Carbon Sequestration Update on National and Western State Activities. November 2007

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1 Carbon Sequestration Update on National and Western State Activities November 2007 Federal On October 11, 2007, U.S. Environmental Protection Administrator Stephen Johnson announced the agency's intent to propose regulations in the summer of 2008 for the permitting of commercial scale geologic sequestration projects. The regulations will be promulgated under the Safe Drinking Water Act, which authorizes EPA to regulate Underground Injection Control Wells to protect groundwater. It is anticipated EPA will create a new class of UIC wells for carbon sequestration activities which, to date, have been regulated as an experimental technology under the UIC program. The 110th Congress is considering a number of legislative provisions to facilitate the development and use of carbon capture and sequestration (CCS) technologies. These provisions, found in the House and Senate passed energy bills, include authorization of large scale CCS demonstration projects and increased funding for CCS projects. In addition, a number of the tax credits being considered to promote the development of coal gasification technologies include a requirement that 70% of the carbon created be captured and stored. Finally, Senator Bingaman's climate change bill includes provisions to promote the use of CCS. Colorado The mission of the Colorado Governor s Energy Office (GEO) is to lead Colorado to a New Energy Economy by advancing energy efficiency and renewable, clean energy resources. In connection with this mission, GEO has been holding Climate Action Plan Roundtable discussions with stakeholder groups. Colorado has great potential for geological CO 2 storage because of its numerous oil and gas fields, deep coal seams that cannot be mined, and abundant deep aquifers. Recent legislation tasks the University of Colorado, the Colorado State University and the Colorado School of Mines to conduct research related to carbon emissions and storage. In addition, Colorado is home to many prominent national research centers, such as the National Renewable Energy Laboratory (NREL), the National Center for Atmospheric Research (NCAR), the National Oceanic and Atmospheric Administration (NOAA), and the National Institute of Standards and Technologies (NIST), which are likely to be at the forefront of these technology forcing innovations. Colorado House Bill enacted the Colorado Climate Change Markets Act and established the Colorado Renewable Energy Authority. Colorado House Bill requires the Public Utilities Commission to consider proposals by Colorado electric utilities to build one or more demonstration power plants using integrated gasification combined cycle (IGCC) electric

2 generation technology and demonstrate the capture and sequestration of a portion of its carbon dioxide emissions. Colorado House Bill encourages the Governor s Office of Energy Management and Conservation to set a high priority on funding projects which develop a countylevel appraisal of carbon sequestration potential, and carbon sequestration databases. Idaho Idaho is addressing carbon sequestration on agricultural and forest lands, but has not yet focused to any significant degree on geologic carbon sequestration. In 2002, the Idaho Legislature, recognizing that increasing levels of carbon dioxide and other greenhouse gases in the atmosphere have led to measures to slow and reverse the buildup of greenhouse gases, created a Carbon Sequestration Advisory Committee. I.C et seq. The Committee has 19 members and is comprised of representatives from the State Departments of Agriculture, Environmental Quality, and Lands, and the members of the agriculture, livestock, electrical energy generation, biofuels, forest and transportation industries, among others. The Committee is charged with working with the Idaho Soil Conservation Commission to recommend policies or programs to enhance the ability of the Idaho agricultural and non-industrial private forest landowners to participate in systems of carbon trading, to encourage the production of educational and advisory materials regarding carbon sequestration on agricultural and forest lands and participation in systems of carbon or greenhouse emissions trading, and to recommend areas of research needed to better understand and quantify the process of carbon sequestration on agricultural and forest lands. The Committee also is to review carbon sequestration programs of other states. I.C The Committee is to report to the Legislature on the potential for development of a system of carbon emissions trading or markets for carbon sequestered on agricultural and forest land, methods for measuring and modeling net carbon sequestration, and areas of scientific uncertainty. The Chairman of the Soil Conservation Commission is to work with the Committee to assess agricultural and forest lands in the state for past and future carbon sequestration potential. The Legislature created a Carbon Sequestration Assessment Fund, to consist of grants, donations or other moneys, for use by the Committee in carrying out the purposes of the chapter. I.C Montana The Montana State Legislature tabled numerous bills pertaining to sequestration and CO 2 control during the 2007 legislative session, but referred the subject to the joint legislative Energy & Telecommunications Interim Committee (ETIC) for study of carbon sequestration opportunities, in coordination with Environmental Quality Council interim study of legislation on control of greenhouse gases. Several hearings have been held, and draft legislation will be developed by third quarter Topics include: agency jurisdiction over sequestration (e.g., DEQ vs. Montana Board of Oil and Gas Conservation); tax incentives and common carrier obligations for CO 2 pipelines; requirements for CO 2 capture by power plants; standards and licensing for injection; ownership/leasing of storage space; and enhanced recovery of oil and gas. Numerous bills on greenhouse gas regulation, and specifically CO 2 capture, transport, and sequestration will be developed in 2008 for introduction in January 2009 for the 2009 legislative session. These 2

