Martin Schneider
GHG Monitor
3/21/2014
A broad array of industry groups and state officials have weighed in on the Environmental Protection Agency’s draft guidance for when operators must transition from Class II wells—in which CO2 is injected for the purpose of enhanced oil recovery—to Class VI wells—in which CO2 is injected for the purpose of geologic sequestration—arguing that the guidance as proposed would stop the economic engine of EOR-based CO2 sequestration dead in its tracks and run counter to EPA’s broader emissions reduction efforts.
Specifically, a number of commenters emphasized that while EPA’s recently proposed New Source Performance Standards for power plants under the Clean Air Act essentially requires carbon capture and sequestration for any new coal plant—and, indeed, highlights the economic benefits of EOR in off-setting the cost CCS—the guidance would undercut the ability of utilities to comply with the NSPS by effectively removing EOR as an option for captured CO2. “For the foreseeable future and for reasons such as costs and the current status of climate policy—and as EPA itself seems to concede in the Proposed CO2 Standards—it seems likely that CCS development is going to rely upon CO2-EOR, in whole or in part,” the Edison Electric Institute said in its comments, which were also filed on behalf of a number of other organizations including the American Coalition for Clean Coal Energy and the National Mining Association. “And because the EOR industry is not required to purchase the utility industry’s CO2, EPA must preserve CO2-EOR as a regulatory pathway or risk delay in the broader implementation of CCS may be delayed, at minimum, if not its elimination as a climate policy solution.” The comments from the North American Carbon Capture and Storage Association put it even more succinctly: “In short, the threat of mandatory conversion to Class VI reverses the value proposition upon which the NSPS proposal seeks to rely.”
EPA established a Class VI well to create new technical criteria for CO2 injection for geologic sequestration when there is risk posed to underground sources of drinking water, with the aim to protect that water during all phases of operations. “The Agency believes that if the business model for a well or a group of wells changes from an [EOR]-focused activity to one that maximizes carbon dioxide injection volumes and permanent storage, then the risk of endangerment to [underground drinking water sources] is likely to increase and such wells may need to be re-permitted as Class VI wells,” the transition guidance says. It also says that the Class VI UIC Program Director is the one who will determine, based on information provided by the owner or operator, when there is an increased risk to underground sources of drinking water.
However, many commenters noted that the lack of a precise standard or process for how and when a Class II well would be required to transition to a Class VI well creates too much uncertainty for companies involved in EOR, who have made it clear that they will not continue EOR operations if it risks having to transition to a more costly and involved Class VI permit. Additionally, several states and industry groups argue that any move to compel transition to the new well class would violate the law and contradict current division of responsibilities between EPA and the states.
Commenters: Guidance Leaves Transition Process Unclear
The Class VI regulation states that “owners or operators that are infecting carbon dioxide for
the primary purpose of long-term storage into an oil and gas reservoir must apply for and obtain a Class VI geologic sequestration permit when there is increased risk to [underground sources of drinking water] compared to Class II operations.” The Summit Power Group, which is developing the Texas Clean Energy Project, noted in its comments that “while the language of the Class VI rule is straightforward, its implementation in the field is unclear because EPA has never explained how the ‘primary purpose’ of a well is to be determined.” In addition, Summit “strongly” urged EPA to correct the “misinterpretation” inherent in the rule language “by stating that determinations of primary purpose and increased risk are separate and distinct issues, and that the determination of the primary purpose precedes applicability of the Class VI rule.” Summit added: “Without such information, owners/operators of Class II wells have no way of ensuring that they can continue operating under the Class II program, and no way of anticipating when or if they might be required to transition to Class VI.”
That’s a key point, Summit said, because the requirements of the Class VI program, “are both more burdensome and less predictable” than the Class II program. “Through our considerable experience, we have learned that oil producers willing to buy CO2 from power plants are flatly unwilling to risk having to use Class VI wells,” Summit wrote. “Unfortunately, the draft transition guidance does not provide the necessary certainty for CO2-EOR operators regarding whether and when they might be required to transition from the Class II to the Class VI program. Put another way, CO2-EOR operators must have clear guidelines for how to use industrially captured CO2 in their EOR projects while remaining in the Class II program; absent this clarity Summit believes there will be no market for the captured CO2, and hence no ability to develop power plants with CO2 capture in today’s environment (when EOR provides the only significant revenue source to help offset the added costs of CO2 capture).”
Because EOR operators want to avoid having to transition to a Class VI permit, it’s vital that a clear line be drawn, Edison Electric said in its comments. “It is critically important for EPA to provide regulatory certainty for CO2-EOR and other ER owners and operators who intend to purchase and inject CO2 from stationary sources whose GHG emissions are subject to CAA jurisdiction. Unfortunately, the Draft Guidance, while intending to provide such regulatory certainty, does just the opposite by casting doubts over: (1) when transition from UIC Class II to VI may be triggered; and (2) which regulator—federal or state, and within a state the UIC Class II or VI regulator, if different—is responsible for making that determination.” The Natural Resources Defense Council also highlighted the need for more clarity in its comments: “We believe that the proposed guidance needs revisions in order to provide clear and useful guidelines for when wells should transition from Class II to Class VI, and also be based on realistic operational circumstances in the field and scientifically sound criteria for evaluation of risk.”
EPA Authority on Well Transition Questioned
The EPA’s authority to compel transition to the new well class was also questioned by several commenters. Perhaps the strongest comments came from a letter jointly signed by the Attorneys General from Oklahoma, Alabama, Michigan, Nebraska, South Carolina, Texas and Wyoming. “The Draft Guidance, in overtly implying that the Class VI Director is empowered to act unilaterally within an industry in which he or she lacks requisite experience — thereby exposing a Class II permit holder to the seemingly unbounded risk of being ordered, absent any specific criteria, to apply for reclassification — is utterly and entirely beyond the bounds of EPA authority and carries the very real possibility of doing harm to our nation’s energy infrastructure,” the AGs wrote. “Moving beyond the confines of a traditional Class II well with EOR operations to maximal CO2 storage is not easily nor quickly done and implicates significant economic and other business considerations. Allowing the Class VI Regulator to intervene seemingly without basis adds an unconscionable level of uncertainty and risk to a mature area of industrial activity already well and thoroughly regulated.”
The North American Carbon Capture and Storage Association raised many of the same issues, noting that “EPA cannot compel any private party to apply for, let alone obtain, any type of permit in any scenario, as the private party may engage in some other conduct, including terminating the regulated activity, subject of course to Federal or State enforcement actions for any activity that allegedly violates the Class II rules or permit requirements. But under all scenarios, that enforcement authority falls short of compelling a private party to obtain a permit and to engage in commercial activity against its will.” NACCSA added that “The underlying – but unstated — premise of the Guidance is that approved State-based Class II programs are somehow ineffective at preventing injections that endanger USDWs. That premise is false, as all approved State-based Class II programs already have been determined by the Agency to be effective at meeting that goal.”
NACCSA concluded that events since the Class VI rule was issued provide the most conclusive evidence of its shortcomings. “The record of Class VI permitting since the Class VI final rule was published in December 2010 speaks for itself,” NACCSA wrote. “That record includes, as noted above, the fact that no Class VI permits have yet been issued. There are undoubtedly many reasons for that outcome, but the fact remains that reasonable people could ask if the Class VI regulatory program has provided the hoped-for ‘regulatory certainty’ for CCS participants.”
