance and
in essence its lesser expense if you will, in delivering power.
When you start to fathom all of the expenses required with
capture, sequestration, pumping, insurance, all of those
things, hiring Mr. Tombari's great firm to do this.
I mean at the end of the day does it make it all begin to
look at nuclear and other kinds of things. Is it going to
render coal basically--I mean is this a transitional issue that
you see your company, in essence, moving away from coal in
general and using CCS in the interim as a transitional way of
dealing with it?
Mr. Moor. Thank you, Senator Corker. I think there will be
changes in generation mix. We're committed to programs that
will increase our nuclear utilization. We're looking at two
new, possible nuclear units in the Southeast. We know that TVA
is likewise focused on that.
Our commitment to IGCC is in part a statement that we
believe coal has to be a part of the mix. That is an approach
that our CEO has taken across the board in saying we can't
throw anything out. We've got to have it all.
We have a number of very valuable, very efficient, very
well regulated from a pollutant standpoint. Relatively new coal
fired facilities that need to be preserved. If we can retrofit
them with technology there may be, as I said, two happy
coincidences for us.
One, we've been blessed with some good geology in the
southern part of the service territory that we have some saline
aquifers that are probably as most people, and maybe John will
back me up on this, are some of the most attractive real estate
for doing sequestration projects. So that works I think in our
favor.
The other thing is the Southeastern oil fields are in need
of CO2. There's a demand for it. Thus when we did
the IGCC look at Mississippi we could look down the road and
see that some of the oil companies were interested in our
CO2. So the combined economic benefit is attractive.
We're like TVA in this regard. We've seen this resource do
amazing things for our region. Hydro and coal have made the
Southeast.
The Southeast is a bastion of economic development in a
country that desperately needs production and good jobs. To see
that disappear and not fight the good fight for a fuel that has
been so valuable and important for developing our region would
seem to be, to us, the wrong thing to do. So we're going to
continue to pursue it.
We're continuing to pursue these technological approaches
and efforts like this because we believe that it has to be a
combined effort. We are in essence sending a man to the moon
through the CCS effort. We've got to do it together. It's got
to be a collaborative effort with the environmental community
and public citizenry. We're going to pursue it hard.
Senator Corker. Would it be your sense that, for the sake
of our country, not just a particular region, that we need to
be working equally hard, if not harder toward recycling of
nuclear fuel so that we have a carbon free way of producing
power in this country. If you were going to weight our efforts
toward CCS or toward recycling nuclear fuel and being serious
about building 100 new nuclear plants in the next 20 years
which would you weigh toward?
Mr. Moor. Beyond my pay grade, I will confess first. But I
would say focusing on the coal side of the equation that the
regional nature of the resource, the tremendous capital
required for the investments in both of those technologies mean
that whatever steps forward we take they're likely to be
expensive. The region will feel the economic impact, not just
the close in region, but the neighboring region because we
exchange power with TVA. We exchange power with other partners
in the Southeast.
I think it's the decision of a lifetime. We're going to
have to do it with a full and open process that let's everybody
know what's about to happen. The Public Service Commissions
have to understand that either one of these approaches is
tremendously expensive.
They've got to understand why we're doing it and what's
motivating us for the good of the environment. But also the
real consequences in terms of cost and they will be
significant.
Senator Corker. Ms. Trabucchi, You talked about the
availability of cash. Your quiet statement about Federal
Government here and how things disappear.
[Laughter.]
Senator Corker. But the availability of cash to pay claims
is what you're talking about. Just give us a sense of the type
of claims that one might envision in the way of damages. Mr.
Tombari, if you have any thoughts since you're obviously an
expert in this area.
But for those of us who might think about some of the
lingering liabilities. I mean, I don't know what CO2
does to the underground as it relates to formations. I don't
know what some of the liabilities are. But could you site a
couple of examples where we, as citizens, might want to recover
from a company like Mr. Tombari, what would the damages be?
Ms. Trabucchi. Let me preface my remarks by saying that I'm
not an attorney. So I wouldn't want to make a representation of
what would be a legal claim. With that said, I could envision
dollar damages that might involve natural resources, ground
water contamination, aquifer contamination, endangered species
perhaps.
I think that, and again I'm not a scientific expert or an
engineering expert. So I can't comment on whether when
CO2 travels what might happen to that plume. But I
think there are analyses that can be done that look at the
different receptors which I think is part of what you're
getting at with your question.
The transport mechanisms and if there should be an event
how it would adversely impact those receptors through harm or
injury. Then there are analyses that you can do to place a
dollar value on that.
Senator Corker. Mr. Tombari, any?
Mr. Tombari. Yes.
Senator Corker. What is it that, in your great research and
preparedness for this, what are the things that you worry about
happening down the road? You want to pass the liability on
after the CO2 has kind of balanced itself. I didn't
use the right terminology I know.
But what are the things in the interim that concern you as
it relates to things that could go wrong?
Mr. Tombari. Talking about ``down the road.'' I think it's
important to realize that the challenges do drop off. The
challenges are higher during the operational phase and the
equilibrium.
But at the point in time when we're asking for stewardship
there really is minimal expense left to do care and also
absolute minimal challenges. So we don't anticipate anything
dramatic being left at that point in time.
I'd also like to point out that once again we're talking
about carbon dioxide which is something we breathe out. It's
something that's in your soda pop. So that's my thoughts on
that. Thank you.
Senator Corker. So not very damaging.
Mr. Tombari. No.
Senator Corker. Mr. Chairman, thank you and thank you all.
The Chairman. Thank you very much. Thank you all for being
here. This is very useful testimony.
Let me particularly thank Allison Anderson who has worked
so hard on this legislation. She's done a great job. We hope to
take the suggestions we've heard here today and perhaps even
make additional improvements.
Thank you again. That will conclude our hearing.
[Whereupon, at 4:28 p.m. the hearing was adjourned.]
[The following statement was received for the record.]
The State of Wyoming,
Office of the Governor,
Cheyenne, WY, May 19, 2009.
Hon. Jeff Bingaman,
Chairman, Senate Energy and Natural Resources Committee, 304 Dirksen
Office Building, Washington, DC.
Dear Senator Bingaman, I am writing to lend my strong support to
your bill, S.1013, ``Department of Energy--Carbon Capture and
Sequestration Program Amendments Act of 2009''. I sincerely appreciate
your solid leadership in moving this important legislation forward.
As we have discussed, the ability to sequester carbon dioxide
(CO2) is very important to Wyoming and the country. It is
becoming a pre-condition to continued use of coal in the United States.
For any number of reasons, not the least of which is national security,
we should not turn our back on this vital indigenous energy resource.
In Wyoming, we will continue to work on all the issues surrounding
CO2sequestration. Our technical and research work is
proceeding at a strong pace. We have identified several promising
candidate geological formations to store CO2. We have also
established the legal framework for pore space ownership and created a
regulatory regime to permit and safely manage CO2
sequestration. However, the largest impediment to progress in Wyoming
is the issue of long-term liability for the sequestered CO2.
This is why your effort is so critical.
Addressing liability for ten large scale injection projects is an
elegant way to move forward in both scientific understanding of the
sequestration process and creating the experience base for sound
financial and regulatory assessment. If we are serious about
CO2 sequestration in the United States, we need to marry
scientific understanding with rigorous financial analysis to establish
the actual risk profile of CO2 in the ground. This is the
pathway to a rational and efficient long-teim insurance solution.
I believe you have struck exactly the right balance in the manner
you have written the bill. Evidence of this is the bipartisan support
represented by the co-sponsorship of this legislation by Wyoming
Senator John Banasso.
Again, thank you for your leadership on this and other important
energy issues that our Nation must address. Please know that I stand
ready to support your efforts on this legislation.
Best regards,
Dave Freudenthal,
Governor.
APPENDIX
Responses to Additional Questions
----------
State of Wyoming Legislature,
House District 31,
May 19, 2009.
Hon. Jeff Bingaman,
U.S. Senate.
Dear Senator Bingaman: Thank you for the opportunity to testify in
front of the United States Senate regarding S. 1013. Upon my return to
Wyoming, I told my wife I was impressed how knowledgeable, interested
and well-informed the Senate Energy Committee is on issues related to
energy and the environment. In consultation with Ian Shaw from the
Wyoming Legislative Service Office, and Wyoming Rep. Mary Throne (D--
Laramie County), I have prepared the following answers.
Question 1. I think that the point that you make concerning the
termination or substitution of the storage site operator is a good idea
when they are cited as being negligent in their duties. How would you
go about finding and designating a new field operator should the need
arise? Is this something that you have worked on at the state level in
Wyoming?
Answer. Wyoming addresses this issue two ways: 1) through the
permitting and regulatory process; and 2) through the unitization
process. The United States Government has the ability to deal with the
unscrupulous or inept operators in much the same way--given the
appropriate regulatory framework. We found the Underground Injection
Control (UIC) permitting process was inadequate for regulation of
carbon sequestration in total. As a result, we passed a comprehensive
permitting process for carbon sequestration. The EPA is in the process
of drafting regulations for permitting of UIC carbon sequestration
operations. We believe the permit requirements, and most importantly,
the entity providing the financial assurances for the permit as an
enforcement arm outside the government. In that way, the provider of
financial assurances acts as a free-market enforcement arm of the state
regulations.
However, as a fail-safe to the process we have created other
alternatives. We can revoke the sequestration permit, and stop all
activities. We have also provided for petition and removal of an
operator pursuant to our unitization statutes. Any interested party (in
the Scalia sense of interested) can petition the Wyoming Oil and Gas
Conservation Commission for removal of the operator.
I would suggest for the purposes of this legislation, that the DOE
be authorized, by regulation, to enter into agreements with operators
for long term operations, for the requirements for adequate financial
assurances, and require a replacement operator be provided by the
entity requiring the adequate financial assurances. Those contractual
arrangements will relieve the United States Government from some of the
burdens associated with sequestration site enforcement.
Additionally, in the context of this legislation, it may be
possible to provide a limited right of action for certain parties to
petition for the removal of an operator, and the substitution of
another qualified operator based upon a showing of a material breach of
the agreements with the government. The key to the substitution of the
operator revolves around the financial assurances demanded by the
government at the outset. The more significant and iron-clad the
financial assurances, the more likely the operator will comply with the
requirements of the process.
