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APPLYING FEDERAL ENVIRONMENTAL LAWS TO CO2 ENHANCED RECOVERY

Marie Bradshaw Durrant

Amy M. Mowry

May 2015

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This presentation is similar to any other legal education presentation designed to provide general information on pertinent legal topics. The statements made and any materials distributed as part of this presentation are provided for educational purposes only. They do not constitute legal advice nor do they necessarily reflect the views of Holland & Hart LLP or Shanor & Collins LLC or any of their attorneys other than the speaker’s. This conference is not intended to create an attorney-client relationship. If you have specific questions as to the application of the law to your activities, you should seek the advice of your legal counsel.

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What is CO2, anyway?• A Pollutant• “The Administrator finds that elevated

concentrations of greenhouse gases [including CO2 ] in the atmosphere may reasonably be anticipated to endanger the public health and to endanger the public welfare of current and future generations.” (EPA Endangerment Finding)

• A Commodity• "CO2 is a commodity . . . . It's not a waste; it's not a pollutant. Al

Gore may be afraid of it but I've got oilmen in Texas who pay $20 a ton for it.” (Michael Williams, Texas energy commissioner)

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CO2 and Climate Change

• CO2 for ER plays a key role in reduction• Payments for CO2 - offset capture costs• ER CO2 - highest volume injection• ER Operations = experience, successful use

and management of CO2, financial incentive

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EPA’s Recent ActionsTo encourage injection of captured CO2 into depleted reservoirs

1. New Source Performance Standards (NSPS) under Clean Air Act (CAA) for electric generating units/power plants (EGU-NSPS)

2. Underground Injection Control (UIC) regulations under Safe Drinking Water Act (SDWA)

3. Resource Conservation and Recovery Act (RCRA) - new regulations for sequestered CO2

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Integration of the Electric Generating Unit (EGU) NSPS and CO2 Enhanced Recovery

• Coal-fired EGU emissions rate limits – only with capture & storage of CO2

• CCS• de facto requirement for new coal-fired power plants• must be “adequately demonstrated”• commercially viable?

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Regulatory Credit for CO2 Reduction

• EGU-NSPS - EGUs must send captured CO2 to Class VI wells or Class II ER wells that comply with the greenhouse gas (GHG) reporting requirements in Subpart RR• Class II wells normally report under Subpart UU

• Subpart RR requires adoption of monitoring, reporting and verification (MRV) plan (EPA approval and oversight; possible future revisions)

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MRV Plan under Subpart RR Must contain five components:

1. Delineation of maximum monitoring area (MMA) and active monitoring area (AMA)

2. Identification and evaluation of potential surface leakage pathways and assessment of likelihood, magnitude and timing of surface leakage of CO2 through these pathways in the MMA.

3. Strategy for detecting and quantifying any surface leakage of CO2 that occurs

4. Approach for establishing expected baselines for monitoring CO2 surface leakage

5. Summary of considerations for calculating site-specific variables for mass balance equation

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Industry Concerns

• If Subpart RR creates additional burdens, will oil and gas companies accept captured CO2 streams?• Edison Electric Institute: “Subpart RR

compliance will create regulatory uncertainty and risk that will result in EOR operators avoiding the purchase of CO2 that is subject to those rules. . .”

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UIC Rule Class VI Well Regulations

• UIC under Safe Drinking Water Act (SDWA)• Primary goal - protect underground sources of

drinking water (USDW)• USDWs = Underground aquifers with less than 10,000

milligrams per liter (mg/L)total dissolved solids and a sufficient quantity of water to supply a public water system (40 C.F.R. § 144.3)

• Regulates underground injections

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Six Regulatory Well Classes under UIC Program• I = Hazardous waste wells (at least ¼ mile

away from USDW)

• II = Fluids for EOR (CO2 , brine) and liquid hydrocarbon storage• III = Fluids for mining extraction• IV = Hazardous waste wells closer than ¼ mile

to USDW (prohibited)• V = Experimental technologies

• VI = CO2 long-term storage

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State Control of UIC Wells

• Long history of regulation of ER through UIC program •Most states have some level of primacy over UIC wells and

use Class II well permits to regulate ER• Class VI - new category instituted in 2010 for CO2 storage

wells• Since 2010, line between use versus storage have blurred

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EPA Regulation of Class VI Wells

