Revealed: How New Legal Rules Could Transform the Future of Carbon Storage – Are We Ready?

The Importance of Long-term Liability Management in Carbon Storage

Regulatory bodies and lawmakers globally are increasingly recognizing the critical need for post-closure liability management in the carbon capture and sequestration (CCS) sector. This issue, while seemingly obscure, is fast becoming a cornerstone of climate policy.

Experts, including those from the International Energy Agency, project that by 2070, over 90% of the carbon dioxide captured globally will need to be stored deep underground. This underscores the necessity for robust liability frameworks.

The Intergovernmental Panel on Climate Change asserts that with proper site selection and management, these storage facilities can permanently contain carbon dioxide. Consequently, there’s a pressing need to address long-term responsibility and oversight.

Some companies are seeking legislation to limit their liability post-closure, transferring the risk to the public. This approach, however, is fraught with potential issues and is not a sustainable solution.

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Defining Post-Closure Liability

Post-closure liability pertains to the legal and financial responsibilities if issues arise after a carbon storage facility has been sealed and certified closed, which may be decades after the initial project commencement.

Initially, the operator bears the liability until the closure certificate is issued. Unless state laws modify this, the operator is assumed to be responsible for the project’s impacts, a standard seen in the oil and gas industry.

Many legislatures are revising this principle, with some transferring post-closure responsibility entirely to governments and taxpayers, while others impose certain limitations.

EDF and the Great Plains Institute have created a framework to assist legislators and regulators in navigating these complexities. The framework aims to balance commercial investment certainty with public protection.

Low Risk but High Stakes

Properly managed carbon storage facilities pose minimal long-term risks. The IPCC estimates that a well-sited and maintained storage site can safely sequester carbon dioxide for 10,000 years or more, chemically binding it to the rock over time.

However, the potential for long-term liability ensures that operators adhere to the best practices, selecting appropriate sites and executing projects meticulously. Removing all liability undermines this incentive and erodes public trust.

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Today’s insurance and risk-management tools can mitigate these risks without the need for liability relief for commercial investment. Yet, governments must carefully consider their options to avoid inadvertently promoting subpar work.

Establishing a permanent public steward for these projects makes sense but should not absolve operators of liability for issues stemming from their actions.

Key Exceptions in Liability Relief

Our framework suggests four critical exceptions to any liability relief legislation, aimed at protecting taxpayers and ensuring companies deliver high-quality projects:

• If the operator violated legal or regulatory duties before the closure certificate was issued
• If the operator provided inaccurate or incomplete information that influenced the closure approval
• If fluid migration occurs causing or threatening contamination of drinking water sources
• If there are insufficient funds in escrow or storage trust accounts to cover costs

Addressing climate change may necessitate large-scale carbon sequestration, but it’s crucial to avoid hasty decisions that could lead to adverse outcomes. Smart regulation is essential for the success of carbon sequestration as a climate mitigation strategy.