Putting Carbon in its Place

Ian is the founder of BlueSky Mediation & Law, a law firm that aims to reduce and resolve environmental and energy disputes by guiding the parties as they tailor their own solutions. He recently returned from New Zealand where he was a Fulbright New Zealand-sponsored Sir Ian Axford Fellow making recommendations on marine renewable energy. When he’s not cooling conflicts or studying the latest climate change policy, Ian can be found surfing Ocean Beach or fly-fishing in the Sierra Mountains.

This is the first of a series of posts on the development of carbon storage law in the United States, an under-reported aspect of attempts to combat climate change.

Against expectations, the United States heartland is passing laws that could spark a national carbon market. Several interior states are clarifying subsurface ownership for “pore space” and reducing long-term storage liability. Combining those efforts with the sputtering coastal states’ carbon markets might actually catalyze a national carbon market, as carbon developers will have more reasons to sock away big amounts of CO2.

Private Rights to Underground CO2 Storage

The United States is unusual, even among common law countries, in recognizing private property rights to space and minerals beneath the surface. The surface owner has the private right to sell or lease land, minerals and space underneath his or her property. Usually, but not always, that right includes the “pore space,” or underground geology in which CO2 might be injected and stored. At best, property rights for pore space are muddled. Nonetheless, the oil industry has taken advantage of pore space rights to sequester carbon for over thirty years. Using CO2 for “enhanced oil recovery” makes economic sense because pushing the gas into a depleted oil field makes the field more productive. New legal developments might expand the carbon-sequestration market from just enhanced oil recovery to large-scale, long-term carbon storage as a way to increase scarcity and drive up demand in regional carbon markets.

Several states are expanding or clarifying the nature of pore space ownership so companies looking to lease or buy CO2 storage sites have an easier time of it. Wyoming gives the surface owner lasting liability and ownership of the pore space, unless someone else brings enough evidence to prove otherwise or there is a prior agreement. Similarly, Montana and North Dakota give surface owners title to pore space. North Dakota, however, expands the right in favor of CO2 storage site operators. If the pore space crosses beneath numerous landowners’ properties and not all the surface owners consent, then the North Dakota Industrial Commission can amalgamate all those owners’ pore space interests, even the holdouts. But the non-consenting owners must be equitably compensated. Louisiana goes even further. It allows prospective CO2 storage site operators to acquire development and ownership rights through private eminent domain, so long as the Louisiana Conservation Commissioner approves the application after a public hearing. Next door in Texas, a law opens state-owned land, including submerged offshore land, to CO2 storage. Texas collects the revenue. In short, states with long histories of mining and oil exploration are expanding those laws that encouraged extractive activities to encourage carbon sequestration.

Encouraging Long-term Carbon Sequestration

Most of these same states are further sweetening the incentive for long-term carbon sequestration by reducing the liability that carbon “injectors” might face after injecting CO2 underground. In general, the laws allow injectors to transfer liability to the state government after a certain amount of time passes without incident or, in some cases, after putting up a bond.

North Dakota gives the injector title and liability for the site while CO2 is injected and for a pre-closure period. After ten years, assuming conditions are met, the state can then issue a project completion certificate to the injector, returning title and liability to the state. The initial liability for injection and pre-closure is the same in Montana, but the subsequent waiting period is at least 25 years. Meanwhile, Louisiana will assume liability after only ten years, as long as a state-managed Carbon Dioxide Geologic Storage Trust Fund is solvent. Louisiana further entices injectors by limiting the non-economic damages that plaintiffs can recover from owners, operators and generators of CO2 storage facilities and pipelines. All of these states require injectors to follow and adhere to certain conditions before transferring liability. They also keep injectors liable for injection and pre-closure periods for upwards of 50 years.

Not to be left out, California is considering its own carbon sequestration bill. However, the bill is unlike any of the other laws, as it does not have a liability transfer mechanism. Rather, it focuses on defining “pore space” and divvying up regulatory authority. Whether it will pass and what it will contain remain to be seen.

In the next installment, I’ll analyze how these laws might impact behavior through their effects on emerging carbon supply chain, landowners and taxpayers.