More than ever before, companies are seeking to reduce their carbon emissions into the atmosphere. One solution that energy developers are seeking to deploy is carbon capture, use, and sequestration (CCUS). Growth in the CCUS industry has been spurred by recent Section 45Q federal tax credit legislation, as detailed in Michael Snider’s article on the topic. However, difficulties remain in deploying CCUS projects at scale; some of these issues include a lack of clarity around pore space ownership and a lengthy permitting process for CCUS wells.
Setting aside the “use” component of CCUS projects, for carbon capture and sequestration projects (or CCS projects), to sequester carbon it must be stored underground through injection wells that are injected into pore space. So, what is pore space and who owns it? At its most basic level, pore space is comprised of the tiny voids in subsurface rock that are unoccupied by solid material, which could be used for the injection and permanent sequestration of carbon. In the United States, there is a general consensus that ownership of pore space belongs to the owner of the surface estate. However, uncertainty remains in this developing field, so ownership of the pore space should not be presumed to be vested in the surface owner, especially when there has been a severance of the surface estate and mineral estate.
Several states have enacted pore space ownership and use statutes, including the western states of Wyoming, North Dakota, and Montana. The breadth of the pore space definition and applicable statutes can vary considerably, which is why it is helpful to compare legislation between each state. (The Wyoming statutes can be accessed here; the North Dakota statues can be accessed here; and the Montana statutes can be accessed here.) Such legislation can provide clarity on which landowners’ consent needs to be obtained by a CCS project developer in order to access and use the pore space for drilling injection wells and sequestering carbon.
From a regulatory perspective, the Environmental Protection Agency (EPA) regulates several classes of underground injection wells under the Safe Drinking Water Act. CCS project developers should obtain a Class VI well permit for CCS injection well purposes (for geologic sequestration wells). However, only two Class VI wells have been permitted for injection, both of which are located in Illinois, and the permit application processing time was six years for both permits. States can apply for and the EPA may grant states primary authority to enforce and administer Class VI wells, as the EPA has granted for both Wyoming and North Dakota (which now administer these Class VI well programs in their states). It remains to be seen whether primacy of Class VI wells that is held by Wyoming and North Dakota will speed up the Class VI well permit process in those states.
Recent state and federal policy updates further illustrate the current momentum behind CCS projects. For example, on May 24, 2021, the Nebraska legislature signed into law Legislative Bill 650, which promulgated extensive legislation on subsurface geologic storage of carbon. Such legislation provides clarity that is lacking in many other states regarding pore space ownership, unitization, permitting, and long-term ownership upon project completion. A full copy of Legislative Bill 650 can be found here. On June 30, 2021, the White House released a report, prepared by the Council on Environmental Quality and mandated by Congress, which outlined potential actions that the federal government could take to accelerate CCS projects in the United States. The report notes President Biden’s commitment to increasing support for CCS research and enhancing the Section 45Q tax incentive for CCS project development. The 84-page report can be found here. Furthermore, Governor Polis’ 2021 Colorado Greenhouse Gas Pollution Reduction Roadmap included an announcement to form a task force on CCS starting in mid-2021, which is to report back to the governor within a year a recommended framework to align with Colorado’s emissions reduction targets.
Though there have been momentous upswings in legislation and regulations surrounding CCS projects the past few years, much legal and regulatory uncertainty remains. For assistance navigating the complexities of CCS projects, please contact Craig Gleaton, Katie Schroder, John Jacus, Kathleen Pritchard, and Katie Roux.