PAYNE INSTITUTE COMMENTARY SERIES: COMMENTARY

By Brad Handler, Anna Littlefield, Lindene E. Patton, Nicolas G. Perticari Pesci, Felix Ayaburi, Siddhant Kulkarni, and Darshil Shah

July 8, 2024

There is consensus that Carbon Capture and Storage (CCS) is an integral activity in the effort to limit global warming and its harmful effects. That contribution requires a significant scaling of CCS operations. To name just one example, the International Energy Agency (IEA)’s most recent Net Zero scenario includes CCS removing one billion tons of CO₂ per year by 2030 and six billion tons by 2050, up from 45 million tons captured and stored in 2022.

Initiatives for new CCS projects are indeed proliferating. From the current 41 active projects globally as of 2023, there were another 26 under construction, another 121 in advanced development, and 204 in early development. If all these projects were to proceed, the 392 systems would have 360 million tons per annum of storage capacity.[1] In the U.S. alone, there are 14 active projects, eight under construction, 73 in advanced development and 59 in early development, for a total of 154 projects.

Yet this apparent momentum to pursue CCS projects may be at least somewhat misleading, particularly in the U.S. Perhaps most prominent among concerns is whether the projects can truly be considered “economic” or whether some additional support will ultimately be necessary[2]. Less explicitly perhaps, the interest suggested by permit applications may belie unease among developers regarding liability they may be subject to over the long lives of CCS projects. Such unease is likely particularly acute in the U.S., a function of the lack of certainty with respect to ownership of pore space, our country’s tort system and some history of companies being subject to retroactive penalties.

In a series of papers, the Payne Institute looks at some of the risks associated with geological storage of captured CO₂ and the mitigation — operational and financial — of those risks. These papers, which will be published over the course of the July 2024, are as follows:

1. Risks Related to Geological Storage and Operational Risk Mitigation. This paper introduces and contextualizes the primary risks associated with geological storage of CO2, namely leakage (from the designated storage area), induced seismicity, and, from a financing and insurance context, the relative lack of operating experience of many would-be project developers. It segments the discussion across the phases of the storage lifecycle. In the process, the paper explains the requirements that have been established by the U.S. Environmental Protection Agency (EPA) in order to obtain a permit to drill the (Underground Injection Control Class VI) well specified for this activity (i.e., permanent storage of CO2).

2. Community Infrastructure Risk Mitigation. This paper posits that the social implications of projects must be evaluated along with their feasibility to better understand the risks and to afford a more holistic approach to their mitigation. It notes that a large proportion of the proposed CCS storage projects in the U.S. (with submitted applications for Class VI wells) are in communities with limited supporting infrastructure, which can meaningfully influence a project’s construction success and ongoing monitoring and risk response capabilities.

3. Financial Risk Mitigation. This paper complements the Operational Risk Mitigation paper, delving into the various “financial” mechanisms project developers can employ to mitigate risk (again during the operating phases of the project lifecycle). It discusses the requirement by the EPA as part of the Class VI well application process that the developer demonstrate adequate Financial Assurance. And it discusses the current landscape and prospects of obtaining commercial insurance, which can help demonstrate financial assurance and/or protect the sources of revenue for the project (tax credits and potentially carbon credits).

4. Long Term Stewardship Risk Mitigation. After CO2 injection and a prescribed period of continued monitoring (generally lasting decades) has ended, geological storage projects enter what is commonly referred to as their Long Term Stewardship (LTS) phase. This paper considers the argument that after the obligations of the project developer have been fulfilled, the project developer should be able to “walk away” from the project and be absolved of any lingering liability/responsibility. Several U.S. states have approved legislation related to this, with varying degrees of liability relief and costs; the costs take the form of a per stored ton “Tipping Fee” to be borne by the developer to cover the states’ ongoing costs and potential liability. The paper also considers the value of having a nation-wide version of such a liability transfer.

5. Conclusion/The Way Forward. This paper reflects on takeaways from the preceding papers and offers suggestions for how developers, insurers and government can adapt their approaches to foster more geological storage development (it also highlights steps the insurance industry is taking to do just that). It acknowledges the challenges that new-to-the-world developers pose, in terms of capital raise and securing insurance, for example, and posits that further study, of the implications and to devise solutions, is warranted.

Acknowledgements

The authors gratefully acknowledge the support of the Carbon Capture Coalition/Great Plains Institute

Authors

Brad Handler¹

Anna Littlefield^1,2

Lindene Patton³

Nicolas G. Perticari Pesci ²

Felix Ayaburi²

Siddhant Kulkarni²

Darshil Shah⁴

¹ Payne Institute for Public Policy, Colorado School of Mines

² Colorado School of Mines

³ Earth and Water Law, LLC

⁴ Rystad Energy

Footnotes

[1] This volume is almost certainly too low as there are numerous projects under development that are being tracked in this Global CCS Institute list that do not provide a capacity estimate.

[2] For example, by extending the 45Q tax credit beyond the current 12 years.