EPA Currently Regulates All Class VI Wells• Several states are seeking primacy• ND has pending application• WY has application that has been under consideration for two years• TX has completed regulations and report but hasn’t yet applied• UT will not seek Class VI primacy unless requested

• State regulatory office to oversee Class VI• WY = WOGCC Class II; WDEQ Class VI• ND = Oil and Gas Division (both Class II and Class VI)• TX = Railroad Commission (both Class II and Class VI)

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Class II (ER) Class VI (CCS)

Permit by rule Individual permits required Must meet minimum technical criteria to obtain a permit

Demonstration of financial responsibility through closure and abandonment at well closing

Proof of financial responsibility through post-closure process required up frontLong-term post-injection site care and monitoring

Moderate plugging and abandonment requirements Stringent requirements for well plugging; long-term post-closure care commitment

Well inventory required to identify nature and type of injection well and operating status

Requires mechanical integrity testing and monitoring to account for properties of CO2 plume; more stringent regulations for well construction and operation

Finite project – permit and responsibility end when well is plugged and abandoned

More stringent site closure, long-term monitoring, and financial responsibility requirements

Discretionary – EPA may requireGroundwater monitoringDescription of geologic formations

More requirements for geologic site characterization, area of review (AoR), plume migration, pressure front, and corrective action

Multiple wells allowed under a single area permit Each well must be permitted individually

Class II wells (ER) versus Class VI wells (CCS)

See 40 C.F.R. §§ 144-148.May 2015

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EPA’s 2014 UIC Draft Transition Guidance

• 40 CFR 144.19• Instructions for transitioning UIC Class II wells to Class VI wells• Unilateral authority for EPA to require a Class VI permit from an ER

well existing under a Class II permit?

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Draft Transition Guidance

• Class II or Class VI well program director determines if ER operator’s primary purpose changes from ER to GS• EPA = only agency with current authority to administer Class VI permits• Encourages Class II administrators to obtain evidence that might force Class

II permittees to transition to Class VI permits• Transition would change regulatory requirements, time commitment, land-

use permissions and costs for an ER well• Contradicts EPA’s preamble in proposed rule: “injection of CO2 for the

purposes of enhanced oil and gas recovery (EOR/EGR), as long as any production is occurring, will continue to be permitted under the Class II program.”

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Two Key Factors for Transition

1. CO2 must be injected for the primary purpose of long-term storage

2. Increased risk to USDWs compared to Class II operations, based on list of detailed risk factors

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Transition Determination #1: Primary Purpose• Operator identifies primary purpose in initial well permit application• Unilateral determination by EPA that purpose has changed poses risks

to operators• Long-term financial and regulatory obligations • May need additional property or other legal rights; e.g., pore space and access

rights for the period after oil and gas production• Requires different business plan – establish a team to measure factors, analyze

area of operations, prepare monitoring plans for post-injection period, secure long-term financing for post-closure care, etc.

• EPA Key Principles Memo (April 2015): Geologic storage of CO2 can continue to be permitted under the UIC Class II program.

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Transition Determination #2: Increased Risk to Drinking WaterRisk Factors (40 C.F.R. § 144.19(b))1. increase in reservoir pressure within injection zone;

2. increase in CO2 injection rates;

3. decrease in reservoir production rates; 4. distance between injection zone and USDWs;5. suitability of Class II AoR delineation; 6. quality of abandoned well plugs within the AoR;

7. owner’s or operator’s plan for recovery of CO2 at cessation of injection;

8. source and properties of injected CO2 ; and

9. any additional site-specific factors as determined by the Director. May 2015

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Captured vs. Natural CO2

• “CO2 streams” = CO2 captured from power plants and other industrial sources• Transition Guidance does not limit GS to CO2 streams• Key Principals Memo eases some concern – Class II wells can

store CO2 Streams without requiring transition• Regulatory credit for EGUs = additional requirements• More about CO2 Streams in Class II wells under RCRA

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State Primacy

• SDWA requires that EPA avoid disrupting state underground injection control programs - 42 U.S.C. § 300h(b)(3)• Under SDWA, once granted primacy “the State shall have primary

enforcement responsibility for underground water sources until such time as the Administrator determines, by rule, that such State no longer meets the requirements” upon which primacy is based

- 42 U.S.C. § 300h-1(B)(3)• EPA would overstep its authority by making determinations that

conflict with the states’ permitting powers• Proper remedy for violation of Class II permit is enforcement action,

not transition to Class VIMay 2015

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Legal Challenges to UIC Permitting• Southern Utah Wilderness Alliance Permit for Review, Environmental

Appeals Board, Dec. 17, 2014 – challenge to ER wells in Utah claims Class II provides insufficient protection for USDWs.• Voluntary remand to Region 8 for further consideration.

