Alexandra B. Klass & Elizabeth J. Wilson, Climate Change and Carbon Sequestration: Assessing a Liability Regime for Long-term Storage of Carbon Dioxide

• Publication year: 2008

ARTICLE

CLIMATE CHANGE AND CARBON SEQUESTRATION: ASSESSING A LIABILITY REGIME FOR LONG-TERM STORAGE OF CARBON DIOXIDE

Alexandra B. Klass^*

Elizabeth J. Wilson^**

ABSTRACT

As the world struggles with how to address climate change, one of the most significant questions is how to reduce increasing levels of carbon dioxide (CO²) in the atmosphere. One promising technology is carbon capture and sequestration (CCS), which consists of capturing CO²emissions from power plants and industrial sources and sequestering them in deep geologic formations for long periods of time. Areas for potential CO²sequestration include oil and gas fields, saline aquifers, and coal seams. As Congress and the private sector begin to spend billions of dollars to research and deploy this technology, there has been insufficient attention paid to how to structure legal liability for the short-term or long-term risks associated with the geologic sequestration of CO²in connection with CCS. Until now, federal and state legislators, when they have acted at all, have appeared to be in a rush to limit corporate liability for potential harm to encourage the development of CCS. We take a different approach. In this Article, we survey the existing environmental law and tort law liability regimes that may cover potential harm from escaping or migrating CO². We conclude that while existing federal and state environmental and tort liability regimes are insufficient on their own to govern the CCS industry, they can provide important risk management tools and serve as safeguards to private parties and state and local governments in the event of harm. Thus, state and federal legislation specific to CCS should leave in place this basic liability for full-scale commercial CCS projects. We also propose an adaptive governance model at the federal level for integrating several different compensation mechanisms-including bonding, insurance, and pooled federal funding-into commercial CCS project management to better provide financial security to investors without destroying existing liability protections for those who may suffer harm from CCS. This proposal offers a starting point for developing a model to integrate and manage liability for the nascent CCS industry.

INTRODUCTION .............................................................................................. 106

I. ELECTRIC POWER GENERATION, INDUSTRIAL SOURCES, GREENHOUSE GAS ELIMINATION, AND CCS ...................................... 111

A. Electric Power and Greenhouse Gas Emissions ........................ 112

B. How CCS Works ......................................................................... 115

C. Potential Risks of CCS ............................................................... 117

D. Storage Capacity and CCS Projects ........................................... 119

II. CCS AND LIABILITY FOR HARM TO HUMAN HEALTH AND THE

ENVIRONMENT .................................................................................... 123

A. Federal Statutory Relief for Harm to Human Health and the

Environment ............................................................................... 124

1. RCRA .................................................................................... 125

2. CERCLA ............................................................................... 128

B. Recovery for Harm Under State Law ......................................... 132

1. Property Rights, Fugitive Resources, and Trespass ............. 133

2. Negligence and Negligence Per Se ....................................... 135

3. Nuisance ............................................................................... 138

4. Strict Liability for Abnormally Dangerous Activities ........... 141

5. Damages ............................................................................... 143

6. Statutes of Limitation, Repose, and Revival ......................... 145

C. Conclusion .................................................................................. 148

III. STATUTORY DEVELOPMENTS, COMPETITION, AND LIMITATIONS

ON LIABILITY ...................................................................................... 149

A. Legislative Efforts to Reduce or Eliminate Liability for Harm .. 149

B. Liability and Federal Preemption .............................................. 154

IV. MECHANISMS FOR ENSURING FINANCIAL RESPONSIBILITY AND

MANAGING LIABILITIES ..................................................................... 158

A. General Consideration ............................................................... 159

B. Bonding ...................................................................................... 160

C. Insurance .................................................................................... 163

D. Federal Compensation Systems Coupled with Damage Caps .... 164

E. Federal Compensation Systems Coupled with Tort Law ............ 169

V. CREATING A FRAMEWORK FOR MANAGING LIABILITY AND

ENSURING LONG-TERM FINANCIAL RESPONSIBILITY FOR CCS ......... 172

A. Who Is Responsible for CCS Damages and for How Long? ...... 173

B. Establishing a System of Financial Responsibility and

Assurance over the CCS Life-Cycle ............................................ 174