3 will be in addition to modest tax incentives for sequestration adopted by the 2007 Legislature through HB 3. The 2007 Legislature did adopt, as part of a broader electric power regulation bill (HB 25), a provision that the Montana Public Service Commission may not approve any utility acquisition of interest in a coal-fired power plant after January 1, 2007, unless the plant captures and sequesters a minimum of 50% of the CO 2 produced, either on- or off-site. This provision does not apply to private, merchant plants. There may be an attempt by the Montana Board of Environmental Review to adopt rules on CO 2 emissions and sequestration requirements before the 2009 legislative session; however, the Legislature will revisit any such effort. The Governor's Climate Change Advisory Committee has also commissioned a now-complete inventory of greenhouse gas sources (primarily CO 2 ) in Montana, and is due to submit its general report with 55 recommendations in early November Montana has created the Big Sky Sequestration Partnership, led by Montana State University, which combines state-funded study of storage areas, storage standards and similar issues, as part of one of DOE's seven approved regional partnerships. Seven non-profit organizations in Montana have also formed the National Carbon Offset Coalition, Inc. Montana is participating in national greenhouse gas inventory initiatives, and commissioned a just-completed report, Montana Greenhouse Gas Inventory and Reference Case Projections , which will be published as an appendix to the Governor's Advisory Committee Report. Lawsuits addressing requirements for CO 2 control are pending in Montana with respect to two coal-fired power plant proposals. These include arguments about whether BACT or other Montana law requires that new power plants (or major modifications) or future coal-to-liquids facilities must include capture and/or sequestration of CO 2. As part of his clean coal initiative, Governor Schweitzer has made a political pledge that the new coal-to-liquids plants he is promoting will capture and sequester carbon. Nevada While there are no laws in Nevada that explicitly address carbon sequestration, Nevada is making concerted efforts in this area. For example, Nevada is a member of the West Coast Regional Carbon Sequestration Partnership (WESTCARB), which is led by the California Energy Commission. WESTCARB's goal is to validate the feasibility, safety, and efficacy of carbon storage in deep saline formations and in forests and rangelands. This project will provide a comprehensive assessment of the sources of, and potential storage sites for, CO 2 in the West Coast Region. In addition, on March 19, 2007, Nevada State Senator Dina Titus introduced Senate Bill 422, which was signed by Nevada Governor Jim Gibbons on June 14, This bill requires the Nevada Department of Environmental Protection to develop a statewide greenhouse gas (GHG) inventory that will identify and evaluate the sources, types, and amounts of GHGs released in the state. It also establishes requirements for participation in a verifiable GHG registry and mandates annual reporting of all GHGs emitted from power plants. Regulations to implement the legislation have been proposed and are expected to be finalized in early December. 3