In Wyoming, violation of the permit is also a crime. I do not know
how, in the context of this particular piece of legislation,
criminalizing permit violation conduct will occur, but it might be a
consideration of the committee.
Question 2. In addressing unitization--what sorts of feedback did
you receive in determining the 80%-20% ruling? Was there any opposition
to the approach you used in your unitization law?
Answer. I would like to say there was something magical in the
selection of the 80/20 numbers. Unfortunately, we took the Wyoming Oil
and Gas Unitization Statutes, and modified them to make them fit with
carbon sequestration activities. The existing percentages in the oil
and gas statutes were 80/20. Since no one objected to the percentages,
we kept them.
The only objection to the legislation was an argument by some
environmental landowners, that by virtue of a unitization process, and
granting the mineral owner dominance, we were giving the federal
government more control over fee lands. Because the federal government
owns so much of the pore space in Wyoming, it was perceived that the
federal government would consent to unitization, take control of the
unit, and overrun the surface owners in Wyoming.
Wyoming landowners, as I imagine is the experience in New Mexico,
are feeling ever growing frustration at the impingement on their
property rights by mineral owners and the public entities. Any time a
perceived impingement occurs, we see objections at the legislative
level. As a result, Wyoming's legislation is designed so the fee
surface owner has the most control over their lands, and the activities
in or on their lands as possible. I urge the United States Government
to lean that way. We have found that by becoming partners with the fee
surface owners, our public is more amenable to geologic sequestration
activities, and actually, in some sectors of the state, we are
beginning to see a building excitement at the development of an
entirely new industry in Wyoming.
Thank you for the opportunity to address these questions. If you
have any further questions, or you would like to discuss this matter
further, please feel free to call. I am at your disposal.
Yours very truly,
Tom Lubnau, II,
Wyoming State Representative.
______
Responses of Karl Moor to Questions From Senator Bingaman
Question 1. In your written testimony (pg 5--long term care) you
stated that Southern Company feels that the best approach for this
phase is a third-party caretaker for long-term maintenance of the wells
and infrastructure. Yet in your following sentence you state that you
don't feel a third-party contractor should handle the long term care in
the commercial-scale deployment phase. Can you clarify what you mean by
this?
Answer. At Southern Company, we try to make a clear distinction
between two aspects of ownership of closed sequestration sites. The
first is small in scope, strictly the maintenance and upkeep of the
infrastructure at the sequestration sites--the wells, the access to the
wells (roads, etc.), and any monitoring equipment. The second aspect is
the responsibility for any trespass, damages, remediation, and any
other claims resulting from the injected CO2. Southern
Company believes that transferring only the infrastructure maintenance
to a third-party is an appropriate and realistic approach given the
lack of commercial-scale CCS demonstrations and policy regulations. We
understand that other approaches could be considered in the future, but
the responsibility for any harm caused by the injected CO2
should remain with the sequestration site operator/owner unless
transferred by contract or other means. So, to be clear, in a
commercial sequestration site, we propose that the well maintenance and
any other infrastructure maintenance should be handled by a third-
party, but the liability for trespass, damages, remediation, and any
other harm remain with the injecting parties which may be Southern
Company or a third-party who has assumed liability under negotiated
arrangement.
Question 2. In the case of early mover projects, like those
described in S.1013, the site operator stays involved until the site
closure certification is issued by the secretary. It isn't until the
site closure certification is issued that the government (or some
government appointed entity) will step in and manages the sight. Is the
view that is outlined in your testimony in conflict with the long-term
care program stated in S.1013?
Answer. Yes, for early mover projects, Southern Company would
prefer an earlier involvement of the Department of Energy in helping
those projects to manage risks. At present, the DOE only provides
financial support and basic science research in support of CCS
technology development. Our desire is for S. 1013 to provide protection
through DOE for early movers during the operational phase of the CCS
project. Our experience in early CCS projects shows that the private
insurance providers today do not have enough information and/or
experience to offer policies to site operators that can adequately
cover the potential damages caused by an unforeseen event. This is part
of our ``first movers paradox''--i.e., Southern Company is more
concerned with the risks during the project's injection and
stabilization phases than the long-term risk management (although we do
see it as a future obligation that will have to be managed). My
reference to Dr. Sally Benson's work at Stanford University in my
written testimony is at the heart of this matter. As can be seen in the
figure provided below, a typical CCS project risk profile will increase
as CO2 is injected and continue to be at the highest levels
during injection and for some time after that. In this view, the risk
drops by almost half when time equal to about half of the injection
period passes. The risk continues to drop as time proceeds.
We think this is consistent with many other views of the potential
risks of sequestration, that geological failures that allow
CO2 to migrate outside of the desired confining zone would
occur while injecting or shortly thereafter.
It is my opinion that the bill would be more helpful in allowing
companies like Southern Company to proceed with these early mover
projects if they have some assistance in risk management for the
injection and stabilization phases of these first projects. This
approach would encourage projects which, in turn, would allow
companies, like Southern Company, to gather information and more
operational experience. This information and experience could be used
by private insurance companies, industry mutual associations, and other
entities to underwrite risk management instruments (primarily
insurance) for all phases of commercial projects. Therefore, I would
ask you to consider moving the involvement of the Department of Energy
for these early mover projects to the beginning of the injection of
CO2 phase, and not just after closure.
Responses of Karl Moor to Questions From Senator Murkowski
the role of states
It is my understanding that Southern Company is a member of the
FutureGen alliance. In competing for the FutureGen site selection, both
Illinois and Texas passed state laws to assume ownership of, and
liability for, the injected CO2.
Question 1. What is your opinion on the role of the states in terms
of long-term stewardship of CCS sites, as compared to the federal role
contemplated by S. 1013?
Answer. I would first point out that the amount of CO2
being captured and sequestered from the proposed FutureGen plant would
be limited to only about 1 million tons per year. This is the prototype
first mover plant and was established as a test bed for research
activities. Commercial CCS plants would sequester between 2 million and
5 million tons per year. It is not certain that these states would
agree to the same role for multiple commercial projects.
For infrastructure maintenance, there is a clear model in states
with oil and gas production to manage abandoned wells, mostly through
oil and gas boards. These operations are supported by charges to oil
and gas operators through trust funds. We view CCS as a direct
extension and recommend such organizations also oversee the wells and
infrastructure of a closed sequestration site.
As far as states accepting the responsibility for any trespass,
damages, remediation, and any other harm, we would suggest that this is
an issue where the states can independently decide if this is
appropriate and necessary.
The one issue for CO2 sequestration that is a state
responsibility is in the determination of who owns the pore space where
CO2 will be injected (surface owner or mineral rights owner
or the public). Some states have begun addressing this issue, but the
ability of a sequestration operator to efficiently gain access to the
right to inject the CO2 underneath private property and the
fair compensation to the rightful owner for that access is one of the
most pressing issues for CCS. It would be helpful for Congress to
consider incentives for individual states to make access to the pore
space available and assign value to the use of that pore space. Beyond
the issue of ownership is the need for condemnation similar to forced
pooling which has been successfully applied in the development of oil
and gas fields.
timing of indemnification
S. 1013 is relatively ambiguous about the point at which the
Secretary would make a decision on whether or not to indemnify the non-
federal participant in a demonstration project.
Question 2a. Do you think this represents a potential difficulty in
terms of negotiating participation in a federal demonstration project
or is it not likely to represent a problem?
Answer. Southern Company does recognize this ambiguity and the
likely point of indemnification to be a potential problem for early
mover projects. Our preferred risk management approach for commercial
projects, the use of private and industry mutual insurance, is still a
future option. These entities need real data and experience with the
activity in question to be able to underwrite insurance coverage. The
normal course of development would be to grow slowly both the
sequestration industry and the related insurance coverage over several
decades to reach a commercial position. With a need to accelerate the
development of CCS, we feel that there is a need to have some
assistance on these early mover projects to handle the risk management
as CO2 starts to be injected and not just after the site is
closed. At the same time, the experience from these sites will lead to
information that will help the private and industry mutual insurance
entities write the insurance coverage needed for companies to move
forward with commercial projects. To speed the development process
toward commercialization, we suggest that the Department of Energy
indemnification begin with CO2 injection for these early
mover projects assuming standards are met
Question 2b. How would the absence of clarity on a Secretarial
willingness to indemnify impact the non-federal participant's economic
planning and decision-making associated with a large-scale (1 million
tons plus, per year) demonstration project undertaken jointly with the
federal government?
Answer. With the entire responsibility for damages, remediation,
and any harm being left with the early mover project team, the lack of
assistance from DOE and the inability to purchase adequate insurance
coverage at reasonable cost will certainly slow down and delay these
projects. As we move toward injections of one million tons per years,
some type of reasonable risk management instruments (whether insurance
or DOE indemnification) will be necessary for these projects to go
forward. As I noted in my written testimony, changing section (g)(2) of
S. 1013 to state ``The Secretary shall agree . . . '' instead of ``may
agree'' will provide the necessary clarity on this issue.
options for advancing carbon sequestration
The debate on domestic policies related to global climate change is
still very much underway.
Question 3. Absent a price on carbon, and in addition to the
liability option that is under consideration in the context of S. 1013,
what other measures should the Congress consider pursuing to expedite
the development and deployment of carbon sequestration technologies?
Answer. Carbon capture and sequestration is one of many approaches
to provide electricity in a carbon-constrained future. Southern Company
believes that use of a suite of technologies will be necessary to
preserve economic growth and stability while decreasing emissions of
CO2 to the atmosphere. Many economic models predict that
electric generating companies, like Southern Company, would turn to
natural gas combined cycle generating units in the near-term. This
large-scale, nationwide switch from coal generation to natural gas
generation would have many adverse consequences. Therefore, we believe
coal needs to be competitive with natural gas but not overtaken by it
because of cost concerns. As I state in my testimony, Southern Company
believes that coal should and must remain part of the future generating
options. Our work in CCS is not only to prove the viability of the
technology, but also to improve the technology to make it more cost-
effective. Southern Company has been very active with the Department of
Energy in helping to develop and demonstrate technologies for emissions
reductions from coal power plant. We believe that the nation has
benefited greatly from our partnership with DOE and those with other
utilities, vendors, and research organization.
