A New Frontier in Class VI Carbon Storage Permitting on the Horizon
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A New Frontier in Class VI Carbon Storage Permitting on the Horizon

Brownstein Client Alert, Nov. 16, 2022

A promising long-term carbon storage solution could become more viable as the federal government and several states look to speed up the Class VI injection well permitting process. The Safe Drinking Water Act requires the Environmental Protection Agency (EPA) to protect underground drinking water sources by regulating wells that inject substances into geologic formations. EPA’s Underground Injection Control (UIC) program regulates six classes of injection wells depending on the type and depth of the injection activity and the potential for harm to drinking water sources. Class VI wells are used to inject CO2 into deep underground geologic formations for long-term storage or use. The potential for these wells to impound and manage CO2 is immense. For example, the Colorado Geological Survey estimated 720 billion tons of CO2 could be safely sequestered in Colorado’s deep underground formations.

Widespread development of carbon capture utilization and storage (CCUS) projects at scale has been slow, partly because of Class VI permitting challenges. The vetting procedure requires substantial geologic and hydrologic data, as well as modeling predicted migration of CO2 and formation fluids and the effect of other subsurface penetrations such as active and abandoned wells and underground mines. Applicants must demonstrate they are financially capable of covering not only construction and operation of Class VI wells, but also any corrective action from damage to underground drinking water sources, plugging, site reclamation, and emergency response. Unlike Class I, II, III and V wells where EPA has delegated permitting authority to dozens of states, EPA retains primacy over Class VI wells in nearly every state. Only North Dakota and Wyoming have been granted primacy by EPA to run their own Class VI UIC well programs.

Changes are on the horizon, however, as Congress looks to streamline permitting and incentivize larger CCUS projects. Examples of these federal efforts include:

  • 2021 Infrastructure Investment and Jobs Act:
    • Appropriated $5 million per year through FY2026 to EPA to permit federal Class VI wells, and an additional $50 million during the same time period for EPA to distribute to states that establish and operate their own Class VI permitting
    • Appropriated $2.25 billion investment for new and expanded commercial large-scale carbon sequestration projects (those that store at least 50 million metric tons of CO2) and associated pipeline infrastructure
  • 2022 Inflation Reduction Act – Modifications to the Section 45Q tax credit scheme:
    • Revised the baseline credit to $17/ton of CO2 captured and stored, with the opportunity to increase the credit to $85/ton (higher than the previous maximum) if certain wage, hour and apprenticeship requirements are met.
    • A new, separate 45Q credit for direct air capture and sequestration ($36/ton baseline and up to $180/ton if similar requirements are met) and expanded the opportunity to obtain credits to smaller facilities

Alongside these federal incentives, multiple states including Louisiana, Arizona, West Virginia and Texas have applied for (or are in the pre-application phase for) primacy. Other states are actively evaluating a Class VI permitting program, including Colorado where the Colorado Oil and Gas Conservation Commission compiled an assessment in 2021. Meanwhile, partnerships like Project Bison, which aims to develop a five-megaton atmospheric CO2 removal facility, are already underway in Wyoming and the state is considering approval of permit applications from North Shore Exploration and Production, LLC (CCUS) and Frontier Carbon Solutions, LLC (direct air capture plus CCUS).

State-run programs have two major benefits. First, states can tailor their regulatory framework to address regional needs, while ensuring the state program is at least as stringent as the federal requirements. These local concerns include environmental justice and equity considerations, air quality impacts, and liability regimes that may be necessary to incentivize long-term investments as highlighted in a prior alert and recent legislation in Wyoming. Second, states can streamline the permitting process. For example, while the EPA’s permit approval takes an average of three to six years, North Dakota can approve permits in as little as eight months.

The climate for CCUS projects has never been as active or promising, both on the federal and state levels and on the permitting and economic fronts. Our attorneys and policy advisors have substantial CCUS expertise, including from a tax perspective and large-scale project development, and would be happy to answer any questions your company may have about a CCUS project or assist with drafting public comments as states look to adopt Class VI permitting programs.

This document is intended to provide you with general information regarding carbon storage permitting. 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. The information in this article is accurate as of the publication date. Because the law in this area is changing rapidly, and insights are not automatically updated, continued accuracy cannot be guaranteed.

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