The Gaining Momentum Surrounding Carbon Capture Use and Sequestration: Overcoming Legal and Regulatory Hurdles
See all Insights

The Gaining Momentum Surrounding Carbon Capture Use and Sequestration: Overcoming Legal and Regulatory Hurdles

Brownstein Client Alert, August 27, 2021

As the country, policymakers and industry focus on reducing greenhouse gas (GHG) emissions, carbon capture use and sequestration (CCUS) has become an important piece of the solution. CCUS is capturing carbon dioxide (CO2) emissions from stationary sources like coal-fired power plants and transporting the CO2 for a different use or for underground sequestration. CCUS can help reduce GHG emissions and create additional revenue for the producer. As with any new industry, there are technical, regulatory and legal obstacles that present challenges to all stakeholders. The following alert discusses some of the recent opportunities emerging to make CCUS a meaningful climate change solution.

Federal Legislation Encouraging CCUS Projects

There is significant movement at the federal level that offers incentives to support CCUS activities. Congress first enacted Internal Revenue Code Section 45Q in 2008 to provide a tailored tax credit for carbon sequestration and has amended Section 45Q several times. Notably, on Jan. 15, 2021, the Internal Revenue Service and the Department of the Treasury published final regulations implementing changes to the carbon tax credit called for by the Bipartisan Budget Act of 2018. The new regulations intend to create more widespread adoption of CCUS projects by, inter alia, increasing the available tax credit, allowing the transfer of tax credits, eliminating the industrywide cap on the credit, and broadening the scope of activities for which a credit would apply (e.g., decreasing the minimum carbon capture thresholds and broadening the range of sequestration methods that qualify for the credit). Further, Section S of the 2021 omnibus spending bill funds research for carbon utilization and direct air capture.

Most recently, Congress has sought to further fund and incentivize CCUS. The bipartisan Energy Infrastructure Act (S.2377) would allocate $900 million for COtransportation, $2.5 billion for four regional carbon capture hubs, and would authorize the Department of the Interior to permit carbon storage in the Gulf of Mexico. And the Storing CO2 and Lowering Emissions Act (SCALE Act) (S.799) would provide grants to develop infrastructure for transporting COfrom the capture site to use and storage sites. The SCALE Act also provides increased funding for EPA permitting of Class VI underground injection wells.

Potential Obstacles to CCUS Projects

Notwithstanding the significant federal momentum behind CCUS, challenges to widespread deployment of CCUS are in front of industry and policymakers. These challenges include the cost of CCUS technologies, a lack of adequate existing transportation infrastructure, unclear and lengthy permitting schemes, and legal uncertainty concerning ownership and liability of subsurface storage. Sequestration requires injection of captured COinto the subsurface for storage and there are often questions, or at least a lack of clarity, about pore space ownership that can create uneasiness about liability. Such injection wells also are regulated as Class VI underground injection wells under the Safe Drinking Water Act and EPA’s permitting process can be lengthy (up to six years based on past projects) and only two states (Wyoming and North Dakota) have been delegated regulatory authority to permit these types of wells. Thus, two key components to more prolific CCUS use will be solving the permitting scheme and legal ownership uncertainty—problems that states like Wyoming are actively seeking to solve.

Wyoming – Leading on CCUS

As lawmakers and regulators confront the obstacles associated with CCUS, Wyoming provides a good example of how states can play a leading role. Not by accident, Wyoming already has favorable CCUS laws on the books. These include a statute establishing permitting procedures and requirements for CCUS sites and a statute providing for certification of COincidentally stored during enhanced oil recovery operations (EOR). Wyoming also has COpipeline infrastructure in place used for EOR and favorable geology for sequestration. In addition, the Wyoming Pipeline Corridor Initiative will establish corridors on public lands for COpipelines associated with CCUS and EOR, which will lower the upfront costs for participating industries and encourage regulatory stability.

Currently, the Joint Minerals Committee of the Wyoming legislature is considering a bill to establish a statutory framework to further address and clarify ownership and liability of CO2 storage. The proposed bill would grant title of CO2 storage (i.e., pore space) to the unit operator, clarify liability including ultimate liability transfer to the state, and authorize unitization of pore space through the Wyoming Oil and Gas Conservation Commission. The proposed bill also addresses the permitting process, including CO2 incidentally stored through EOR, among other things. The bill is certain to change as it winds its way through the legislative process, but it is a promising move toward clarifying the regulatory and liability framework and increasing CCUS across the state.

Our attorneys and policy advisors have substantial CCUS expertise at both the federal and state levels and would be happy to answer any questions your company may have about a CCUS project.

This document is intended to provide you with general information regarding carbon capture use and sequestration. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

Recent Insights