Congress must continue to support and increase funding for CCS work
that supports large-scale demonstrations and fundamental research and
development for capture of CO2 from coal power plants. So
first, we would propose that Congress needs to help this technology and
the technologies of the future be accelerated to protect the nation's
economy and those industries and individuals that rely on natural gas.
Southern Company supports the concept of a ``wires charge'' on
electricity paid into a fund to be used to support these activities as
well.
Secondly, we would encourage Congress to consider incentives to the
many states to put into place ``model'' statues that would clarify the
ownership of the pore space into which CO2 would be
injected. At the same time, these state statues must balance the need
for compensation of the pore space owner with the ability of
sequestration operators to gain access to these formations thousands of
feet below the ground surface.
Finally, for sequestration, we would suggest that Congress address
some of the ancillary issues associated with carbon sequestration.
These include ensuring that any regulations of CO2 injection
be flexible especially including the purity of the CO2
stream injected underground. The applicability of CERCLA and RCRA to
injected CO2 streams must be addressed. Obviously, the
CO2 purity and the applicability of CERCLA and RCRA are
linked together, making it more difficult to be flexible and protective
at the same time.
______
Responses of John Tombari to Questions From Senator Bingaman
Question 1. Do you feel that we have technologies available today
to adequately characterize a site for CCS and for long-term monitoring,
while simultaneously reducing operating risks related to liability?
Answer. Yes, technology is available today to adequately
characterize a site and for long term monitoring. Technology is also
available for operational and verification monitoring. Use of all of
these in combination by a skilled person/company is what leads to
simultaneously reducing the operating risk related to liability.
Good site selection and detailed characterization (prior to
injection) are the best ways to reduce operating risks related to
liability. For the first ten projects, covered by this legislation,
sites should be chosen that have the simplest characteristics and where
the best characterization technologies can be deployed.
Storage operators will need a deep understanding of the
technologies available as well as experience with deploying these
technologies. Only through this understanding and experience will they
be able to properly control overall quality, safety and environmental
impact.
The best currently available technologies for characterizing the
subsurface attributes of a site should be used and at a minimum
include:
High-resolution three dimensional (3-D) seismic over the
area of review (technology available).
Multiple wells with the following:
i. Cores (rock samples) recovered from both the injection
zone as well as the confining unit. (technology available)
ii. Downhole fluid samples from the injection formation as
well as from overlying aquifers brought to the surface at
formation pressure. (technology available)
iii. A comprehensive set of wireline logs including those
that help evaluate: mineralogy, porosity, permeability,
layering, fracture analysis, mechanical rock properties and
seismic calibration. (technology available)
iv. Formation pressure testing and fracture gradient testing
(technology available)
Integration of all the data into a single static shared-
earth model and subsequently incorporated into a simulator for
estimating how the CO2 plume and pressure front may
evolve over time. (technology available)
Construction of a geomechanical earth model to guide the
injection design and operations. This will help prevent damage
to the confining layer. (technology available)
An analysis of the basin water system to evaluate the
impacts which might occur in overlying or surrounding
formations and/or fresh water aquifers. (technology available)
Re-entry or evaluation of old wells that may be poorly
constructed and/or poorly plugged and might intersect the plume
of CO2. Included should be the use of tools with
full radial cement and corrosion coverage and that can detect
small channels in the cement (technology available.)
These views are based on the current state of technology. Because
of the long term nature of these projects, technology will continue to
evolve. Liability can only be based on the current state of technology.
While technology selection is important, the following human
factors are equally, if not more, important for success:
Properly trained people with prior reservoir management
experience.
Best available data integration processes
Proper and demonstrated risk management processes
Question 2. Do you or your company feel that the impending
Underground Injection Control (UIC) Program [under the Safe Drinking
Water Act] rulemaking process being conducted by the EPA is rigorous
enough for adequate site characterization of conversely overly
stringent? Are there any changes that you/Schlumberger would recommend
that would impact this legislation?
Answer. The impending UIC Program rulemaking process being
conducted by the EPA is rigorous enough for adequate site
characterization.
The EPA should diligently enforce the regulations pertaining to the
evaluation of existing wellbores that may intersect the CO2
plume, to minimize the potential for these wellbores to allow leakage.
Similarly, the EPA should diligently enforce regulations on new well
construction to provide for maximum safety and environmental
protection.
Question 3. You did no mention the need for liability program(s)--
do you or Schlumberger feel that a liability program is needed, in
light of the long history that your company has had working in the
subsurface? Are the liability concerns real? Are the ``risks'' for
geological storage as great as project developers claim they are?
Answer. Yes, Risk management programs including programs to manage
liability risks, are important. These concerns are real. Claims of
risks by potential project developers will vary based on the level of
experience they have had with subsurface practices and technologies
beyond those of pilot geologic storage projects.
Included in the request for long-term stewardship for early
projects is an implied request that once the site is transferred
(subject to established acceptance criteria), the operator's liability
exposure would end. Liability concerns also can be managed through:
Proper attention by CO2 generators and regulators
to make sure that the site developer/operator is properly
qualified, has a history of safe subsurface operational
experience and has demonstrated an understanding of the best
available technologies.
Proper site selection and detailed site characterization
prior to injection.
Proper integrated monitoring that identifies CO2
and pressure plume locations and tracks the integrity of the
confining layer.
The site developer/operator being responsible for both data
integration and risk and performance management practices so
that decisions are made using the best and most currently
available information.
Periodic reviews of monitoring results compared to
predictions as well as reviews of the practices in use.
Linking liability to the current state of technology at the
time commitments were made
Responses of John Tombari to Questions From Senator Murkowski
operational characteristics
Question 1. A typical car tire may be inflated to 40 or 50 pounds
per square inch. In terms of hydraulic fracturing for oil and gas
production, those activities take place at close to 8,000 pounds per
square inch, but that pressure is ultimately released as the oil and
gas is produced.
By way of a comparison, can you share with us what the likely
pressures would be for CO2 injections in a large-scale (1
million or more tons injected per year) CCS operation, how long that
pressure would be sustained, and whatever other differences between
sequestration activities and enhanced oil and gas recovery through
hydraulic fracturing or carbon dioxide injections that you think we
should be aware of?
Answer. To inject CO2 into a storage formation, there is
an existing pressure that must be overcome in order to introduce the
CO2. Once injection ceases, pressures will ultimately return
to equilibrium. At the best of sites, this process will not require
fracturing. Fracturing has been used by the oil and gas industry in
specific circumstances to assist the movement of fluids in the rock.
Fracturing requires overcoming both the existing downhole pressures and
the additional pressure necessary to break the rock.
It is likely that the CO2 will be injected above 1070
psi because above this pressure the CO2 has a liquid-like
density allowing for more CO2 to be injected per volume of
pore space. The pressure will dissipate with distance from the
injection point and it will dissipate over time depending on the
boundary conditions and hydrogeologic properties of the storage
formation. The boundary and hydrogeologic characteristics will need to
be studied and understood prior to the start of injection. Technologies
to do this are available.
It is important to make CO2 pressure measurements using
sensors placed deep in wells adjacent to the formation we are trying to
inject the CO2 into. Sensors at the surface (near the
wellheads or in the pipeline), though also important, are not adequate
for this purpose.
While pressure will vary with depth and formation properties it can
be controlled through proper injection design and maintained safely
below pressures that might damage the confining layer.
Determining the pressure (fracture gradient) above which damage to
the confining layer for a given site can occur, is one of the most
important aspects of proper site characterization. The technologies for
this are available. After characterization, constructing a proper
geomechanical earth model using appropriate computer software enables
managing pressure over time, and gives confidence that the pressure
increases will not damage the confining layer
options for advancing carbon sequestration
Question 2. The debate on domestic policies related to global
climate change is still very much underway.
Absent a price on carbon, and in addition to the liability option
that is under consideration in the context of S. 1013, what other
measures should the Congress consider pursuing to expedite the
development and deployment of carbon sequestration technologies?
Answer. To expedite the development and deployment of carbon
sequestration technologies, Congress should consider:
Authorizing and funding the proper detailed characterization
of many of the existing potential storage sites throughout the
country. .This would permit:
--Greater confidence in the distribution of storage sites
throughout the country and their proximity to large point
sources of CO2 emissions or to planned projects.
--Better planning for distribution systems and/or pipelines.
--Better development of storage related regulatory requirements.
Having a single regulatory agency responsible for all CCS
regulations to add consistency to and to streamline processes.
Federal guidance toward developing harmonious State laws
regarding property, access, trespass, and liability.
Providing for the development of CCS training/degree/
certification programs.
Response of John Tombari to Question From Senator Stabenow
Question 1. Mr. Tombari, thank you for your testimony. The Carbon
Services business at Schlumberger is a reassuring example of how the
fossil fuels industry is responding positively to the prospect of a
carbon-constrained economy. It is excellent that your expertise in
identifying and accessing geologic sites for hydrocarbon production can
be used for carbon sequestration. Mr. Anderson commented that while
today's legislation will be helpful for risk management carbon
sequestration projects, he hopes that market based solutions can soon
provide that risk management.
To what extent will this bill encourage the availability of such
market-based solutions? How far away is that scenario?
Answer. Market-based solutions for risk management during the
operational phase and equilibrium phases of a storage project exist and
will develop further once a commercial industry develops. With respect
to the long term risks (post closure): while the potential risks are
well documented and low, given a properly selected and operated site, a
statistical database allowing for quantitative risk analysis does not
exist. It will take a long time to develop good statistics because of
the lag between start up operations and site closure. Once operations
begin commercially there will be improvement in the ability to estimate
post closure risks. Until then, some Federal based assistance for risk
management programs will help establish the industry.
The program fostered by this legislation will create a bridge to
market-based liability solutions. As indicated in Mr. Anderson's
testimony, the program establishes a model that resembles market sector
mechanisms in several respects and limits the number of eligible
projects. It signals market players to not expect the federal
government to play the same role for later projects which should
encourage the development of market-based solutions. We expect that the
specific projects supported through this legislation, along with other
projects worldwide, (executed during the same time period) will be
sufficient to create that market.
Responses of John Tombari to Questions From Senator Shaheen
Question 1. In reading your testimony, I have been impressed to
learn of Schlumberger's work in carbon sequestration since the mid
1990's. We often talk about the challenges associated with carbon
capture and sequestration from our power sector, but it is good to know
there are companies out there--like yours--which have been sequestering
CO2 for years for enhanced oil recovery (EOR).
