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Legally Speaking

 

Issue: February, 2008
Author: Governor Dave Freudenthal

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Carbon Sequestration: A Lawyer's Cornucopia or Pandora's Box?

If you enjoyed first year Property with the Rule in Shelley’s Case and Springing Executory Interests, you will absolutely love thinking about the legal and practical issues surrounding carbon capture and sequestration. While I enjoyed Professor Maxfield, I barely survived the weekly embarrassment of Pete’s labyrinth of arcane, (but incredibly important) concepts.

Just as law school students cannot avoid property, Wyoming and its elected leaders cannot avoid the complexities of carbon capture and sequestration. Consider the following scenario, which reads like an exam question, but is real:

Rancher Smith, who owns 1,500 acres of Wyoming land and leases an additional 1,000 acres, is approached by Company Y with an offer to store carbon dioxide for the long term deep in the earth underneath his ranch. The gas would be pulled from the production of electricity at a coal-fired power plant 120 miles away, and pumped into a vast space deep in a geologic formation underneath Smith’s ranch.

Now attempt to answer these questions:


  • Does Smith have the authority and the right to lease that void under his fee and leased lands?
  • Once it is pumped underground, whose responsibility is that carbon dioxide?
  • Does Company Y have the authority to force Smith to accept this storage?
  • What federal and state regulations would apply?
  • Who is liable if the CO2 doesn’t stay where it is supposed to?
  • What other parties may possess rights that may be impacted by this transaction?
  • As Smith’s attorney, what form of indemnification would you require?

The answer to all of these questions at present is – we don’t know. The new process of carbon sequestration has opened up a Pandora’s Box of regulatory and statutory questions that must be answered – and quickly.

Coal provides about 50 percent of our nation’s electricity. Even with as-yet undefined Herculean efforts to pursue alternative sources of power, coal should and will play an essential role in meeting the world’s energy needs in the future.

In order to manage the carbon dioxide that is produced in the generation of electricity from coal and other fossil fuels, Wyoming must tackle two strategic issues – carbon sequestration and coal gasification. These processes allow for the continued use of coal while capturing the carbon dioxide and other greenhouse gases it produces and then injecting these gases deep within underground geologic formations where they remain for the long term.

Before we can even think about getting any carbon sequestration projects off the ground, we must first establish a legal and regulatory framework for the sequestration of CO2 in the state’s geologic formations. The Wyoming Legislature’s Joint Judiciary Committee has been working diligently on the issue this year, and is considering two draft bills.

The simple issue of who has the right to sequester CO2 under state law has not been settled. Does that right belong to the surface owner or to the owner of the mineral estate? Which state agency is best equipped to be tasked with the long-term regulation and monitoring of carbon sequestration projects? What federal and state regulations would apply to these efforts? How do we take into account the vast federal ownership of both the surface and mineral estate in Wyoming?

Since Wyoming is a leader in the production of coal, gas and oil, I believe our state should also lead in the development of technologies that help us manage the carbon dioxide produced by burning or gasifying these fossil fuels.

With respect to actual carbon sequestration, our state has a comparative advantage over other states for several important reasons:

  • Due to our history of energy and mineral development, we have had geologists, geophysicists and geochemists crawling all over this state for decades. We know the state’s geology.
  • Our energy heritage has taught us how to develop large-scale projects, and we understand the infrastructure needed to accompany these efforts.
  • Many of the processes and knowledge required in sequestration are similar to those of the extractive industries, so we have a bit of a running start.


Carbon Sequestration
Although Wyoming has a leg up on other states when it comes to carbon sequestration, there is still much work to be done on the ground.

The Wyoming State Geological Service is currently working to identify sequestration sites in the state. We need to develop an inventory of these areas and possible carbon dioxide sources so that we can begin thinking about pipeline infrastructure linking sources and sites.

Also, we need to begin to lay the groundwork for large-scale underground reservoir characterization. It’s not enough to know that these pore spaces exist; we must know how vast they are, what volume of gas they will hold and the likelihood that the CO2 will remain in place. The collaboration between the University of Wyoming and the National Center for Atmospheric Research is a good start down this path, and we hope to use the NCAR supercomputer in this effort.

We must start to conduct real world sequestration demonstrations both at the pilot and large-scale levels to verify that the computer models accurately reflect reality on the ground. To that end, Wyoming takes part in two regional sequestration partnerships that offer us the chance to help direct these efforts.

