Ian Havercroft – Global CCS Institute – Long-term liability of CCS Business

GLOBAL CCS INSTITUTELong-term liability of CCS BusinessJapan Regional Members’ Meeting 2012Ian Havercroft, Senior Advisor – CCS RegulationsWWW.GLOBALCCSINSTITUTE.COM

GLOBAL CCS INSTITUTEOVERVIEW I. Consider the role of law and regulation in addressing liability for CCS operations. II. Provide examples of how emerging legal and regulatory regimes have considered operational and long-term liability. III. Offer some project-level perspectives on liability. IV. Conclusions and observations. 1

GLOBAL CCS INSTITUTEROLE OF LAW AND REGULATION 2

GLOBAL CCS INSTITUTEREGULATING LONG-TERM LIABILITIES  Law and regulation will be required to address many factors within workable regulatory regimes.  Regulators required to strike an intricate balance, which: - ensures a high level of environmental protection and public confidence; - establishes unambiguous legislation and guidance; - enables investment decisions to be made; - provides sufficient flexibility for operators; and - addresses several potential categories of harm. 3

GLOBAL CCS INSTITUTEEXPERIENCE AND PRACTICE  Broad experience with components of the technology and associated processes – capture, transport and injection.  Historic regulation of technological and commercial analogues.  Contemporary examples anticipate the long-term stability of stored CO2.  Some risks and costs associated with the likelihood of catastrophic incidents, subsurface remediation and environmental damage are relatively well-characterised. 4

GLOBAL CCS INSTITUTENOVEL CHARACTERISTICS ANDASSOCIATED RISKS  Long timescales associated with the storage aspect remain a novelty.  Regimes may be required to address: - the remediation of leakage events far into the future; - insolvencies or mergers of the original commercial entities involved; and - remediation under domestic or supra-national climate change agreements.  Difficulty in regulating for an acceptable level of risk – particularly from a public perspective.  Use of analogues is limited to an extent. 5

GLOBAL CCS INSTITUTEEMERGING LIABILITY REGIMES 6

GLOBAL CCS INSTITUTEDEVELOPMENT OF LEGAL ANDREGULATORY REGIMES  Development in recent years of legislation to address the full-chain, or discrete aspects of the CCS process.  New proposals for liability regimes which govern the operation and/or closure of a storage site.  A limited number of these regimes address the issue of ‘post-closure’ liability.  The ‘post-closure transfer’ of liability from operator to the State has become a practical solution for some jurisdictions. 7

GLOBAL CCS INSTITUTETYPES OF LIABILITY  Liability imposed under CCS regulatory regime. - Compliance with a permit.  Civil or common law liabilities. - Trespass, nuisance, personal injury.  ‘Climate’ damage. - Requiring the surrender of allowances or credits.  Environmental damage under wider laws and regulations. - Water, soil, waste, habitats, species and public health.  Financial responsibilities under legislation. - Provision of financial security. 8

GLOBAL CCS INSTITUTELIABILITY AND THE PROJECTLIFE-CYCLE Exploration and Operation Closure Post-Closure Characterisation (Some) All liabilities borne by the operator Liabilities borne by Authority Responsibility of Monitoring by the operator the Authority 9

GLOBAL CCS INSTITUTEEU STORAGE DIRECTIVE  Directive entered into force in 2009 and is required to be transposed by individual EU Member States.  A legal framework aimed at managing the risks of storage, which addresses: - relationship of CCS with wider EU Law; - the selection of storage sites; - permitting of storage operations; - monitoring and verification; - a framework for liability; and - post-closure responsibilities for storage sites. 10

GLOBAL CCS INSTITUTELIABILITY REGIME – OPERATIONALPHASE  Operator to remain liable throughout the storage process and to the point of transfer for: - monitoring and ‘corrective measures’; - preventative and remedial action; - surrender of allowances under the EU ETS; and - civil or common law actions.  Financial security required to meet ‘all obligations under the permit’.  ‘Closure’ obligations to be borne by the operator. - Includes ‘post-closure’ monitoring responsibilities. 11

GLOBAL CCS INSTITUTETRANSFER AND POST-CLOSURE PHASE  Transfer of responsibility for storage site – from the operator to the State: - four criteria which are to be met to enable the transfer; and - further clarification provided in Guidance Documents (GD3).  However, not necessarily a transfer of all liabilities. - Potential to recoup ‘costs incurred’. - Liability to continue under the common law. - Member State legislation.  For the operator, a shift from ‘strict liability’ to a ‘fault- based’ standard. 12

GLOBAL CCS INSTITUTEAUSTRALIAN COMMONWEALTH ANDSTATE REGIMES  Federal offshore legislation adopts a similar format to the EU legislation. - Storage activities included within the offshore petroleum regime. - Upon completion of injection the operator bears a number of obligations. - ‘Site Closure Certificate’ → ‘Closure assurance period’. - Post-transfer the operator indemnified against specific liabilities.  However, there may be other liabilities which fall outside of this transfer. 13

GLOBAL CCS INSTITUTEQUEENSLAND ONSHORE ACT  Different approach to liability from the Commonwealth Act.  Storage formation is owned by the State of Queensland.  Whilst in possession of a GHG tenure – Operator to be liable for any damage or injuries resulting from operations.  Broad powers for the State to recover costs from operator during operational phase.  Upon surrender/cancellation of authority, injected CO2 to become property of State.  Operator will be liable under the common law in perpetuity. 14

GLOBAL CCS INSTITUTEPROJECT-LEVEL EXPERIENCES 15

GLOBAL CCS INSTITUTESTATUS REPORT 2011  Table 1 …  Don’t use white text on coloured backgrounds 16

GLOBAL CCS INSTITUTESTATUS REPORT 2011 – PROJECT-LEVELOBSERVATIONS  Focusing upon long-term liability is the wrong approach – getting site selection right is more important.  It will be more important to agree the criteria for the transfer of liability, than the timeframe for the transfer.  Operators need to be responsible for a finite period of time before transfer to the State.  The availability of financial guarantees and insurance for the long term is critical. 17

GLOBAL CCS INSTITUTEINSTITUTE-SUPPORTED PROJECTS  Significance of liability reflected in many of the reports from projects supported by the Institute.  The design of long-term liability regimes is highlighted as critical. - Particularly with regard to the post-closure phase.  Reports also suggest that further clarity is required in many areas.  There may be jurisdictional-specific liabilities which regulators will have to consider. - Fishing rights in the maritime area. 18

GLOBAL CCS INSTITUTECONCLUSIONS AND OBSERVATIONS 19

GLOBAL CCS INSTITUTECONCLUSIONS AND OBSERVATIONS  CCS requires regulators to consider some innovative approaches to liability.  Novel risks and types of harm to be addressed.  Many of the liability regimes remain at a formative stage. - Legislation is still in a framework format. - Inconsistent approach globally, although many similarities.  Development of secondary legislation and guidance to provide further detail is emerging. - Transposition processes (e.g EU). 20

GLOBAL CCS INSTITUTECONCLUSIONS AND OBSERVATIONS  It is clear industry will require further assurances. - High levels of up-front investment required. - Projects continue to cite liability as a critical issue.  A range of associated issues have yet to be fully addressed. - Availability of insurance products. - The format of financial security. - How emissions allowances/carbon credits will be managed.  Institute has an important role in addressing these issues. - Future and ongoing work plans. 21

GLOBAL CCS INSTITUTE www.globalccsinstitute.com

Ian Havercroft – Global CCS Institute – Long-term liability of CCS Business

by Global CCS Institute on Jun 27, 2012

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