Across the ‘CCS network’, from academic and research institutions, to the industry and policy and decision-makers, the progress made over the last decade or so, in terms of making CCS a reality, should not be underestimated. Even in getting the general public on board, progress has been made, though admittedly rather slow, or perhaps better said, too slow. Any progress has to a large extent been due to the extensive collaborative efforts within this network.
The idea for CCS was born in the R&D laboratories of the oil & gas industry in the mid-1990s, but it can be said that today, in 2013, it has finally become of ‘legal’ age. Becoming of legal age, however, does not presuppose any claims about maturity.
How long that will take depends on a number of factors, including public acceptance of the technology, secured financing for demonstration projects, as well as the industry’s acceptance of the legal and regulatory framework. In terms of the latter, it is particularly important for the industry to view these frameworks as sufficiently loose enough to allow them to operate without any obstructions, yet stringent enough to provide legal certainty in an unlikely case things go wrong.
By conducting a number of interviews with both ‘upstream’ and ‘downstream’ CCS industry representatives, this paper set out to examine how the industry has thus far come to perceive the legal and regulatory framework for CO2 storage in the EU and whether, or what barriers there remain in this respect.
Main issues within the legal framework for CCS in the EU
As the name suggests, the (2009/31/EC) directive on the geological storage of CO2 (hereinafter the CCS Directive) is aimed primarily at regulating the storage of the CO2, albeit some provisions concerning capture and transport as well, in order to facilitate integration of all phases of the CCS chain.
The enabling legal framework for carbon capture and storage in the EU has come to be recognized as one of the most extensive pieces of such legislation in the world, covering everything from site exploration, selection, permitting, monitoring, reporting, corrective measures in case of leakage, liabilities, financial provisions, transfer of responsibility, and third party access to the transport and storage networks.
Nevertheless, while the CCS Directive is undoubtedly a comprehensive piece of legislation, which has served as a model for other countries wishing to develop legal frameworks for CCS within their territories, the industry representatives in Europe continue to express concern over a number of concepts serving as potential legal and regulatory barriers to the further development of CCS in Europe. Of these, the most pressing issues for the industry that have been identified remain the long-term (financial) liability, and third-party access, which however, remain primarily concentrated in the ‘downstream’ (i.e. oil & gas) CCS industry.
For the ‘upstream’ industries (i.e. power generation, petrochemicals, cement), the main issues mentioned focused mainly on the capital expenditures and the lack of strong financing mechanisms. Furthermore, a number of respondents also specifically mentioned the favouritism showed by the UK competition towards post-combustion technology.
Given that the focus of the EU legal and regulatory framework in the EU is on the storage component, the majority of the chosen respondents were primarily from the ‘downstream’ end of the CCS chain, thus the focus here is on the above mentioned issues; long-term liability and third-party access.
Long-term financial liability
‘Downstream’ CO2 storage operators essentially have fairly little incentive to store the CO2, given that the majority of the reward is to be, technically at least, kept by the capture operators. This incentive is provided by the EU ETS. However, the current EUA price (4.43EUR/tonne as of August 23, 2013) is at one of its lowest points in history, thus, as one respondent pointed out, “there is no denying the fact that this will not provide sufficient incentive at all, in particular for the storage operators solely dealing with storage, not including any EOR into their revenue stream”.
So, when an operator dealing with pure storage is required to set aside a part of their revenue stream, for post-closure monitoring and possible remediation efforts, with a low and volatile EUA price, there is indeed very little incentive to move forward.
Respondents also mentioned that, under the current policy and regulatory framework, it is for them still unclear as to how long-term financial liability is to be handled and managed. Pursuant to the current financial provisions (Art. 19 and Art. 20) storage site operators are required to prove their financial competence, and make a financial contribution to the competent authority (CA) for the monitoring and possible remediation purposes, following site closure, and until the transfer of responsibility to the state.
However, even then, the full extent of liabilities is not transferred, as the Directive makes specific references to situations where costs incurred by respective competent authorities (CAs) can be recovered from the operator (Art. 18(7) - i.e. willful deceit, negligence, provision of deficient data).
As Art. 20(1) of the CCS Directive states, it is up to the Member States to decide the arrangements based on which financial contribution is made available ot the CA. Whether financial liability is to be handled via a type of a ‘club-fund’, whereby operators pay into a common fund, or whether insurance companies will be providing specific CCS types of insurances, as one respondent mentioned, the fact that there is a lack of any specific set up in the CCS Directive, or subsequent legislation/regulation, was identified by respondents as a significant barrier. A report by the UK’s DECC in its April 2012 CCS Roadmap identified this very area, the liability arrangements, to come under scrutiny in 2015 when the CCS Directive is set to be reviewed.
Last, but not least, in relations to any civil liabilities for harm to human health, and private property rights issues in case of property damage, resulting from CO2 leakage, there did not seem to be any concern amongst the respondents, and if not identified on their own, when asked, majority stated that they believed such issues were sufficiently covered under the existing UK regulations, and did not pose as a major barrier.
Third-party access
Under the CCS Directive (Art. 21), it is up to the Member States to determine the detailed modalities for access to transportation networks and CO2 storage sites (Art. 21(1)), which needs to be provided in a transparent and non-discriminatory manner (Art. 21(2)). While the decision to provide, or deny, access to the transportation network or a storage site ultimately still resides in the hands of the operator, their decision needs to be justified. For example, if denying access, the operator can do so on the ground of a lack of capacity, or incompatibility of technical specifications which cannot be economically and ecologically overcome. Given the potential transboundary nature of storage sites and transportation networks, pursuant to Art. 22 of the CCS Directive, Member States are also obligated to implement dispute settlement arrangements, as well as are required to act jointly (Art. 24).
The second major issue identified by the respondents was the issue of third party access. Depending on the carbon price, access to transportation networks and CO2 storage operations could become a condition for competitive operation in the EU energy market, as Scott Brockett form the EU Commission points out (2009). In its writing of the CCS Directive, the Commission decided to be somewhat vague, or better said, adopted a lighter regulatory approach.
This was done on purpose given the relative early stages of CCS development, however, it said that third-party access will be kept under the scope in case of any anti-competitive practices emerging. When asked about their views on the issue, majority of respondents pointed out that while it is true that to-date the issue of third party access has not come up yet, however, as a representative from BP pointed out, “once CCS takes off, this might prove to be the largest source of commercial uncertainty for the industry…the Commission will really need to address this, once the Directive comes under review in 2015”.
In the UK, third-party access is addressed by the CO2 Storage (Access to Infrastructure) Regulations 2011, which were seen by the respondents for the most part as “good”, “fair”, and “straight forward and reasonably well understood”. However a number of issues seemed to remain for the industry in relation to third-party access.
One respondent suggested that there remains the lack of any specific provisions in relation to the revenue stream: “If you build up the infrastructure and another power station wants to tap in your infrastructure, how do you decide the revenue or the tariff?”. Yet another was concerned that “if something happens to your storage facility, after you take on the third party, who is responsible for that? In other words, where does the responsibility and accountability come from for the molecules coming from various pipelines and/or parties?”
Conclusion
There is no doubt that Europe has one of the best sets of regulations out there, that are, as seemed to have been a common agreement amongst the respondents, reasonably straight forward and reasonably well understood.
In terms of procedural requirements at least, the UK deployment of the CCS Directive was also considered pretty well understood. As mentioned, the main legal and regulatory issues within the industry seem to revolve around the long-term financial liability and third-party access. Nevertheless, it should be pointed out that for the most part the respondents seem to be rather positive in regards to these two issues being addressed in the future, in particular in light of the 2015 review of the CCS Directive.