4 New Mexico In December 2006, Governor Richardson issued Executive Order (EO) , New Mexico Climate Action, directing state agencies to implement certain recommendations of the New Mexico Climate Change Advisory Group. As directed, the New Mexico Energy, Minerals, and Natural Resources Department s Oil Conservation Division (OCD) convened a climate change work group in March 2007 to explore opportunities for reducing carbon emissions in oil and gas operations and power generation. On June 27, 2007, an OCD stakeholder group issued an interim report identifying statutory and regulatory initiatives necessary to develop a regulatory framework for effective geological sequestration of carbon dioxide. A final report containing the OCD working group s findings and proposed rules is due to the Governor, the New Mexico Climate Change Implementation Team (the Team) and the Clean Energy Development Council (the Council) by December 1, On October 3, 2007, the New Mexico Environment Department (NMED) adopted proposed Rule NMAC Greenhouse Gas Emission Reporting. Under Part 87, owners and operators of electrical generation facilities with a nameplate capacity of twenty-five (25) megawatts or greater, petroleum refineries, and cement manufacturing facilities are required to inventory and report facility GHG emissions (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons and perfluorocarbons and sulfur hexafluoride). The regulation encourages owners and operators of other facilities, which are not yet subject to the reporting requirement, to voluntarily report GHG emissions. Part 87 is effective on January 1, Accordingly, affected facilities are required to report 2008 GHG emissions on or before July 1, NMED is also studying voluntary and mandatory mechanisms to effect a 20% reduction in methane emissions from oil and gas processes, including the production, processing, transportation and distribution sectors of natural gas production, as well as reductions in carbon dioxide emissions from fuel combustion sources. The NMED study is due to the Governor, the Team and the Council by January 1, The above measures, among others, are part of Governor Richardson s aggressive initiative to effect a reduction in New Mexico s GHG emissions to 2000 levels by the 2012, 10% below 2000 levels by 2020 and 75% below 2000 levels by Utah Utah has yet to implement carbon sequestration legislation. However, in 2006, Governor Huntsman organized the Governor s Blue Ribbon Advisory Council on Climate Change (BRAC). BRAC has been charged with recommending to the Governor policy options for mitigating the impact of CO 2 emissions and educating the Governor on the science of climate change. To support BRAC, a Stakeholder Work Group (SWG) comprised of individuals from government, industry, and academia developed a report containing 200 recommended policy options. SWG's report is now being studied and considered by BRAC for its final report to be presented to the Governor. Other groups and organizations are also providing support to BRAC and climate change awareness in Utah. The Renewable Energy Initiative Focus Group (REI) recently submitted its 4

5 final report to BRAC. REI's report focuses on identifying economic, regulatory, and technology forces that would encourage or discourage renewable energy development. The 2006 Utah State Legislature established the Utah Science, Technology, and Research Initiative (USTAR) and designated $110 million in bonds and $50 million in one-time funds for USTAR facilities at the University of Utah and Utah State University, and $15 million in ongoing funds to hire new faculty. USTAR recently hired Brian McPherson from the New Mexico Institute of Mining and Technology where he formed the Southwest Partnership on Carbon Sequestration, one of seven regional partnerships funded by the U.S. Department of Energy, which encompasses Arizona, Colorado, Oklahoma, New Mexico, Utah, and parts of Kansas, Nevada, Texas, and Wyoming. As a USTAR faculty member, Mr. McPherson will be developing ways to use carbon dioxide for enhanced oil recovery and long-term storage in places like Utah's Uinta Basin. Wyoming Political leaders in Wyoming recognize that carbon sequestration and storage could have a huge impact on Wyoming's resource-based economy, and the companies that do business in the state. During this past summer, Governor Dave Freudenthal wrote legislative leaders and asked them to create a select committee to study the issues surrounding carbon sequestration and recommend legislation to help create clear policy and position Wyoming as a leader in this area. The legislative leadership responded by tasking the Joint Judiciary Committee with developing legislation for the next session scheduled to begin February 11, The Judiciary Committee held an initial day-long hearing on the issue in late August, and a second day of hearings on October 2. The committee will meet again in the coming months to take further testimony from various state agencies and to consider two draft pieces of legislation. The first bill vests ownership of the pore-space where carbon will be stored in the owner of the surface estate. The second bill grants the Wyoming Oil and Gas Conservation Commission the authority to regulate carbon sequestration and permit sequestration facilities, and places all future ownership and liability related to the injected CO 2 with the injector or the injector's heirs, successors or assigns, not with the surface owner. The Governor and legislative leaders have expressed opposition to having the state accept long-term liability for the stored CO 2. The legislative effort has a great deal of momentum and some legislative response is expected during the 2008 session. 5