Amid growing interest in using carbon capture and sequestration, or CCS, as a tool in the fight against climate change, several states’ legislatures approved CCS-related rules governing commercial and liability issues during their recently ended sessions.

Colorado was not among them. This lack of guidance threatens to keep CCS in the state from reaching its potential—especially with the technology being highlighted and supported under the new federal Inflation Reduction Act.

Carbon capture and sequestration involves injecting and storing carbon dioxide underground. It is considered a key component of efforts to mitigate against global warming.

Colorado is well suited to take advantage of CCS demand. Saline aquifers within the Uinta and Piceance basins in the west, as well as in the Denver-Julesburg Basin in the east, possess suitable geologic characteristics. The U.S. Geological Survey has concluded only the Gulf Coast region has more capacity to store CO2 than the Rocky Mountains and Northern Great Plains region.

Colorado offers multiple sites that emit concentrated levels of CO2, which improves the economics of its capture. And decades of experience in oil and gas operations in the state enable a service industry to provide necessary well construction and injection services.

These projects require long-term commitments. The recently announced Carbon America CCS facility at the Sterling and Yuma ethanol plants in northeastern Colorado is expected to cost $100 million, and operators must provide proof of financial capacity for any remediation efforts that may be required over the life of the project.

The federal tax code contains incentives for CCS activity and the recently passed Inflation Reduction Act raised the tax credits to as high as $85/ton of CO2 sequestered. Yet, CCS project developers face a number of potential legal and financial risks that can be relevant at different phases of a CCS project lifecycle. These include:

● Getting injection well permits approved.

● Obtaining the rights and access to underground storage – sometimes from multiple owners.

● Trespass liability (if the stored CO 2 migrates onto another’s property).

● Long-term stewardship responsibility.

The first of these issues, related to well permitting, falls under the jurisdiction of the federal government through the Environmental Protection Agency. Yet the geological requirements and site-specific conditions create a necessary and rigorous hurdle that is demanding and time consuming for regulators. The EPA has only granted two Class VI well permits to date, and they both took roughly
six years to process.

To expedite well permitting, some states have elected to assume responsibility by adopting primary approval authority, often referred to as primacy. While many states, tribes, and territories have primacy for other classes of wells, only two — North Dakota and Wyoming — currently have primacy for the wells required for CCS projects. Texas and Louisiana are likely to be among those next in line.
Arizona and West Virginia are in the pre-application stage, and other states are also considering applying.

Several states also took steps to address the issues related to rights and liability during the 2021-2022 legislative year. In Indiana, for example, the state enacted a law clarifying pore space and CO2 injection rights as well as establishing a process for the state to assume long-term responsibility and liability for sequestered CO2.

Wyoming joined Indiana in assuming long-term liability this past season; both states join Louisiana, Montana and North Dakota, which had previously done so. Wyoming also joined Kansas and Texas in establishing funds to help cover such long-term liability from fees paid by sequestering parties.

Here in Colorado, things are moving more slowly. A commissioned report published late last year from the Colorado Oil & Gas Conservation Commission recommends settling these issues and at least one piece, authorizing the commission to seek primacy, was included in draft legislation in the 2022 session.

However, that bill, which was an omnibus climate package, failed on a filibuster related to its other contents. Primacy authorization is likely to be re-proposed in the coming legislative session, although whether it is packaged with other CCS issues remains to be seen.

On both a local and global scale, promoting the safe and secure injection of CO2 through CCS projects is in the public’s interest. Colorado is poised to be central in the nation’s CCS industry with a capable workforce, extensive geologic storage resources, emitting point sources and public and political support.

In order for Colorado to enable and support CCS activity in the state, it is critical that legislation be passed quickly that not only authorizes a primacy application, but provides the legal framework related to the broader set of rights and liabilities for developers.

Anna Littlefield is Carbon Capture Utilization and Sequestration program manager for the Payne Institute for Public Policy at the Colorado School of Mines in Golden and a research associate. 

Brad Handler is program manager of the Payne Institute’s Sustainable Finance Lab.

Morgan Bazilian is director of the Payne Institute and a professor of public policy at the Colorado School of Mines. 

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