What kind of liability protection has your company used for the
CO2 injection projects that it has been involved with?
Answer. Allow me to clarify that Schlumberger has never and will
never take ownership or production sharing in an oil and gas field
including one for CO2-EOR. Our involvement over the decades
of CO2-EOR operations has been only as a service and/or
technology provider. Schlumberger Carbon Services is focused on saline
formation storage as opposed to CO2-EOR. Saline formation
storage is the most important asset that needs to be developed, given
the volumes of CO2 that will need to be stored in order to
impact climate change.
We have not been an owner of CO2-EOR sites and therefore
have not needed liability protection. For the storage demonstration
projects we have been involved in, we have not had to take ownership of
the sites and therefore once again have not needed liability
protection.
Question 2. Are these EOR projects Schlumberger has been working on
capable of permanent CO2 storage? Does your company, or do
the projects you have been working on, need comprehensive liability
coverage for an EOR project that goes into eventual permanent storage?
Answer. We have not been an owner of CO2-EOR sites and
we do not have access to all the data that would be necessary to
evaluate whether or not these sites would be suitable for permanent
CO2 storage. Our focus is on saline formation storage.
Question 3. Do you think the liability protections contained in S.
1013 will help address the concerns that new entrants into the carbon
capture and storage field might have?
Answer. Yes, the protections contained in S. 1013 will help address
the concerns that new entrants into the carbon capture and storage
field might have.
The CCS industry as a whole has yet to form, so all entrants will
be new. Even with our extensive technological experience, we too would
be new entrants. By addressing long term stewardship and liability
issues, S. 1013 will allow early commercial projects to proceed while
permanent approaches to risk management are developed.
Responses of John Tombari to Questions From Senator Bunning
Question 1. What types of technologies need to be implemented for
the maintenance of a large scale CCS demonstration project? Are these
technologies readily available? If not, when will they be and what are
the estimated costs?
Answer. Proper site selection and detailed site characterization
(prior to injection) are needed. Technologies to do this are readily
available and described above in question number 1 from Senator
Bingaman. Monitoring technologies, remediation technologies and other
technologies needed after injection for the maintenance of a large
scale CCS demonstration project are also readily available yet will
vary based on site characteristics. Storage operators will need a deep
understanding of these technologies as well as experience deploying
them in order to control overall quality, safety and environmental
issues.
Storage costs over the life of a large scale project at an easy
site onshore United States are estimated to be in the range of $5 to
$10 per ton of CO2. These costs will fluctuate with the
demand for people and services. There will be a competitive demand for
similar people and services from both the oil and gas industry and the
CO2 storage industry. These costs will also be impacted by
what evolves with respect to how property rights are acquired and with
what regulations will ultimately require as well as the availability of
risk transfer mechanisms.
Question 2. What does the risk profile for saline aquifer storage
look like?
Answer. The risk profile at a saline aquifer storage site can vary
depending upon many factors including:
The site selected and its complexity.
The extent to which detailed site characterization was
performed prior to injection
The expertise and risk management processes of the storage
operator
The options available for risk mitigation at the site
selected and/or the availability of alternate sites.
The frequency with which the risk profile is evaluated and
updated
Assuming a qualified site operator has performed all the necessary
initial detailed site characterization prior to injection and has
established the risk profile to be acceptable and manageable throughout
the anticipated life of the project then the following is likely:
During active injection, risk may fluctuate a bit depending on the
specific site and the operations being undertaken yet will generally
decline. Once injection stops the risk will decline more rapidly as the
CO2 comes near equilibrium. Near equilibrium, risk will
become very small and ultimately negligible as CO2 continues
to dissolve into the water and/or mineralization takes place.
The entire risk profile can be continually and pro-actively re-
evaluated over time as new data from monitoring and/or other sources
become available. With proper risk management practices and options put
in place for even the most unlikely of consequences, risks can be kept
under an acceptable threshold over time. The most critical factor for
doing this, especially for the early projects, will be the
qualifications of the storage operator and the technologies they
deploy. With proper practices and use of the right technology, the risk
that will be left for a long term steward to manage should be extremely
small.
______
Response of Chiara Trabucchi to Question From Senator Bingaman
Question 1. Can you summarize the main differences between the
liability and indemnity approach that we used in this bill, S. 1013 and
those of the Price-Anderson Act? Are there any advantages or
disadvantages to the application of either approach to this emergent
technology, CCS?
Answer. My discussions with scientists and engineers expert in
Carbon Capture and Sequestration technology (hereinafter CCS) suggest
that CCS is an important component of the portfolio of emission
reduction technologies available today. Further, to the degree
investment in CCS technology avoids stranding or abandoning existing
productive assets and stimulates regional and national economic growth;
then, I am persuaded that investing in a limited number of
demonstration projects would be prudent.
The challenge is to design a financial risk management framework
that balances incentives to advance the deployment of CCS technology
with the potential for adverse site selection due to moral hazard.\1\
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\1\ Moral hazard refers to the specific situation where the risks
of an unplanned event increase, because the responsible party is
(partially) insulated from being held fully liable for resulting harm.
If CCS facilities are not held completely responsible for the
consequences of their actions, arguably they will be less careful in
their siting and operating decisions. Therefore, the incentives to
capture, transport, site/characterize, and inject carbon dioxide in an
environmentally sound and protective manner may be diminished. The
potential for risk increases, because the chances of an unpredictable
event occurring due to poor siting/operating decisions increase. See
also Chiara Trabucchi and Lindene Patton, Storing Carbon: Options for
Liability Risk Management, Financial Responsibility, 173 World Climate
Change Rep. (BNA) (Sept. 2, 2008).
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The stated preference to advance CCS technology is similar to the
stated preference in 1957 to advance the atomic energy industry. Then
and now, proponents have cited to the interest of general welfare and
of common defense and security. Then and now, interested stakeholders
have raised issues associated with protection of public goods, limit of
liability (indemnification) for losses and financial protection.
Enacted in 1957 as an amendment to the Atomic Energy Act of 1954,
the Price-Anderson Nuclear Industries Indemnity Act (Price-Anderson)
partially indemnifies the nuclear industry from `public liability'
arising from an `extraordinary nuclear' incident.\2\ Specifically, the
Act was designed to protect the public in the event of a nuclear
incident by ensuring compensation for `meritorious' claims.
---------------------------------------------------------------------------
\2\ 42 U.S.C. 2210
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Price-Anderson established provisions for a cooperative program of
research and development to advance the deployment of new technology to
meet stated societal preferences.\3\ The conceptual framework
underpinning the indemnification and limitation of liability provisions
in Price-Anderson is based on three components:\4\
---------------------------------------------------------------------------
\3\ 42 U.S.C. 2292
\4\ 42 U.S.C. 2210
(1) Individual (Operator) Financing;
(2) Collective (Industry) Financing; and
(3) Federal (Public) Financing.
The advantage of the Price-Anderson model is that it establishes a
uniform legal foundation that blends private-public risk sharing with
the stated objective of advancing new technology.
The establishment of a cooperative program and the application of a
conceptual framework that balances financial responsibility between the
individual operator, the industry collective and the public present
similar advantages in the context of CCS. However, in my opinion, the
specific financial protection provisions established for the atomic
energy sector under the Price-Anderson model are not appropriate for
use in the CCS context.
differences between price-anderson and s. 1013
Senate Bill 1013 adopts elements of the private-public risk sharing
model first designed under Price-Anderson, but tailors the design of
the model to fit the CCS context. Specifically, there are three key
differences between Price-Anderson and S. 1013:
(1) Timing of Liability Relief
(2) Use of Site-Specific Risk Assessment
(3) Establishment of Limits on Public Liability
First, with respect to Timing of Liability Relief, the Price-
Anderson model establishes liability relief and indemnification for
incidents that occur during the active operating life of the licensee,
once claims exceed established limits of liability. In contrast, as I
understand, S.1013 holds the developer of the CCS demonstration project
legally and financially responsible for events that occur during the
operating lifecycle of the CCS project, and for a defined period post-
injection.
That is, S. 1013 provides liability relief and indemnification
after a certificate of closure is obtained and title is transferred. By
limiting liability relief to after the operator has demonstrated that
the CO2 plume `has come into equilibrium with the geologic
formation,' S.1013 provides incentives for CCS developers to properly
operate and maintain their sites, limiting the potential for future
damages and public liability.
Second, with respect to Use of Site-Specific Risk Assessment, the
Price-Anderson model establishes absolute, blanket dollar caps on
coverage for the individual tier, and for the collective industry
tier.\5\ Under Price-Anderson, the level of financial protection
required by each licensee, and therefore the public liability resulting
after the individual and collective industry caps are reached, is not
based on a site-by-site characterization of risk or potential for
injury. Rather, Price-Anderson limits the amount of primary financial
protection required by the licensee to the ``amount of liability
insurance available from private sources.''\6\
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\5\ 42 U.S.C. 2210(b)
\6\ 42 U.S.C. 2210
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Price-Anderson further states that for a subset of licensees the
amount of primary financial protection shall be the ``maximum amount
available at reasonable cost or on reasonable terms from private
sources.''\7\ If claims from an incident exceed the available premiums
from private and pooled insurance, the Nuclear Regulatory Commission
has the authority under Price-Anderson to indemnify the licensee from
remaining liability in connection with the occurrence.
---------------------------------------------------------------------------
\7\ 42 U.S.C. 2210
---------------------------------------------------------------------------
To the degree the private insurance markets are unwilling to
underwrite long-term liability claims for CCS at this time--that is,
the maximum amount of liability insurance available from private
sources for long-term CCS stewardship is $0--then, under a `Price-
Anderson like' model, the public would bear 100 percent of the
financial risk for long-term care until such time as insurance products
become available. Providing for 100 percent risk absorption by the
public eliminates the inherent benefit of a private-public risk sharing
model, by introducing issues of moral hazard and shifting financial
responsibility to the taxpayer. Essentially, 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.