• In re. FutureGen Alliance Permit for Review, Environmental Appeals Board, Oct. 9, 2014 - Illinois landowners claim EPA failed to adequately assure Class VI requirements were satisfied for first Class VI well permits. • Dismissed by EAB April 28, 2015 – EPA permit approval process was adequate

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RCRA Regulation of CO2 Streams

• Resource Conservation and Recovery Act (RCRA) – 1976• Response to national waste disposal problems• Authorizes EPA to regulate “solid waste,” including both hazardous

(Subtitle C) and non-hazardous (Subtitle D) waste; encourages recycling and efficiency. • Subtitle C requires “cradle to grave” management of hazardous waste • Treatment, Storage, and Disposal facilities (TSDFs) for hazardous

waste - subject to the most stringent requirements (extensive permitting; financial assurances; design and location standards; corrective action) - 42 U.S.C. § 6902(a)(6)

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Solid Waste – RCRA Definition

• Defined broadly• Material must be defined as solid waste before it can be determined

hazardous• Key determination – is material “discarded” (includes abandoned and

inherently waste-like materials; certain types of recycled materials)• 40 C.F.R. § 261.2(b).

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Solid and Hazardous Wastes under RCRA• Solid waste: “. . . any garbage, refuse, sludge from a waste treatment plant,

water supply treatment plant, or air pollution control facility and other discarded material, including solid, liquid, semisolid, or contained gaseous material resulting from industrial, commercial, mining, and agricultural operations, and from community activities . . .” - 42 U.S.C. 6903(27)• Hazardous waste: “. . . a solid waste, or combination of solid wastes, which

because of its quantity, concentration, or physical, chemical, or infectious characteristics may (A) cause, or significantly contribute to an increase in mortality or an increase in serious irreversible, or incapacitating reversible, illness; or (B) pose a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, or disposed of, or otherwise managed.” - 42 U.S.C. 6903(5)

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RCRA Rule - Conditional Exclusion of CO2 Streams

• Final Rule on Hazardous Waste Management System: Conditional Exclusion for Carbon Dioxide (CO2) Streams in Geologic Sequestration Activities (RCRA Rule) - 79 Fed. Reg. 350 (Jan. 3, 2014)• Conditional exclusion of CO2 Streams from definition of hazardous

waste under RCRA Subtitle C, so long as the streams are • (1) captured from emissions sources, • (2) injected into UIC Class VI wells for the purposes of GS, • (3) not mixed with any other hazardous wastes and • (4) certified to be in compliance with other requirements outlined in the Rule.

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Conditional Exclusion

• EPA rationale: UIC Class VI well management structure provides sufficient protection; further regulation of CO2 Streams as hazardous waste under RCRA unnecessary • EPA declines to determine whether supercritical CO2 Streams as a category

are hazardous• Exemption from RCRA hazardous waste requirements provided for captured,

supercritical CO2 Streams that are injected into Class VI wells for purposes of GS • No determination for Class II wells for purposes of ER – check with regulator• Suggestion that CO2 Streams are hazardous = chilling effect on use of

streams for any purpose, including ERMay 2015

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RCRA for ER

• CO2 in Class II wells “would not generally be a waste management activity.”• Key Principals (UIC): “[u]se of anthropogenic CO2 in ER operations

does not necessitate a Class VI permit.” • But no exemption for CO2 Streams injected into Class II wells• “EPA would encourage persons to consult with the appropriate

regulatory authority to address any fact-specific questions they may have regarding the status of CO2 in situations that are beyond the scope of this final rule.”

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RCRA for ER

• Is CO2 Stream injected into Class II well “disposed”?• CO2 as waste or commodity?• Beneficial use• Incidental storage/disposal?

