Energy Industry Turning to Carbon Management to Reach Net Zero, but Could Hit Environmental Hurdles

April 26, 2022

In December, the Biden-Harris administration signed an executive order that established five ambitious goals related to net-zero emissions. One of the ways the energy industry is seeking to meet those goals is through carbon capture and sequestration (CCS). While this is not new technology, there is a renewed focus on using technology to reach net-zero goals by the mid-century. But achieving widespread adoption of this carbon management tool and the deployment of alternative energy sources like blue and green hydrogen requires careful navigation of related environmental and regulatory considerations.

Morgan Lewis lawyers provide some high-level considerations on permitting issues, regulatory oversight, and the potential for growth of renewable energy and carbon management projects in the wake of this federal support.

  • No matter what type of energy project, developers need to be prepared to address specific stakeholder issues depending on where the site is located. Environmentally sensitive areas, such as conservation areas or excluded public lands, must be carefully mapped to avoid off-limit areas and take into account endangered species and surface and stormwater issues, as well as cultural resources and tribal considerations.
  • The nature of the project will determine which federal and/or state agencies will be part of the permitting process. At a minimum, the process will need to cover alternatives and cumulative impact analyses, as well as measures designed to mitigate environmental impacts. Renewable project developers often need to balance competing federal regulatory regimes, as well as potentially conflicting state and local rules and ordinances (for example, coastal commissions, state energy commissions, and land use and local zoning boards might have significant rules and regulations that apply to renewable energy and carbon management projects). Early engagement with community groups and other local stakeholders can help identify activities requiring careful attention during the permitting process that may not be purely environmental but are nonetheless important, including traffic, noise, aesthetic concerns, and light pollution.
  • The current administration has taken actions, including the issuance of executive orders, that are likely to have a significant impact on agency resources and their ability to focus on the permitting of new, cleaner generation. As it relates to climate change, the Biden-Harris administration is looking at a government-wide effort to address the country’s carbon footprint, and renewable energy sources are a significant aspect of that effort. The agencies are looking into prioritizing incentivizing new renewable energy and restricting emissions from traditional fossil fuels.
  • At the end of 2020, there were two important federal policy developments to support the development of new carbon management projects. The first was the extension of federal 45Q tax credits, which created a $12 to $50 tax credit for each metric ton of carbon captured and sequestered, depending on the timing and type of project. Developers now have until December 31, 2025 to commence construction on projects to be eligible for the credit. This extension was critical because time was running short to provide financial certainty to project developers, and carbon capture projects take several years to plan, often involving multiple stakeholders and hundreds of millions of dollars in investment. Second, around the same time, the IRS published its final 45Q regulations. Taken together with the credit extension, the regulations provide much needed regulatory certainty and clarity that developers require to make significant investment decisions.
  • CCS captures carbon from the atmosphere and stores it deep underground. Carbon capture utilization and storage (CCUS) puts to use some of the recovered carbon dioxide in other ways, often to help with oil extractions as injections into oil reserves, which in turn causes oil to flow more easily and effectively. There are 5,000 miles of carbon dioxide pipelines already in operation in the United States, and pipelines are the safest way to transport this material.
  • In 2021, Summit Carbon Solutions announced plans to develop a new carbon capture and storage project in Iowa, Minnesota, North Dakota, South Dakota, and Nebraska. The project seeks to capture carbon dioxide emissions that otherwise would be emitted into the atmosphere from biorefineries, such as ethanol plants, compress the captured carbon dioxide, and transport it through a pipeline to North Dakota where it will be permanently and safely stored underground in deep geologic storage locations. The project will be the largest carbon capture and storage project in the world and capture and permanently store up to 12 million tons of carbon dioxide every year, the equivalent of removing 2.6 million gas-powered vehicles from roads annually.
  • Oxy Low Carbon Ventures is expected to be the largest “Direct Air Capture” or “DAC” plant in the world. The equipment takes in air, and, through a series of chemical reactions, it removes the carbon dioxide before releasing the remaining gases back into the atmosphere. The plant will remove carbon dioxide directly out of the air. The energy company will transport the carbon dioxide via pipeline to one of its oilfields, to be used in enhanced oil recovery, injecting the gas directly into oil reserves to increase oil production and inject it into oil wells to increase oil production. Excess carbon will be stored underground. The plant will remove 1,000,000 metric tons of carbon dioxide per year from the air.
  • While the Department of Transportation has asserted authority over the safety of carbon dioxide transportation, no federal agency has jurisdiction over the siting or construction of interstate carbon dioxide pipelines and no federal agency has exerted economic jurisdiction. Instead, carbon dioxide pipelines that cross multiple states must deal with a patchwork of varying state regulations depending on the pipeline’s path, which often raises complex questions related to common carrier status and the right of eminent domain.
  • Permitting challenges also exist with respect to developing storage facilities that will permanently house the sequestered carbon dioxide. Developers need to obtain a Class VI well permit from the Environmental Protection Agency. The Class VI program includes more specific and comprehensive requirements than any other injection well class. The requirements and performance standards of Class VI are based on the unique risk factors of carbon dioxide injection compared to other types of injection. Key aspects of the Class VI program include extensive site characterization, costly construction and operation requirements, comprehensive monitoring, and stringent site closure requirements. To date, the Environmental Protection Agency (EPA) has issued only two Class VI permits.
  • Injection wells are regulated by the EPA unless a state or tribal agency has applied for and obtained primary responsibility to implement the program, otherwise known as primacy. To obtain primacy, a state or tribe must adopt laws and regulations at least as stringent as the EPA’s minimum requirements. Many states already have primacy for the other injection well classes and have experience in implementing the Underground Injection Control (UIC) program. As of today, only North Dakota and Wyoming have obtained primacy for the Class VI program. However, no state has issued a Class VI permit yet.

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