In my view, failing to hold the CCS developer financially
responsible during the project's operating lifecycle and/or
establishing arbitrary limits of liability that are not based on the
Net Present Value of potential damages arising from each CCS
demonstration project may increase the probability and frequency of
long-term risk by eliminating financial incentives for sound operating
behavior and site selection.\8\
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\8\ As I noted in my written testimony, dated May 14, 2009, the
analytic tools exist to estimate dollar values for potential damages
arising from each CCS demonstration project. These tools are routinely
used by firms expert in financial and natural resource economics.
---------------------------------------------------------------------------
As noted in my written testimony, Net Present Value analysis should
be used to underpin the financial management framework proposed in S.
1013.\9\ Further, as I understand, S. 1013 is designed to assess and
collect fees from the CCS developer during the active life of the
demonstration project, with the objective of using such fees to finance
the cost of long-term stewardship after title is transferred. In
return, the CCS developer is assured a measure of liability relief and
indemnification. With this adaptation, and by virtue of holding the
developer financially responsible during the period of injection, S.
1013 has the advantage of sharing the financial risks associated with
long-term care between the private and public sectors, and minimizing
the potential for public liability.
---------------------------------------------------------------------------
\9\ See Written Testimony before the Committee on Energy and
Natural Resources. United States Senate. Hearing on Senate Bill 1013,
Department of Energy Carbon Capture and Sequestration Program
Amendments Act of 2009. May 14, 2009. pp 5-8.
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Third, with respect to Establishment of Limits on Public Liability,
the Price-Anderson model affords broad-scale indemnification and
limitation of liability across multiple use patterns in the manner of
one size fits all. In contrast, S. 1013 authorizes assistance for up to
10 demonstration projects with explicit provisions for project
selection and financial protection. By doing so, S.1013 provides a
measure of financial and regulatory certainty and sends a positive
signal to the private capital markets, but limits the overall risk
exposure to the public to a discrete number of sites with a discrete
array of selection criteria.
similarities between price-anderson and s. 1013
There are two elements of S. 1013 that appear to draw language
directly from Price-Anderson. In my view, these provisions should not
mirror Price-Anderson, but rather should be adapted to the CCS context.
The two provisions include:
(1) Level of Indemnification
(2) Deposits to the United States General Treasury
First with respect to Level of Indemnification,
Price-Anderson. Section 2210(c) Indemnification of licensees
by Nuclear Regulatory Commission ``The Commission shall . . .
agree to indemnify and hold harmless the licensee and other
persons indemnified, as their interest may appear, from public
liability arising from nuclear incidents which is in excess of
the level of financial protection required of the
licensee.''\10\
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\10\ 42 U.S.C. 2210(c)
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S. 1013. Section (g)(2) Agreements ``The Secretary may agree
to indemnify and hold harmless the recipient of a cooperative
agreement under this section from liability arising out of or
resulting from a demonstration project in excess of the amount
of liability covered by financial protection maintained by the
recipient under subsection (e)(7).''
As noted above, Price-Anderson establishes an absolute dollar value
for the level of financial protection required of the licensee, and
further caps the aggregate indemnity for all persons indemnified in
connection with each incident. The indemnification language under
Section 2210(c) of Price-Anderson relies on these concomitant limits of
liability, and thereby establishes a de facto dollar value for public
liability arising from incidents that occur during the active operating
life of the licensee.
As I understand, under S. 1013, the CCS developer remains legally
and financially responsible for incidents that arise during the active
life of the project, and until such time as the developer demonstrates
plume equilibrium. If so, the language in Section (g)(2) of S. 1013
should not map to the provisions of Section (e)(7), which establish
financial assurances until a certificate of closure is issued. Rather,
the language in Section (g)(2) should map to the risk-adjusted, site-
specific Net Present Value of future expected losses arising from each
individual demonstration project. This change, which aligns the
provisions in Section (g)(2) with the provisions related to the
collection of fees in Section (g)(4), creates financial incentives for
the CCS developer to establish site selection and operating criteria
that will limit the `net present value of payments,' and thereby reduce
the potential for future damages and public liability.
Second, with respect to Deposits to the United States General
Treasury,
Price-Anderson. Section 2210(b)(4)(B) Amount and type of
financial protection for licensees `` . . . any funds
appropriated under subparagraph (A)(i) shall be repaid to the
general fund of the United States Treasury from amounts made
available by standard deferred premium assessments, with
interest at a rate determined by the Secretary of the Treasury
. . . ''\11\
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\11\ 42 U.S.C. 2210(b)(4)(B)
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Section (g)(4)(C) Use of Fees ``Fees collected under this
paragraph shall be deposited in the Treasury and credited to
miscellaneous receipts.''
In the event funds available to pay valid claims in any year are
insufficient, the Nuclear Regulatory Commission is authorized under
Price-Anderson to request the Congress appropriate sufficient funds
necessary to satisfy such payments. With few exceptions, funds
appropriated for this purpose are to be repaid to the general fund of
the United States Treasury by the licensee. In the absence of doing so,
the Commission may place liens against the property of, or revenues
generated by, the licensee.\12\ These provisions presume that the
licensee is active and remains financially capable of generating
income. That is, Price-Anderson establishes provisions for cost
recovery ex poste.
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\12\ 42 U.S.C. 2210(b)(3)
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In my view, the indemnification provisions of S. 1013 are
predicated on the payment of funds into the Treasury today (or in the
near term) with the expected use of funds deferred to a future period
in time--after title to the CCS project has transferred, and the
operator is no longer financially responsible pursuant to its
indemnification agreement. That is, S. 1013 establishes provisions for
cost recovery ex ante.
Unless the fees collected pursuant to S. 1013 are set aside in a
dedicated, interest-bearing account, there is the risk that the funds
collected will not match the anticipated use of funds in the future. A
key implication of not setting the fees aside in an interest-bearing
account is that this sequestration program likely would need to collect
a larger amount of funds today to avoid under funding long-term care
costs in the future.
In my view, there are advantages in applying elements of the
provisions established under Subchapter VII, Decontamination and
Decommissioning of the Price-Anderson Act to Section (g)(4)(C) of S.
1013. Specifically, Section 2297(g) of this Subchapter of Price-
Anderson establishes a dedicated interest-bearing account, the Uranium
Enrichment Decontamination and Decommissioning Fund, in the
Treasury.\13\ The Fund was established to finance decontamination,
decommissioning and remedial action costs at covered facilities.
---------------------------------------------------------------------------
\13\ 42 U.S.C. 2297(g)
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In my view, the adaptations discussed above, coupled with the
modifications suggested in my written testimony, will help offer
financial and legal certainty to the developers of CCS demonstration
projects, ensure the continuity of financial assurances for long-term
stewardship and send a positive signal to the private capital markets
interested in investing in CCS technology. With these modifications, S.
1013 represents a notable step forward in providing the incentives
necessary to capture, transport, site/characterize, and inject carbon
dioxide in an economically efficient, environmentally sound and
financially protective manner.
Response of Chiara Trabucchi to Question From Senator Bunning
I believe that C.O.2 is not a waste product, but rather a commodity
that will be sold on the marketplace for enhanced oil recovery and
other uses. What can the government do to encourage this kind of use
for carbon emissions?
Answer. The sale of carbon dioxide (CO2) for Enhanced
Oil Recovery (EOR) or other beneficial use is encouraged under various
state statutes.\14\ In my view, the beneficial use of CO2
for purposes of FOR extends the production of domestic energy resources
and avoids stranding or abandoning existing productive assets. To the
degree society has a stated preference to reduce CO2
emissions, and CO2 for FOR represents a near-term
opportunity to foster CCS technology, then incentives may be warranted,
including:
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\14\ See Texas Natural Resource Code, Title 3, Oil & Gas, Subtitle
D, Chapter 119
(1) Incentives that promote joint business ventures between
generators of CO2 emissions and firms undertaking
EOR projects.
(2) Opportunities for financial and technical assistance for
EOR projects that demonstrate material beneficial use and
permanent storage of CO2.
(3) Incentives to foster the development of a pipeline
infrastructure that bridges CO2 processing plants
and geographic areas with unrecovered oil deposits.
discussion
In oil fields where production by conventional drilling has
dwindled, firms are able to extend the revenue generating potential of
the site by injecting CO2. The CO2 is recycled
over the life of the project to prolong production. By using existing
well bores, the firm is able to increase production without incurring
added capital expenses, thereby maximizing return on investment.
Depending on the time horizon over which risks and attendant
financial consequences from these investments are likely to occur, the
financial markets may offer short-, medium-, or long-term capital. In
general, the shorter the term of the capital investment, the greater
the market segment's tolerance for risk.
Financing CCS ventures associated with coal-fired power plants
requires investors with a long-term capital horizon. Typically, these
investors have a low risk tolerance for the unexpected and the
unquantifiable. This segment of the financial market generally seeks
risk sharing opportunities with market segments that demonstrate higher
risk tolerance; for example, the oil and gas sector. In so doing, the
institutional investor is best able to diversify its investment
portfolio and hedge its overall risk exposure. Increased pressure
facing coal-fired power plants to mitigate CO2 emissions
coupled with oil interests searching for supplies of CO2 for
EOR suggest market opportunities exist for mutually beneficial joint
ventures.
Companies undertaking EOR projects with CO2, either
individually or as part of a joint venture, are likely to reap
considerable returns on investment. However, these returns are
predicated on up-front capital investments, including:
Facilities for CO2 Capture (e.g., natural gas or
other),
Pipelines,
Compression equipment,
Transportation,
Distribution lines,
Flow lines, and
Injection wells.
Simply stated, the beneficial use of CO2 for EOR is
predicated on a pipeline infrastructure, whereby CO2 is
captured, compressed and shipped from a CO2 (natural gas or
other) processing plant, then shipped via pipelines to the oil fields.
To the degree society has a stated preference to reduce
CO2 emissions, and CO2 for EOR represents a near-
term opportunity to foster the design and deployment of CCS technology
on a smaller, yet economically efficient scale, then:
(1) Incentives that promote joint business ventures between
generators of CO2 emissions and firms undertaking
EOR projects may be warranted; and
(2) Similar opportunities for financial and technical
assistance as those proffered to large-scale industrial sources
under S.1013, including the opportunity to compete for a
cooperative agreement under Section (d) of the Bill, may be
warranted for FOR projects that demonstrate material beneficial
use and permanent storage of CO2.