ABOUT THE AUTHORS

Brad Handler
Payne Institute Program Manager, Sustainable Finance Lab, and Researcher

Brad Handler is a researcher and heads the Payne Institute’s Sustainable Finance Lab. He is also the Principal and Founder of Energy Transition Research LLC. He has recently had articles published in the Financial Times, Washington Post, Nasdaq.com, Petroleum Economist, Transition Economist, WorldOil, POWER Magazine, The Conversation and The Hill. Brad is a former Wall Street Equity Research Analyst with 20 years’ experience covering the Oilfield Services & Drilling (OFS) sector at firms including Jefferies and Credit Suisse. He has an M.B.A from the Kellogg School of Management at Northwestern University and a B.A. in Economics from Johns Hopkins University.

Anna Littlefield
Payne Institute CCUS Program Manager and Research Associate
PhD Student, Geology and Geological Engineering, Colorado School of Mines

Anna Littlefield is the Program Manager for Carbon Capture Utilization and Sequestration for the Payne Institute at the Colorado School of Mines. As a current PhD student in the Mines geology department, her research focuses on the geochemical impacts of injecting CO2 into the subsurface as well as the overlap of geotechnical considerations with policymaking. Anna joins the Payne Institute with 8 years’ experience in the oil and gas industry, where she worked development, appraisal, exploration, new ventures, and carbon sequestration projects. Her academic background is in hydrogeology with an M.S. in geology from Texas A&M University, and a B.S. in geology from Appalachian State University. Anna is passionate about addressing both the societal and technical challenges of the energy transition and applying her experience to advance this effort.

Lindene E. Patton
Partner at Earth and Water Law, L.L.C., an adjunct professor at the George Washington University School of Law

Lindene E. Patton is a partner at Earth and Water Law, L.L.C., an adjunct professor at the George Washington University School of Law; and a real estate agent licensed in Virginia and Maryland. She is a transactional attorney with extensive experience in the business of insurance, InsurTech, environment and data technology, including IP, privacy and related compliance matters. She is a globally recognized expert in risk management, data, resilience and related risk management solutions, insurance policy and other financial services product development, including insurance supporting energy transition technologies like CCS.

Before joining E&W Law, LLC she served as Global Head of Hazard Products for Corelogic; Chief Climate Product Officer for Zurich Insurance Group, and division general counsel for a large global insurer, as well as associate general counsel for engineering and landfill design companies.

Nicolas G. Perticari Pesci
PhD Student, Civil and Environmental Engineering, Colorado School of Mines

Nicolas Pesci is a student in the Civil and Environmental Engineering Department. He is working on a PhD in Environmental Engineering and Science after completing an M.S. in Advanced Energy Systems and a graduate certificate in Humanitarian Engineering and Science from the Colorado School of Mines. His research is centered on the socio-technical implications of the energy transition, just outcomes, and community stakeholders’ involvement in the development process.

Felix Ayaburi
PhD Student, Operations Research with Engineering, Colorado School of Mines

Felix Ayaburi is a Ph.D. Student in Operations Research with Engineering at the Colorado School of Mines. He holds an MS in Mineral and Energy Economics from the same institution. His research interests include the application of optimization methods in underground mine planning, electric vehicle deployment and responsible sourced gas.

Siddhant Kulkarni
MS Student, Mineral and Energy Economics, Colorado School of Mines

Siddhant is a student researcher at The Payne Institute at Colorado School of Mines.  Currently pursuing his M.S in Mineral and Energy Economics, his research focuses on the commercial and insurance side of CCS projects and their risk management, as well as government incentive programs and schemes promoting the use of renewable energy. Additionally, he holds a B.S Honors in Economics from Symbiosis School of Economics, Pune. He is dedicated to advancing energy transition to renewables while addressing the various societal challenges that may come with it.

Darshil Shah
Consultant, Rystad Energy

Darshil Shah joined Rystad Energy in 2024 as a consultant, specializing in corporate strategy, financial and economic analysis in the oil & gas sector, energy policy, and clean technologies. Before joining Rystad, he focused on topics such as carbon markets, CCUS, and mining policy during his research assistantship at the Payne Institute while completing his Master’s in Mineral & Energy Economics at the Colorado School of Mines (Dec ’23). Darshil has gained valuable experience through roles at Enverus, where he honed his skills in private equity and energy markets, and at the American Petroleum Institute (API), where he engaged in energy-related economic and regulatory analysis. His areas of interest include economic modelling, carbon markets, CCUS, and energy market trends.

ABOUT THE PAYNE INSTITUTE

The mission of the Payne Institute at Colorado School of Mines is to provide world-class scientific insights, helping to inform and shape public policy on earth resources, energy, and environment. The Institute was established with an endowment from Jim and Arlene Payne, and seeks to link the strong scientific and engineering research and expertise at Mines with issues related to public policy and national security.

The Payne Institute Commentary Series offers independent insights and research on a wide range of topics related to energy, natural resources, and environmental policy. The series accommodates three categories namely: Viewpoints, Essays, and Working Papers.

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DISCLAIMER: The opinions, beliefs, and viewpoints expressed in this article are solely those of the author and do not reflect the opinions, beliefs, viewpoints, or official policies of the Payne Institute or the Colorado School of Mines.