Applying federal environmental laws to co2 enhanced oil recovery ppt

APPLYING FEDERAL ENVIRONMENTAL LAWS
TO CO2 ENHANCED RECOVERY
Marie Bradshaw Durrant
Amy M. Mowry
May 2015 1

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.
May 2015 2

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)
May 2015 3

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
May 2015 4

EPA’s Recent Actions
To 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
May 2015 5

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?
May 2015 6

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)
May 2015 7

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
May 2015 8

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. . .”
May 2015 9

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
May 2015 10

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
May 2015 11

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
May 2015 12

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)
May 2015 13

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 front
Long-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 require
 Groundwater monitoring
 Description 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 14

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?
May 2015 15

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.”
May 2015 16

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
May 2015 17

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.
May 2015 18

Transition Determination #2:
Increased Risk to Drinking Water
Risk 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 19

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
May 2015 20

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 VI
May 2015 21

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
May 2015 22

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)
May 2015 23

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).
May 2015 24

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)
May 2015 25

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.
May 2015 26

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 ER
May 2015 27

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.”
May 2015 28

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
May 2015 29

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
May 2015 30

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
May 2015 31

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
May 2015 32

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
May 2015 33

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 well
May 2015 34

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
May 2015 35

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.
May 2015 36

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
May 2015 37

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
May 2015 38

Contact
Marie Bradshaw Durrant
Holland & Hart, LLP
222 S. Main St., Ste. 2200
Salt Lake City, UT 84101
801-799-5956/801-380-7571
mbdurrant@hollandhart.com
www.hollandhart.com
Amy M. Mowry
Shanor & Collins LLC
600 17th St., Suite 2800
Denver, CO 80202
303-638-1770/303-642-7229
amowry@shanorcollins.com
www.shanorcollins.com
May 2015 39

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