(3) Incentives to foster the development of a pipeline
infrastructure that bridges the processing plants with
available CO2 and the geographic areas with
unrecovered oil deposits may be warranted;
______
Responses of A. Scott Anderson to Questions From Senator Bingaman
Question 1. In Mr. Moor's testimony, he states that the financial
protection required for the operational phases be set and defined as
the ``maximum private insurance available in the market''. Do you think
this is a necessary provision, seeing as how companies frequently self-
insure their industrial operations? They also have other mechanisms for
``insurance'', such as mutual funds, bonding programs, and more.
Answer. Once CCS developers are able to manage the risks of
liability exposure and other financial risks by relying on market
mechanisms rather than government protection, a variety of alternatives
will be available and the tools will by no means be limited to
insurance. To some extent the various tools already exist today. It is
only because some developers are unable or unwilling to self-insure,
and because other risk management mechanisms for CCS are not fully
developed, that it makes sense for government to serve as a back-stop
for some early projects.
In a fully functioning market the decision on whether and how much
insurance to purchase should be left to individual firms. We agree with
Mr. Moor, however, that even a program for a limited number of early
projects should not indemnify private parties for losses that could
have been covered by private insurance. We would support defining
``insurance'' broadly to include similar types of private sector risk-
sharing arrangements (bonds, letters of credit, etc.) acceptable to the
Secretary. Requiring developers to obtain as much insurance as they
reasonably can would protect taxpayers and create demand that
encourages development of private sector offerings.
We recommend along with Mr. Moor that the statute give project
developers an affirmative obligation to demonstrate that they have used
their best efforts to obtain the maximum insurance coverage (broadly
defined) available given the developer's individual circumstances. In
addition, the statute should limit the government's financial exposure
so that taxpayers will not pay for losses that could have been covered
by such insurance.
Question 2. Also, Mr. Moor and states concerns with the term
``equilibrium'' that if it is not more adequately defined it could drag
out the closure period for ``an unjustifiably long time period''. Do
you agree with this statement? Do you feel that the term is too
restrictive? Do you consider the additional 10-year period to be
redundant?
Answer. EDF agrees that a strict application of the term
``equilibrium'' (or the similar term ``stabilization'') could extend
the closure period beyond the time necessary. Our understanding is that
there are likely to be some cases where secure storage can be
demonstrated, prior to equilibrium, even though the CO2
plume will continue to migrate slowly for many decades or even
centuries.
The attached letter, submitted to EPA on December 23, 2008 by a
diverse group of stakeholders including EDF, the American Petroleum
Institute and the Edison Electric Institute, recommends a set of
closure standards that would not require equilibrium or stabilization
to be expressly demonstrated in every case. The suggested standards are
based on earlier work by the World Resources Institute and the Ground
Water Protection Council. If EPA and other regulators adhere to these
proposed closure standards in their entirety, we believe the standards
will lead to appropriate decisions on whether and when to certify sites
for closure. We ask that the letter be made a part of this record.
While EDF believes that in the future it will not be necessary to
demonstrate stabilization in every case (we prefer the term
``stabilization'' to ``equilibrium''), we do not oppose using the
concept in a bill relating to early projects so long as the concept is
not applied in an overly strict manner. Stabilization has an intuitive,
common-sense appeal and requiring evidence related to stabilization may
promote public acceptance of the emerging technology. Moreover, even as
a technical matter, there is a sense in which a degree of stabilization
is important. In order to be sure that the stabilization requirement is
not overly strict, we suggest that the bill be amended to require a
determination of whether the carbon dioxide plume has stabilized ``to
the degree necessary'' to begin an assessment of whether closure
standards have been satisfied.
With regard to the ten-year period, we do not view it as redundant.
In fact, we do not view it as ``additional'' to the closure evaluation
required by the bill. Instead, as we read the bill, the ten-year period
is treated as an integral part of the closure assessment process. The
bill's approach to closure evaluation appears to be based on the
concept that assessment should occur over a minimum span of time and
the concept that a project should have a ``clean bill of health''
throughout the period. The question in our mind is whether this is a
reasonable approach.
EDF believes that sequestration projects can be regulated in the
future without requiring post-injection monitoring for a fixed period
of time. The important thing is to require that projects meet
environmentally sound performance standards before the projects qualify
for closure--regardless of how much or how little time it takes to meet
the standards. Nevertheless, we do not oppose the idea of a fixed,
minimum evaluation period as part of the oversight of early projects.
Like the stabilization concept, this idea has an intuitive, common-
sense appeal and may promote public acceptance of the emerging
technology.
Responses of A. Scott Anderson to Questions From Senator Murkowski
options for advancing carbon sequestration
Question 3. The debate on domestic policies related to global
climate change is still very much underway.
Absent a price on carbon, and in addition to the liability option
that is under consideration in the context of S. 1013, what other
measures should the Congress consider pursuing to expedite the
development and deployment of carbon sequestration technologies?
Answer. EDF supports the additional measures proposed by USCAP in
order to expedite the development and deployment of carbon
sequestration technologies. See USCAP, A Blueprint for Legislative
Action--Consensus Recommendations for U.S. Climate Protection
Legislation (January 2009). The USCAP suggestions are part of a larger
climate initiative and are not a stand-alone proposal. In the absence
of cap and trade legislation, we believe that any additional
Congressional funding for carbon capture and sequestrations should be
relatively modest. Consensus Recommendations for U.S. Climate
Protection Legislation
purity of carbon dioxide
Question 4. In some instances, it is my understanding that the flue
gas to be sequestered from coal-fired plants may not be 100% pure
CO2.
Is the Environmental Defense Fund concerned about substances other
than CO2 being injected underground?
Answer. We do not expect injected CO2 streams to be 100%
pure CO2, although we do expect the CO2 content
of the injected stream to be 95% or greater in virtually all cases. It
is important to remember that the scientific consensus supporting the
feasibility of CO2 sequestration relates to CO2
sequestration, not to the sequestration of flue gas. CO2
needs to be separated from the flue gas before it is injected. While
these are our expectations, we are not advocating new quantitative
requirements relating to CO2 content or to the content of
substances that might be mixed with the CO2. We believe that
other substances should be prohibited if they interfere with storage
site operations or if they are not incidental to the capture process.
There are some special situations where injection of substances
other than the CO2 itself might lead to problems, but at
this point we do not think that new grants of regulatory authority are
necessary in this regard. If the ``other'' substances were to cause the
injection stream to qualify as a hazardous waste under RCRA, the
injection operation would and should become subject to RCRA
jurisdiction. Similarly, if substances were to leak from a storage
formation and trigger CERCLA liability, the operation would and should
be subject to the requirements of that statute.
The theoretical applicability of RCRA or CERCLA may never arise in
practice. But there is one issue relating to ``other substances'' that
is almost certain to arise--how much hydrogen sulfide should be
permitted in the CO2 stream? For safety reasons,
CO2 pipelines currently impose very strict limits on
hydrogen sulfide content. The limits vary from pipeline to pipeline. We
understand that in some instances the CO2 capture process
could yield incidental traces of hydrogen sulfide that, while small,
are in excess of the current specifications of some pipelines but
within the specifications used by other pipelines. We believe that this
is an issue that deserves the close attention of regulators and
policymakers, but at this point we do not believe that any new
regulatory authority is needed in order to deal with possible problems.
Response of A. Scott Anderson to Question From Senator Stabenow
Question 1. While it is imperative to identify quality geological
formations that will contain carbon with as little risk of leakage as
possible, I would like to know more about other ecological and
environmental risks that may be present. Mr. Moor of Southern Company
mentioned in his written testimony the risks that injected carbon may
pose to ground water. In a place such as Michigan where water is
carefully monitored and protected, please tell me: what we need to do
to ensure water quality while finding more opportunities for CCS?
Has United States Geological Survey studied this issue?
What have we learned from injecting carbon into old gas and
oil wells?
Are there adequate protections from the Safe Drinking Water
Act? While EPA is not present here, is it already considering
this?
Answer. These are large and important questions! Fortunately there
are good reasons to expect that 99% or more of CO2
sequestered in geologic formations will remain in place for 1000 years
or more--if the sites are properly selected and properly managed. See,
for example, the International Panel on Climate Change Special Report
on Carbon Dioxide Capture and Storage (2005) and literature reviewed by
EPA in Docket No. EPA-HQ-OW-2008-0390, Proposed Rule for Geologic
Sequestration of Carbon Dioxide.
The importance of proper site selection and proper operations
cannot be overemphasized--geologic sequestration is not something that
can be done just anywhere and it requires sophisticated oversight by
both the companies involved and regulators. EDF agrees with the
International Panel on Climate Change and with the U.S. EPA that the
necessary tools and expertise are available. As a technical matter, CCS
is ready to begin deployment today.
I believe that one of the most important objectives in the
oversight of geologic sequestration projects is assuring that formation
fluids displaced by CO2 injection are not driven out of the
underground storage area and into an underground source of drinking
water. Michigan will want to make sure that requirements include: (1)
confining zones of sufficient quality and lateral extent to confine
both displaced formation fluids and injected CO2; (2) a
definition of ``zone of elevated pressure'' that is designed to guard
against either CO2 or formation fluids being driven into a
USDW; (3) modeling movement of both the CO2 plume and
formation fluids; (4) monitoring of ground water quality and any
geochemical changes above the confining zone; (5) remedial response
plans in the event problems appear to be developing; and (6) a
prohibition against sequestering CO2 above the lowermost
source of drinking water unless special rules are followed relating to
assessing confining layers beneath the injection zone, monitoring, and
conducting regional hydrogeologic studies. EPA has proposed requiring
(1) though (5). In the case of (6), EPA has proposed an even stricter
approach--a total prohibition on sequestration above the lowermost
USDW.
The USGS is in the process of studying issues regarding geologic
sequestration. For example, see DOI, Report to Congress: Framework for
Geological Carbon Sequestration on Public Land (2009) (USGS, as well as
EPA and DOE, contributed to this study). As time goes on we hope that
USGS will be able to continue to make significant contributions to the
deployment effort.
For over 30 years, the oil industry has injected without serious
incident significant quantities of CO2 in order to enhance
petroleum production. Injections currently total about 35 million tons
per year. In the process much has been learned about the behavior of
CO2 underground. The oil and gas industry has developed
expertise in a number of other areas as well that are useful for
geologic sequestration, e.g., various types of seismic imaging,
techniques for calculating site-specific limits on injection pressures,
and well construction techniques that are capable of preventing leakage
from the injection zone back to the surface.
