Legislating Carbon Sequestration: Pore Space Ownership and Other Policy Considerations
| Publication year | 2011 |
| Pages | 61 |
| Citation | Vol. 40 No. 10 Pg. 61 |
2011, October, Pg. 61. Legislating Carbon Sequestration: Pore Space Ownership and Other Policy Considerations
October 2011
Vol. 40, No. 10 [Page 61]
About the Authors
Matthew J. Lepore is a member at Beatty and Wozniak, P.C. His practice includes environmental and natural resources litigation and administrative law. He currently is Chair of the CBA Environmental Law Section-(303) 407-4496, mlepore@bwenergylaw.com. Derek L. Turner is a judicial clerk for Colorado Supreme Court Justice Gregory J. Hobbs, Jr. He received his JD with honors from the University of Colorado in May 2011. Before graduating, he interned with the Natural Resources and Environment Section of the Colorado Attorney General's Office-(970) 217-9157, derek.L.turner@gmail.com.
Deployment of carbon capture and geologic carbon sequestration technology in Colorado implicates legal uncertainties concerning subsurface property rights and liabilities. This article summarizes recent state task force discussions of legal and policy options, considers the potential scope of pore space property interests, and describes several options for policymakers.
In spring 2010, Governor Bill Ritter, Jr. authorized the Colorado Department of Natural Resources (DNR) to convene a task force comprising legislators, agency officials, and industry and environmental stakeholders(fn1) to develop a statutory framework for carbon capture and geologic carbon sequestration (GCS) in Colorado.(fn2) GCS presents novel legal and policy issues concerning subsurface property rights, property acquisition over the large expanses needed for such projects, and ownership of and potential liability for injected carbon.(fn3) Enacting a statutory framework for GCS that removes legal uncertainties and reduces transaction costs would address one of the key barriers to deployment of GCS technology in Colorado.(fn4)
This article discusses the issues considered by the Colorado Carbon Capture and Geological Sequestration Task Force (DNR Task Force or Task Force), and includes an overview of what other states have done, or scholars have recommended, in these areas. The article also examines the scope of the property interest in pore space through the lens of case law developed in analogous circumstances. Finally, the article considers policy issues and options for future consideration.
DNR Task Force
The DNR Task Force's initial goal was to develop omnibus GCS legislation to be introduced in the General Assembly in 2011.(fn5) The Task Force focused on three key legal issues associated with GCS projects: (1) ownership of subsurface pore space; (2) aggregation of adequate land for large-scale GCS projects; and (3) long-term ownership of and liability for permanently sequestered carbon. Ultimately, the Task Force adjourned without proposing legislation on any of these issues.(fn6) In part, this is a reflection of the complexity of these issues, as well as the many competing interests implicated by GCS. A changing political landscape also contributed to the Task Force's decision to shelve proposed GCS legislation for the time being.
By late 2010, continued economic weakness, a protracted battle over federal health-care legislation, and the results of the 2010 mid-term elections had greatly diminished the likelihood that the 111th Colorado Congress was going to pass climate change legislation capping or taxing carbon emissions.(fn7) In the absence of a price on carbon, private development of large-scale GCS projects may not be commercially feasible, so the urgency of establishing a legal foundation for GCS projects in Colorado has waned.(fn8) If carbon emissions are capped or taxed, and if the General Assembly's objective is to encourage development of GCS in Colorado, the issues considered by the Task Force will need to be revisited and resolved.(fn9)
Pore Space Ownership
The first issue before the Task Force was determining who owns the subsurface pore space intended to be used for sequestration. "Pore space" refers to the space within a rock body that is unoccupied by solid material. Pore space includes space between grains, fissures, vesicles, and voids formed by dissolution. Pore space often is occupied by water.