• Disparate treatment of CO2 Streams under GHG Reporting Rule (Subpart RR vs. Subpart UU)

• Further clarification needed

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Safe Harbor for Natural CO2

• EPA provides “safe harbor” for CO2 used in ER operations / Class II wells – but what about CO2 Streams?• ER not “a waste management activity” - 79 Fed. Reg. at 351• BUT… rule provides exemption for “CO2 Streams” in Class VI wells only• No standard tests for hazardous waste• Management quandary for use of anthropogenic CO2 Streams for ER

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Supercritical CO2

• Supercritical fluid: any compound at pressure and temperature above critical points - neither a liquid nor a gas, with solvency and transport powers of both• Captured CO2 from man-made sources compressed to generate

supercritical CO2; must be kept pressurized or becomes gas

RCRA Rule applies to this type of supercritical CO2 Stream (also known as dry ice in its solid state) if injected into Class VI well

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Are Supercritical CO2 Streams Solid Waste?

Industry View:• Supercritical CO2 streams = between gas and liquid;

technically not solid• CO2 = not “discarded” within meaning of RCRA’s regulations• In ER processes, CO2 = valuable commodity, purchased

by ER operators

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Are Supercritical CO2 Streams Solid Waste?EPA View:• “CO2 streams sequestered for purposes of GS are ‘other

discarded material’ from industrial and commercial operations and . . . of a similar kind to the other types of wastes specifically referenced by the definition,” or “RCRA statutory solid wastes” • “Waste” designation applies to Class VI wells, where CO2 Streams

are by definition “discarded” and consequently solid waste • If waste contains “hazardous” materials, conditional exclusion

becomes necessary

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Is Supercritical CO2 Hazardous?

• Supercritical CO2 stream “is a solid waste when it is to be discarded through abandonment by disposing of the material in a UIC Class VI well” - 40 CFR 261.2(a)(2)(i) and (b)(1))• Not identified in any hazardous waste listings; must have at least one

hazardous characteristic identified in the regulations• Exemption puts affirmative burden on injectors of CO2 Streams in

wells other than Class VI to determine that CO2 Stream is not hazardous – otherwise, compliance with exemption required • Compliance with exemption = supercritical CO2 Stream must be

injected into a Class VI wellMay 2015

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Is Supercritical CO2 Hazardous?

• No standardized analyses exists to determine whether CO2 Streams are hazardous• ER operators must develop such standards

• Operators bear uncertainty, expense of ensuring RCRA Rule does not apply• Otherwise, ER operator who wants to retain Class II well status and inject

CO2 Streams that are “solid waste” must perform RCRA hazardous waste analyses on all such streams • If CO2 Streams used in ER = “solid waste”: invites regulatory scrutiny,

possible hazardous waste treatment, RCRA liability (including citizen suits)If CO2 stream determined to be hazardous, ER operator also needs contractual rights to reject and return non-conforming CO2 Stream

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CAA GHG Reporting Requirements

• ER operator using power plant CO2 stream reports CO2 inventory under Subpart RR (apply primarily to GS in Class VI wells)• 40 CFR Part 98.440 et seq.

• Additional reporting could lead to discovery of released CO2 due to incidental leakage, RCRA liability, possible citizens’ suits • ER operator using natural CO2 reports under Subpart UU – treats CO2

as commodity, not waste, and RCRA does not apply. • 40 CFR Part 98.470 et seq.

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Carbon Sequestration Council  v. EPA (D.C. Cir.)

• Challenge to final RCRA Rule by Industry Groups• Supercritical CO2 streams are uncontained gases outside RCRA’s “solid

waste” definition• EPA challenges petitioners’ standing• Decision that supercritical CO2 = solid waste could undermine its use in ER

operations• ER operators must develop standards to determine CO2 streams are not hazardous

or find ways to manage a presumptively hazardous waste - or avoid using those streams altogether

• Decision that supercritical CO2 Streams are not subject to RCRA would ease concerns for use in ER operations

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Conclusions

• Excessive regulation of CO2 used for ER may deter CCS and successful CO2 storage• Current federal regulatory climate creates uncertainty and

disincentives for use of CO2 Streams from power plants in ER operations• More clarification and flexibility is needed for the potential climate

mitigation strategy to work

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Contact

Marie Bradshaw Durrant

Holland & Hart, LLP222 S. Main St., Ste. 2200Salt Lake City, UT 84101801-799-5956/801-380-7571mbdurrant@hollandhart.comwww.hollandhart.com

Amy M. Mowry

Shanor & Collins LLC600 17th St., Suite 2800Denver, CO 80202303-638-1770/303-642-7229amowry@shanorcollins.comwww.shanorcollins.com

May 2015