At this time we believe EPA's Safe Drinking Water Act authority is
adequate to regulate geologic sequestration for purposes of protecting
underground water quality.
______
Responses of Victor K. Der to Questions From Senator Murkowski
Question 1. Number of Projects--The 2007 Energy Bill authorized 7
CCS demonstration projects, FutureGen represents another, CCPI will
presumably result in at least one, and S. 1013 would provide for 10
more. That represents, minimally, 19 demonstration projects.
Does the Department believe this number is too high, too low, or
about right in terms of the number of demonstrations that will be
required to prove the viability of carbon capture and sequestration
technologies at a sufficiently diverse number of geological and
geographical sites throughout the country?
Answer. The Department of Energy believes that in order to
demonstrate the long term, safe storage of CO2, projects
covering a wide variety of geologies, formations, and reservoir types
must be tested. We also need to demonstrate integrated carbon capture
and storage (CCS) demonstrations with both current and evolving capture
technologies. We believe that the 19 projects cited will provide a
strong foundation to demonstrate the viability of CCS technologies, and
would represent the minimum number of projects necessary to set the
stage for early demonstration over the next few years.
Question 2. Quantifying Risk--It has proven somewhat difficult to
calculate the risk profile of loan guarantees for clean energy projects
(under Title XVII of the 2005 Energy Policy Act) that have a verifiable
cost in terms of the amount of the individual loans to be guaranteed.
The potential liabilities and attendant risk profiles associated with
carbon sequestration demonstration projects are even less certain and
include bodily injury, sickness, disease, death, loss of or damage to
property, loss of use of property, and injury to or destruction or loss
of natural resources (including fish, wildlife, and drinking water
supplies) according to the legislative text of S. 1013,
Is the Department prepared to calculate the fees required by this
bill (on page 8, line 21 of S.1013) to cover potential liabilities?
Have you given any preliminary thought to how you would go about
that task?
What is the precedent for a calculation of this kind? Specifically,
what are the relevant differences and similarities between the approach
taken by 8.1013 and both the Price-Anderson indemnification program and
that established by Public Law 85-804?
What are some examples of potentially suitable financial
protections to be maintained (on page 6, line 6 of S. 1013) by the non-
federal participants in any of the 10 demonstration projects authorized
and does the Department have information (anecdotal, quantifiable or
otherwise) that it can share on the availability, or lack thereof, of
private insurance policies for carbon sequestration operations?
Answer. To answer your first question, no, DOE is not presently
prepared to make these calculations.
DOE is still researching and identifying possible examples of
financial protection applicable to CO2 storage. However, it
is notable that private insurance companies are starting to develop
products to cover some of the risks associated with geologic injection
and storage of CO2.
Question 3. Existing Appropriations--There are now approximately
$4.1 billion at DOE for projects related to carbon sequestration. For
at least a portion of that money (that which is spent pursuant to the
Section 702 authorization of the 2007 Energy Independence and Security
Act), there is a statutory requirement that 1 million tons of
CO2 be injected per year or that a project be undertaken at
a scale that demonstrates the ability to inject and sequester several
million metric tons of industrial source carbon dioxide for a large
number of years. S. 1013 would decrease that requirement for the
existing Section 702 authorization and retain it for the newly (and
potentially) authorized 10 projects in the bill.
Is it possible for DOE to spend the already appropriated $4.1
billion on projects that would inject 1 million tons of CO2
annually without the option to indemnify the nonfederal participants?
Is it possible for DOE to spend the already appropriated $4.1
billion on projects that are undertaken at a scale that demonstrates
the ability to inject and sequester several million metric tons of
industrial source carbon dioxide for a large number of years without
the option to indemnify the non-federal participants?
The day following the legislative hearing on S.1013, the Department
announced funding for $2.4 billion in CGS projects. Did that funding
include a minimum of 1 million tons of CO2 injected annually
as part of the eligibility criteria, or that the projects are
undertaken at a scale that demonstrates the ability to inject and
sequester several million metric tons of industrial source carbon
dioxide for a large number of years?
Is the $1.52 billion associated with the ``Industrial Carbon
Capture and Storage'' to be made available pursuant to the Section 702
authorization, or some other provision of law?
Answer. Regarding indemnification and spending per the appropriated
funding, it is unknown at this time how the indemnification provision
in S. 1013 will impact the number or quality of applications for the
Industrial Carbon Capture and Storage (ICCS) program and Clean Coal
Power Initiative (CCPI) Round 3, both authorized for funding by the
American Recovery and Reinvestment Act of 2009 (Recovery Act). We
expect that applicants may be willing to accept the risk and propose
projects. The CO2 capture and injection goals of the
Department of Energy, however, are unaffected by the indemnification
provision in S.1013.
The ICCS and CCPI programs, as authorized by the Recovery Act, are
to demonstrate the integration of CO2 capture and storage
methodologies. The ICCS Funding Opportunity Announcement sets a target
of I million tons CO2 sequestered per plant per year by
2015. The amount of CO2 sequestered will be one of the
evaluation criterion. The CCPI has a requirement for a minimum of
300,000 tons of CO2 per year.
Consistent with the conference language accompanying the Recovery
Act, the $1.52 billion will be used for industrial carbon capture and
storage authorized pursuit to Section 703 of the Energy Independence
and Security Act and an allocation for beneficial use of
CO2.
Question 4. The Role of States--In competing for the FutureGen site
selection, both Illinois and Texas passed state laws to assume
ownership of and liability for, the injected CO2.
What is the Administration's position on the role of the states in
terms of long-term stewardship of CCS sites, as compared to the federal
role contemplated by S. 1013?
Answer. Some states have passed laws to assume ownership and
liability of the CO2 for a particular project, while several
others have passed or are looking to implement laws assigning ownership
and liability to industry. The legal framework for carbon capture and
storage will need to address liability, pore space ownership, and
pertinent regulatory authority. The potential for wide variability in
how states address these issues is great since some states have
extensive experience in oil and gas production, some states have
experience in regulatory permitting, while others have limited
experience related to both. DOE and other Federal agencies are
currently reviewing S.1013 regarding the state versus the Federal role
in assuming liability for injected CO2 after which
recommendation to the Administration can be made.
Responses of Victor K. Der to Questions From Senator Shaheen
Question 1. Much of DOE's work on clean coal has been on the
technology development front, but it's good to hear you are also
working on storage issues and sequestration issues for CCS. Many of the
individual pieces of a CCS system are known--that is how to capture
carbon at the combustion source, how to transport CO2 and
how to geologically sequester it. Yet the real challenge seems to be to
combine all of these different technologies into a working system. In
your view, what kinds of time horizons are we looking at for the
deployment of large-scale CCS projects in the utility sector?
Answer. The President's budget proposal for FY 2010 calls on
Congress and stakeholders to work with the Administration toward the
goal of reducing of our greenhouse gas emissions to a level that is
about 14 percent below 2005 levels by 2020 and 83 percent below 2005
levels by 2050. Initiating commercial implementation of carbon capture
and storage (CCS) in the 2020 timeframe is required to ensure that new
plants can economically incorporate CCS and that CCS technology can be
affordably applied to the existing coal-fired power plants so that they
too can contribute towards the 2050 reduction target.
Question 2. In your testimony you state that ``today's commercially
available CCS technologies will add around 80 percent to the cost of
electricity for a new pulverized coal plant.'' Is it fair to say that
as CCS technologies ramp up, and we learn from some of the earlier
``first-of a-kind' CCS facilities that these costs will come down? Do
you have any sense of how long it will take for the price of these CCS
facilities to come down?
Answer. The carbon capture and storage (CCS) technology research,
development and demonstration effort is focused on achieving specific
performance goals, including reducing the cost of capture technology,
along a timeline that will result in marked improvements over today's
technology. Experience from first-of-a-kind demonstrations should
result in the ability to identify cost reductions, efficiency
improvements, sustained reliability and other optimizations for follow-
on plants with CCS. These integrated goals are applicable to both the
existing fleet of coal-fired power plants as well as the new near-zero
emission coal-fueled energy systems of the future. These goals are
described in the FY2010 Congressional Budget Request:
By 2012, validate pre-combustion capture technology(ies)
that if integrated with an IGCC power plant, through a rigorous
systems analysis, could show ``near-zero'' atmospheric
emissions configurations at no more than 10 percent increase in
the cost of electricity relative to 2003 technology baseline
(pulverized coal).
By 2013, complete bench-scale development of advanced post-
and oxy-combustion capture technologies that are capable of 90
percent CO2 capture at no more than a 35 percent
increase in cost of electricity.
By 2020, complete full-scale demonstration of advanced post-
and oxy-combustion CO2 capture technologies that can
achieve 90 percent CO2 capture at a target of less
than a 35 percent increase in cost of energy.
It is difficult to make any definitive comments regarding the
decrease in CCS technology costs with time. The economics and
commercial viability of CCS implementation will depend on factors other
than successful technology demonstration, such as, maintenance costs
for the technology and changes in legislation regarding greenhouse gas
emissions.
Question 3. Do we have any time horizons and costs of scale for
other technologies, for example the development of nuclear power that
we can compare CCS to?
Answer. We do not have credible methods for comparing the time
horizons and costs of scale for nuclear power or other alternative
technologies with carbon capture and storage (CCS).
Some CCS technology has the benefit of decades of experience from
the oil and gas industry. For example, the oil and gas industry
experience in exploration, drilling and enhanced oil recovery using
CO2 flooding has produced significant understanding of the
storage of CO2 as well as preliminary evidence of its
permanence. Furthermore, the capture of CO2 from a dilute
combustion stream is somewhat analogous to the capture of SO,, and NO
from these streams Lessons learned and technology developed in these
related fields will help to advance CCS technology in a timely manner.
Demonstrating the safe and effective long-term geologic storage aspects
to the public will also be addressed as part of our program as we move
forward with CCS.
Responses of Victor K. Der to Questions From Senator Bunning
Question 1. Mr. Der, as you know I am a proponent of coal-to-liquid
fuels technology. I believe this promising technology paired with
carbon capture can provide a domestic supply of diesel and jet fuel in
an environmentally responsible manner. In the past I have introduced
legislation to provide government incentives, in the form of tax
credits and planning loans, for the first few coal-to-liquid
facilities. Do you believe that coal-to-liquid facilities with carbon
capture capability can help accelerate the demonstration of stored
C.O.2 in conjunction with enhanced oil recovery and saline aquifer
storage?