The Task Force convened a panel of experts representing a wide range of constituencies, including agriculture, oil and gas, real estate, water, and state and federal government, to address the legal and policy issues around pore space ownership.(fn10) A majority of the panel believed pore space is part of the surface estate unless it has been expressly severed.(fn11) This is in accord with most scholars who have considered subsurface property rights in situations analogous to carbon sequestration.(fn12) For example, one scholar concluded, "jurisdictions grounded in English common law will generally determine that the surface owner owns the pore space."(fn13) This is because:
1) fee simple owners traditionally owned everything above and below the surface estate, except particular reservations or conveyances;
2) fee owners usually retained rights and carved out specific interests for conveyance to others, or carved out specific interests to retain and conveyed the remaining rights;
3) legal documents transferring property interests generally are drafted and interpreted narrowly; and
4) courts often interpret those conveyances to have transferred only the interests specifically named, along with reasonable rights associated with those interests.(fn14)
Similarly, other commentators concluded the majority of states follow the "American Rule" adopted from natural gas storage law:
[A]fter the removal of underground minerals, oil, or gas, the surface owner retains the right to use the remaining space for storage.(fn15)
In 2008, Wyoming became the first state in the nation to statutorily define subsurface pore space ownership, declaring:
[O]wnership of all pore space in all strata below the surface lands and waters of this state is ... vested in the several owners of the surface above the strata.(fn16)
The pore space may be conveyed pursuant to laws governing transfer of mineral interests, and a conveyance of the surface estate also conveys the pore space unless it is expressly excluded or has been previously conveyed.(fn17) Recently, Montana and North Dakota also have statutorily vested ownership of pore space in the surface owner.(fn18)
Ultimately, the Task Force did not make a formal recommendation regarding pore space ownership. However, there appeared to be consensus among members that pore space ownership should be determined at the state level. There also was general agreement that pore space should be part of the surface estate unless previously severed or expressly conveyed.(fn19)
Mineral Owner's and Lessee's Right to Use Pore Space
Where the mineral estate has been severed, a mineral owner or lessee is entitled to reasonable and necessary access to the surface estate to develop its minerals. Colorado codified the "reasonable accommodation doctrine" articulated in Gerrity Oil and Gas Corp. v. Magness in 2007.(fn20) By statute, a surface owner may not "prevent an operator from entering upon and using that amount of the surface as is reasonable and necessary to explore for, develop, and produce oil and gas."(fn21) Reasonable and necessary access extends to use of subsurface pore space necessary to extract the minerals; thus, the mineral owner or lessee has a protected interest in the pore space, even assuming a statutory declaration that the pore space is part of the surface estate.(fn22)
Wyoming, Montana, and North Dakota all made dominance of the mineral estate express in their respective carbon storage statutes. Wyoming's statute is illustrative:
Although the Task Force did not address the split estate question directly, most members of the Task Force believed a mineral owner's or lessee's right to extract the minerals would supersede use of the pore space for carbon dioxide (CO2) sequestration.(fn24) Absent an express legislative declaration, a significant body of case law supports the conclusion that vesting pore space ownership in the surface estate does not trump a mineral owner's rights to develop the minerals.(fn25) Consequently, a prudent GCS project developer would be well advised to consider the rights of mineral owners regardless of who owns the pore space.(fn26)Nothing in this section shall be construed to change or alter the common law as of July 1, 2008, as it relates to the rights belonging to, or the dominance of, the mineral estate. For the purpose of determining the priority of subsurface uses between a severed mineral estate and pore space ... the severed mineral estate is dominant regardless of whether ownership of the pore space is vested in the several owners of the surface or is owned separately from the surface.(fn23)
Amalgamation of Property Rights
Sequestering carbon emissions from a coal-fired power plant would require a large expanse of land.(fn2)7 The difficulty of negotiating agreements with myriad property owners, including surface and mineral owners, overriding royalty owners, and mineral lessees-coupled with the possibility that hold-out owners could derail a project entirely-lead to the conclusion that condemnation authority of some kind likely is essential to successful development of GCS.(fn28)
Granting a GCS project developer condemnation authority would not be unprecedented. Colorado's Underground Storage Act allows condemnation for natural gas storage, but only after the target storage formation is "nonproductive of oil or gas in commercial quantities under either primary or secondary recovery methods."(fn29) Similarly...
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