Takeaways

Despite carbon sequestration being highly touted as a key tool to mitigate climate change, few commercial CCS projects have been permitted in the United States.
Recent developments in key states suggest that carbon sequestration could be poised to break out after a sluggish decade.
Texas and Louisiana are moving towards regulating geological carbon sequestration by assuming “primacy” over wells built to sequester CO2. Louisiana’s primacy application is set for EPA review, while legislation in Texas recently simplified jurisdiction over carbon sequestration wells with an eye towards assuming regulatory control in the future.

Carbon sequestration may be on the cusp of a much-anticipated breakthrough. The process of sequestering carbon from power plants or other industrial sources into deep geologic formations for long-term storage is the last step in carbon capture and storage. Although it is widely recognized as a critical tool to mitigate against climate change, few commercial CCS projects have materialized in the United States. In the decade plus since the federal Interagency Task Force on Carbon Capture and Storage observed that “there are no insurmountable technological, legal, institutional, regulatory or other barriers that prevent [carbon capture and storage] from playing a role in reducing GHG emissions,” the U.S. Environmental Protection Agency (EPA) has permitted only two commercial projects specifically for the purpose of carbon sequestration.

Carbon sequestration may be about to turn a corner, as recent regulatory developments in key states suggest both industry and political support for new sequestration projects. Louisiana and Texas, two states with great potential for geologic sequestration of CO2, have recently taken steps to assume primary permitting and enforcement responsibility for carbon sequestration projects. Coupled with political support for CCS at the State and Federal level as well as the recently increased 45Q tax credit, the outlook for CCS is brighter than it has been in a decade.

Underground Injection Control Program

EPA protects underground sources of drinking water by regulating the injection of fluids underground for storage or disposal, including the injection of supercritical CO2 for the purpose of carbon sequestration. The Safe Drinking Water Act (SDWA) and the Underground Injection Control (UIC) program provide the primary regulatory framework.

From early the 1980s until 2010, EPA regulated five classes of wells according to the type of fluid injected, the depth of injection, and the potential to endanger underground sources of drinking water. Historically, most States have sought and been granted primacy over one or more classes of wells. For example, most states have primacy over Class II wells, in which fluids are injected for natural gas and oil production, hydrocarbons storage, and enhanced oil recovery (EOR), a process which commonly consists of injecting CO2 into oil or gas reservoirs to increase production and which results in the incidental sequestration of CO2. States that maintain primacy over such wells can issue permits more quickly. For example, it takes the Texas Commission on Environmental Quality approximately 60 days to issue a Class V well permit once a complete application has been submitted.

In 2010, EPA created a sixth well class (Class VI) specifically to regulate the injection of CO2 into deep subsurface rock formations. At the time, very few projects were sequestering CO2 solely to reduce greenhouse gas emissions, but EPA anticipated that the technology would be “key to achieving domestic emissions reductions.”

The Class VI rule was an important regulatory step to enable commercial geological carbon sequestration. By the same rulemaking, EPA established minimum technical criteria for permitting, site characterization, area of review and corrective action, financial responsibility, well construction, operation, mechanical integrity testing, monitoring, well-plugging, post-injection site care, and site closure requirements.

Primacy

Under the SDWA, EPA can delegate its authority to implement and enforce the UIC program to States or Tribes upon application to the Agency. If EPA approves a State’s primacy application, the State assumes primary enforcement authority over a class or classes of wells, also known as primacy. In order to assume primacy over Class VI wells, a State’s Class VI regulations must be at least as stringent as federal regulations. States need not seek primacy, however, and until a State applies to EPA, EPA directly implements the UIC program through its regional offices.

In the 11 years since the creation of the Class VI well classification, States have taken a tepid approach to Class VI wells because the demand for Class VI permits had not merited States’ efforts to seek primacy from EPA. The primacy process can take years, even if those states have primacy over Class II wells that inject CO2 underground as part of EOR, which is why only a few states have sought primacy over Class VI wells. For example, North Dakota applied for primacy in 2013 and was granted primacy in 2018. Wyoming submitted its complete primacy application in 2019, after some years of discussions with EPA Region 8, and was granted primacy the following year. Currently, only North Dakota and Wyoming have primacy over Class VI wells. Neither has approved a Class VI permit yet, although a large sequestration project is currently planned for North Dakota. Currently, the Oil and Gas Division of the North Dakota Department of Mineral Resources estimates that a permit for a Class VI well could issue seven months after receipt of a complete application.

Because only North Dakota and Wyoming have successfully applied for and obtained primacy, EPA directly implements the Class VI program in all other states. To date, only two Class VI permits have been granted, both in Illinois under the authority of EPA Region 5. Both permits were under review for roughly six years before they were ultimately granted. Going forward, a number of EPA regional offices estimate permitting timelines of between 18 and 24 months, and possibly longer. This raises an issue which highlights that while there is a clear policy directive to support CCS to combat climate change, there remains a lack of permitting expertise and resources across EPA’s regional offices to efficiently process permits for the growing interest in CCS projects.

Louisiana and Texas Move to Assume Primacy

As climate goals have proliferated in the private and public sectors alike in recent years, interest in CCS has increased. In recognition of this growing interest and their potential to be CCS leaders, Louisiana and Texas are moving towards assuming primacy over Class VI wells that will dovetail with their existing regulatory frameworks, state laws, resources and expertise.

In June 2021, Texas took an important step towards primacy by enacting H.B. 1284, which gives the Railroad Commission sole jurisdiction over carbon sequestration wells (jurisdiction had previously been shared with the Commission on Environmental Quality). If and when Texas seeks primacy over Class VI wells, its primacy application should be greatly simplified by giving a single state agency jurisdiction over Class VI permitting.

Louisiana’s path to primacy is at a more advanced stage. On July 6th, Louisiana held a public hearing concerning its primacy application. Its Class VI regulations were published in the Louisiana Register earlier this year. Although previous primacy reviews have taken significantly longer, Louisiana hopes to receive approval in early 2022.

Until their primacy applications are approved, EPA will continue to directly implement the UIC program for Class VI wells in both states.

Conclusion

With their extensive oil and gas industry presence and favorable geology, Louisiana and Texas could be hotspots for carbon sequestration in the coming years. One critical, and often overlooked, factor in project deployment is whether the state or federal regulatory environment is conducive and prepared to process Class VI permits in a reliable manner around which industry can successfully build project budget and timelines. Louisiana and Texas stand to gain a significant market edge over other non-primacy states if they can successfully obtain primacy and establish regulatory frameworks that meet EPA’s standards and provide industry with planning certainty.

For Further Information Contact:

Anne Idsal Austin | Partner
t +1.202.663.8213
[email protected] | bio

Sheila Harvey | Partner
t +1.202.663.8224
[email protected] | bio

Rob James | Partner
t +1.415.983.7215
[email protected] | bio

Jorge Medina | Partner
t +1.213.488.7117
[email protected] | bio

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