But before any sequestration projects can begin in earnest, we need to build the organizational structure to manage our work, and the UW School of Energy Resources has established a Carbon Management Center to do just that.


Coal Gasification
The other important technology we need to pursue is coal conversion technology which allows for the carbon dioxide to be captured as the coal burns or is gasified. Coal gasification is the most prominent of these technologies because it most efficiently captures carbon dioxide.

Experts generally agree that the capital cost of building a coal gasification plant without carbon capture capability is higher than a traditional pulverized coal plant. However, when carbon capture technology is added, the integrated gasification combined cycle (IGCC) plant becomes the cheaper alternative. More research needs to be done before these types of advanced coal plants and others with similar environmental performance are available and routinely deployed on an industrial scale.

It is vital that we learn the performance characteristics of Powder River Basin and other Wyoming coals in different kinds of gasifiers. To date, much of the gasification work has been done on Eastern and Midwestern coals. For the long-term defense of our market share, we need to know everything there is to know about converting Wyoming coal to useful products. No one else in the marketplace has as much at stake as we do and no one is likely to act on our behalf.

This is why I believe it makes sense to create a coal gasification research center in Wyoming. Our university could generate cutting-edge research with the help of private sector companies that share common interests in Wyoming coal conversion technologies. As I wrote in an opinion piece published in many Wyoming newspapers in December, this would be a good application of Abandoned Mine Lands funds to secure our long-term future. Of course, we should continue to seek support from the federal Department of Energy as well in support of this important undertaking.


Federal Responsibility
While Wyoming and other states are working to encourage the development of advanced coal technologies, there is only so much a state can do to affect what is ultimately a national problem. Until federal lawmakers act on the following key issues, we will be hampered in our success unless they:

  • Work to monetize the cost of carbon either through a carbon tax or some type of cap-and-trade system to provide certainty to the financial marketplace. This is a prerequisite to funding new large-scale power generation plants.
  • Address the long-term liability/indemnification issues surrounding sequestration, as no state will be able to assume the risk of a catastrophic release of carbon dioxide by itself.
  • Provide a reasonable ‘glide path’ for the deployment of carbon capture technologies. Because of the high costs of deployment, it is unreasonable to expect a single utility to pick up the cost of learning what works and what doesn’t. These initial costs need to be borne by society using the tax code and direct appropriation.
  • Provide significant research, development and deployment dollars to get moving. Since the cost of even modest sized generation plants is above $2 billion, it will take a concerted, thoughtful approach with many parties to get these projects off the ground.

The absence of a federal policy to monetize and regulate carbon dioxide has paralyzed energy producers and their financiers. Without clear direction set by the federal government, energy producers are unable to plan their futures.

The recent decision by Rocky Mountain Power to pull back from several planned coal projects in Wyoming and Utah is a great indicator of the need for guidance from the federal government on the future of carbon management. But so far, there has been nothing of substance from Washington.

From my point of view, the absence of a well thought-out, cogent federal policy makes the task of setting workable rules, regulations and operating practices for carbon management that much more difficult.

Despite a lot of research and an apparent willingness of the utility and vendor sectors to move forward, the federal government is dragging its feet on monetizing CO2.

Until it does, those in a position to design, build, operate and finance new advanced coal plants and carbon sequestration projects will remain paralyzed, and the cost of taking action will only increase.


Hon. Dave Freudenthal took office as Wyoming’s thirty-first Governor on January 6, 2003. Dave was born in Thermopolis on October 12, 1950, the seventh of eight children, and grew up on the family farm north of town. To help pay for college, he earned money by working construction during the summer. His jobs included working rigs and building tanks as a member of the National Brotherhood of Boilermakers and Blacksmiths Union.

After graduating from Amherst College in 1973, Dave returned to Wyoming to take a position as an economist for the Wyoming Department of Economic Planning and Development. Governor Ed Herschler appointed him State Planning Coordinator in 1975. While working for the state, Freudenthal simultaneously earned a law degree from the University of Wyoming. After graduating from law school, he opened his own law office in Cheyenne in 1980; this office grew into a general practice firm that represented individuals and businesses. In 1994, he was appointed United States Attorney for Wyoming, a position that he held until May 2001.


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