Subterranean Carbon Blues

Last month I discussed the obscure legal trend in America’s heartland encouraging long-term carbon storage by shifting liability to state governments. Such a shift socializes the risk of environmental damage, but privatizes the benefit to carbon storage developers and superjacent landowners. But it also incentivizes developers to exploit geology appropriate for sequestration, which could reduce atmospheric carbon quickly and substantially. For the market to blossom, the usual cast of characters needs to agree that passing liability to states makes sense.

Predictably, environmental groups do not unanimously support long-term carbon storage. Even more predictably, their alignment splits along the degree to which science drives their positions. Science-driven groups like Environmental Defense Fund and NRDC, for instance, support carbon storage with few caveats. Greenpeace and WWF, on the other hand, criticize carbon storage and sequestration for, among other things, being unproven, unsafe, and too costly. Thus far neither camp seems to have registered the legal developments in America’s heartland, but as the trend increases environmentalists will find it harder to ignore.

The new carbon storage laws will directly affect carbon-intensive industries like domestic oil producers, power utilities, and emerging businesses poised to capitalize on the changes. As noted last month, oil producers in the United States pump carbon into depleted oil fields to increase the lifespan of the fields. Most of the CO2 they use comes from naturally occurring reservoirs, but demand for CO2 to enhance oil recovery (EOR) outpaces the supply. Enter long-term carbon storage. Capturing and storing the otherwise wasted carbon stream could create a steady, predictable supply that could be shipped around the world to lengthen the life of existing oil fields and thereby slow down the race for riskier oil fields.

For power-producing utilities, long-term carbon storage offers a mixed blessing. On one hand, the utilities can start burying some of their carbon emissions—electric power producers have the dubious honor of being the top industry in total greenhouse gas emissions. On the other hand, pulling carbon from power production, converting it to a transferable product, and piping it to appropriate sites is excessively expensive. Estimates reach over $1 billion for purpose-built facilities. Retrofitting existing coal-fired power plants to convert coal for sequestration is not cheap either. With ratepayers already footing a bill roughly 50% more expensive, don’t count on an upsurge in retrofitting projects anytime soon.

The building trend to socialize carbon storage risks is motivating at least some entrepreneurs to think about how they can take advantage of the change. For instance, a Berkeley-based company, C12 Energy, is taking the long bet and entering into private leases with landowners in states with favorable carbon storage laws. A crop of similarly-minded businesses might flourish as more states adopt similar laws.

The debate over fracking shows that the most important stakeholders to convince of the safety of carbon storage are landowners themselves. Right now, landowners appear willing to lease their subterranean rights to carbon storage developers. But these are early days with no data, no reports of flammable tap water (a lá fracking), and, let’s face it, nothing happening. Of course landowners are happy to lease property a mile below surface when no imminent activity is planned and the government insures against any future problems. What landowner would not take that deal? What they might end up regretting is a low lease rate. That is if a carbon market ever takes off. Meanwhile, it must be music to their ears when a developer asks to use their unused subterranean space for storage.

Check back next month when I ask: does geologic carbon storage need a carbon market to be viable? The answer might surprise you.