C. Creating an Adaptive Regulatory Framework ........................... 175

CONCLUSION .................................................................................................. 178

INTRODUCTION

One of today's most pressing environmental challenges is climate change¹and, particularly, the need to reduce increasing levels of carbon dioxide (CO²) in the atmosphere.²Achieving the deep emissions reductions necessary to stabilize atmospheric concentrations of greenhouse gases requires a fundamental shift in the way we generate, transport, and use energy.³

Controlling greenhouse gases is different than managing traditional criteria air pollutants, such as sulfur dioxide (SO²) or oxides of nitrogen (NOx). As the atmospheric lifetime of traditional criteria air pollutants is only a few hours or days, pollution control and emission reduction at the source are sufficient for reducing atmospheric concentrations of most criteria air pollutants. Greenhouse gases, however, with long atmospheric residence times, require a dramatically different management strategy.⁴Stabilizing atmospheric greenhouse gas concentrations, the goal of the United Nations Framework Convention on Climate Change (UNFCCC),⁵will require reductions in emissions of roughly an order of magnitude, fundamentally changing the way society produces and uses energy.

Many studies have focused on technologies that are available for making deep emission cuts within a relatively short period of time.⁶Carbon capture and sequestration (CCS) is a promising technology that could enable the continued use of inexpensive fossil fuels while dramatically reducing accompanying greenhouse gas emissions. This technology drastically reduces emissions from power plants and industrial sources by capturing CO²emissions and injecting them into deep geologic formations, essentially sequestering them underground for long periods of time. Areas for potential CO²sequestration include oil and gas fields, saline aquifers, and deep coal seams. Natural geologic analogs, like geologic formations containing crude oil, natural gas, brine, and CO², have proven storage capabilities that will last for millions of years. CCS technologies would attempt to take advantage of these storage capacities to reduce CO²emissions into the atmosphere. Worldwide, there are four large-scale CCS projects, each injecting roughly

1 million tons of CO²annually.⁷

CCS, of course, is not free of risk. For CCS to have a real impact on climate change, projects must sequester millions of tons of CO²per year at each individual storage site, with injected CO²potentially spreading over tens of square miles for a single project and subsurface pressure effects felt over even greater distances.⁸Moreover, the injected CO²should remain in the subsurface for hundreds to thousands of years for significant climate benefit,⁹ effectively using the subsurface property in perpetuity. Injected CO²will initially be more buoyant than the formation waters into which it is injected, making the possibility of leakage to the near surface or the surface a risk that must be managed through site selection, operation, monitoring, and remediation.

In this Article, we focus on the relationship between CCS technologies, risk management, and potential legal liability from CCS projects. We do this with an eye toward how potential liability may help to balance the risks and benefits of CCS and influence patterns of technology deployment. Regarding the mature CCS industry, we focus on clarifying and structuring liability-issues that are crucial for large-scale commercial deployment. Much of the writing on this topic to date has either implicitly or explicitly argued that policymakers should limit or virtually eliminate project operators' liability associated with stored CO²to encourage development of this potential technology.¹⁰

We take a different approach. We believe that the current proposals to eliminate liability for CCS projects do not address issues of compensation for potential harm and would also eliminate important incentives for project developers to ensure good site selection and responsible management. We acknowledge that special tools to shield a nascent CCS industry from liability may be appropriate for the first dozen CCS projects. We believe, however, that liability under federal and state environmental and tort laws can play an important role with regard to both compensation and public acceptance in any future, comprehensive framework to govern the mature CCS industry.

We recognize, of course, that existing statutory and common law not specific to CCS provide suboptimal tools for assigning fault or rapidly compensating parties damaged by CCS projects. Thus, we view them as a...