Answer. A coal-to-liquids facility will act like any other
industrial source of CO2 and, when integrated with CCS
technology, provide a stream of CO2 that can be used to
demonstrate CO2 storage, such as in a saline aquifer, or
used to commercial benefit, as in enhanced oil recovery. Additionally,
DOE's National Energy Technology Laboratory's analyses have shown that
a coal and biomass to liquids facility, using indirect liquefaction
technology with carbon capture and storage (CCS) capability (e.g.
enhanced oil recovery systems, saline aquifers), could produce liquid
fuels that have over a 30 percent lower life cycle Greenhouse Gas (GHG)
emissions than petroleum-derived diesel.
Question 2. Mr. Der, in your testimony you outline the funding that
was provided to D.O. E for sequestration in the American Recovery and
Reinvestment Act. Could you discuss your funding needs for these
projects in the long term?
Answer. Funding in the American Recovery and Reinvestment Act of
2009 (Recovery Act) will allow us to accelerate the development of
technology required to capture and store CO2 by fully
funding early carbon capture and storage (CCS) projects. The goal is to
have advanced CCS technologies demonstrated by 2020, which would then
allow CCS to be widely deployed. Recovery Act funding helps to achieve
that goal by allowing us to accelerate research and development of
applicable capture and storage technologies, while working to reduce
their cost and speed their commercial potential. This would entail
additional follow-on demonstration projects in the outyears that would
incorporate improved, lower-cost CCS technologies resulting from our
R&D program.
Question 3. What information and data do you hope to gain from the
7 regional partnerships demonstrations? When will this information
become available?
Answer. The DOE Regional Carbon Sequestration Partnerships (RCSPs),
located throughout the United States, have completed a significant
amount of work on the characterization of their regions for
opportunities to store CO2 in different geologic formations.
Each of the RCSPs has created a digital atlas for its region, which
contains information on the sources of CO2 and the storage
capacity. The DOE has worked with all of the RCSPs to standardize their
capacity assessment methodology and combine the regional data into one
system called the National Carbon Sequestration Database and Geographic
Information System (NATCARB), which is an interactive atlas and is
available free, online, to the public. In addition to NATCARB, DOE has
worked with the US. Geological Survey and others to develop and produce
the Carbon Sequestration Atlases for North America. The results of
these assessments have shown that there is enough capacity to store the
emissions from major point sources in North America for hundred of
years.
The RCSPs are also working on technical, regulatory and permitting
issues during the operation of over 30 field projects in different
geologic settings. The lessons learned are being documented by the
partnerships to identify the technologies and protocols which would
result in cost effective storage of CO2 in deep geologic
formations such as oil fields, coal seams, and saline formations. The
DOE and the RCSPs are also working on a series of best practices
manuals to consolidate these lessons learned for future stakeholders.
The first of these manuals was released earlier this year and
summarizes the best practices from the monitoring, verification, and
accounting of geologically stored CO2. Over the next year,
the DOE and the RCSPs will work on additional best practices manuals
for site characterization and selection, well construction, public
outreach and education, simulation and risk assessment. These and other
manuals will be developed and updated as the partnerships complete
their large-scale field projects.
We understand that the knowledge and experience gained has also
been useful to the U.S. Environmental Protection Agency as it develops
regulations for geologic storage of CO2.
______
Responses of Kit Batten to Questions From Senator Bingaman
Question 1. Having reviewed S.1013, do you feel that the role of
the DOI and CCS on public lands is adequately defined in the bill to
proceed with the liability program that is proposed? If not, what would
you recommend?
Answer. The authority in S. 1013 focuses on the role of the
Department of Energy (DOE) in carrying out demonstration projects for
the large-scale, commercial application of carbon capture and
sequestration. In general, section 963A(g) of the bill allows the
Secretary of Energy to provide indemnification to participants, and
contains a definition of liability, an exception for gross negligence
and intentional misconduct, and provisions for determining the fee to
be paid by participants for indemnification and the use to which the
fees collected must be put. In contrast, the Department of the Interior
does not oversee the liability treatments of projects and participants
under S. 1013, but instead is tasked with authorizing the siting of
projects on federal land under its jurisdiction, consistent with all
the applicable laws and management plans and subject to any terms and
conditions the Secretary of the Interior deems necessary. In addition,
the Department of the Interior is also given authority (at sec.
936A(e)(7)) to determine whether the financial protections, such as
bonding, provided by the participant for a project are acceptable.
While we defer to DOE as to the overall position on the liability
provisions in general, we believe that the role of the Department of
the Interior on public lands is adequately defined in the bill to
proceed.
Question 2. The Section 714 (EISA of 2007) report states that many
authorities currently exist to address CCS needs, such as for managing
pipelines, roads, and infrastructure (and other issues). It goes on to
state that existing authorities are not likely to address all the
unique issues that carbon sequestration presents. Could you elaborate a
bit more on what gaps exist in the existing authority that lawmakers
need to address?
Answer. While existing authority is likely adequate for many carbon
capture and sequestration needs, there are situations unique to the
development and more widespread use of this technique, and some of
these may require legislative action. These include, for example, not
only the need for clear leasing authority and a mechanism to provide
for the long-term stewardship of sequestration sites, but:
clarification of how long-term carbon storage may affect
other uses of the public lands, in particular the future
extraction of other minerals;
clarification of the ownership of subsurface pore spaces in
split estate situations; and
clarification of the ownership of sequestered CO2 and other
gases, and the resulting liability for any environmental damage
caused by the sequestered gas.
Response of Kit Batten to Questions From Senator Murkowski
Question 1. In competing for the FutureGen site selection, both
Illinois and Texas passed state laws to assume ownership of, and
liability for, the injected CO2.
What is the Administration's position on the role of the states in
terms of long-term stewardship of CCS sites, as compared to the federal
role contemplated by S. 1013?
Answer. The Department of the Interior's role in S. 1013 involves
siting and other activities on the public lands that it manages. In
this regard, the long timeframes envisioned for sequestration and the
post-closure phase of facilities on public lands suggest that only the
federal government will likely have the fiscal resources to manage the
ongoing risk and offer the expectation of maintaining continuity of
long-term stewardship across generations for these projects.
Response of Kit Batten to Question From Senator Stabenow
Question 1. While it is imperative to identify quality geological
formations that will contain carbon with as little risk of leakage as
possible, I would like to know more about other ecological and
environmental risks that may be present. Mr. Moor of Southern Company
mentioned in his written testimony the risks that injected carbon may
pose to ground water. In a place such as Michigan where water is
carefully monitored and protected, please tell me: what we need to do
to ensure water quality while finding more opportunities for CCS?
Has United States Geological Survey studied this issue?
What have we learned from injecting carbon into old gas and oil
wells?
Are there adequate protections from the Safe Drinking Water Act?
While EPA is not present here, is it already considering this?
Answer. While the U.S. Geological Survey has engaged in a number of
studies evaluating geological and geochemical factors that improve
understanding of processes occurring during geologic storage of
CO2, the potential risks associated with storage of large
volumes of CO2, and some potential environmental impacts of
geologic sequestration, the focus of USGS evaluations of these risks is
generally at the regional or basin scale. The evaluation and mitigation
of the risks at the scale of individual site-specific injection
projects is generally covered by the Environmental Protection Agency.
The USGS has also collaborated with the Department of Energy on
sequestration projects such as the DOE-lead Geo-SEQ program, a
consortium of National Laboratories working on monitoring technologies
and simulation codes for CO2 storage; the DOE-sponsored Frio
Brine project in Texas; and review of the efforts by DOE to develop
several large scale field projects throughout the United States.
However, there remains uncertainty with respect to the ability to
sequester carbon dioxide in geologic reservoirs. Current outstanding
research issues include:
determining the capacity of seals to retain CO2;
characterizing, on a regional extent, the integrity of seals
above potential storage systems;
defining the potential for mobilization of trace metals and
organic materials by CO2 reactions with minerals or
dissolution of organic components;
determining the need for new or improved tools to sample
formation waters for site evaluation and measurement,
monitoring, and verification during storage and following site
closure;
improving prediction of the solubility of CO2 in
saline formations during and following injection;
understanding the role of bacteria and other microorganisms
in water-rock-CO2 interactions relevant to
sequestration; and
characterizing and understanding where fresh water/saline
formation boundaries occur in geologic basins throughout the
United States.
The USGS is currently working on several of these issues.
The underground injection of CO2 for purposes such as
enhanced oil and gas recovery is a long-standing practice. However,
CO2 injection specifically for geologic sequestration
involves different technical issues and potentially much larger volumes
of CO2 and larger scale projects than in the past. As noted
above, research efforts to evaluate the technical aspects of geologic
sequestration of CO2 are currently underway.
Lastly, geologic sequestration of CO2 through well
injection meets the definition of ``underground injection'' in section
1421(d)(1) of the Safe Drinking Water Act (SDWA), and the EPA has
authority for underground injection of CO2 under the SDWA
Underground Injection Control program, and EPA and states, territories,
and tribes that have primacy for these programs act as co-regulators to
protect such waters from any potential endangerment from underground
injection of CO2.
Response of Kit Batten to Questions From Senator Bunning
Question 1. Do you believe that there needs to be some type of
expedited process for NEPA reviews of demonstration projects on BLM
lands? Or a NEPA waiver for approved projects? As you know, these
reviews are often used as a delaying tactic by environmental groups.
Answer. The National Environmental Policy Act is intended to
protect the public health and safety and environmental quality by
ensuring transparency, accountability, and public involvement in
federal actions and in the use of public funds. Given the complexity of
the issues surrounding the development of these projects on public
lands and the potential impacts of geologic carbon sequestration
itself, it is important that applicable environmental reviews be
carried out. These NEPA reviews will ultimately help the Department
identify appropriate and specific areas for siting and development of
carbon sequestration and capture projects.
We recognize that applicable NEPA reviews must be completed in an
expeditious manor. Following an orderly process, and based on sound
information, these reviews will provide us with a solid foundation on
which to defend our decision-making.