The Infrastructure Investment and Jobs Act (IIJA), signed into law on November 15, 2021, amended Section 40307 of the Outer Continental Shelfs Act (OCSLA) to provide authority to the U.S. Department of Interior (DOI) to grant leases, easements, or rights of way that “provide for, support, or are directly related to the injection of a carbon dioxide stream into sub-seabed geologic formations for the purpose of long-term carbon sequestration” on the Outer Continental Shelf (OCS), further requiring that the DOI Secretary promulgate regulations to carry out such amendments “[n]ot later than 1 year after the date of this enactment.” The DOI determined that the Bureau of Safety and Environmental Enforcement (BSEE) will be responsible for offshore CCS activities related to installation, operations, emergency response plans, and decommissioning, and that the Bureau of Ocean Energy Management (BOEM) will be responsible for leasing and assessing the environmental impact of an offshore CCS program. The two bureaus stated their focus for fiscal year (FY) 2022 would be on the development of regulations to address the IIJA requirement; accordingly, both BOEM and BSEE have budgeted funds for FY 2023 to develop such a framework. However, the DOI’s proposed implementing regulations authorized by the IIJA have yet to be issued for public comment.
With the November 15, 2022 deadline now past, it is anticipated that regulations will be promulgated sometime in 2023. In the meantime, more questions than answers remain regarding the regulatory framework for offshore CCS. One issue is the method Interior will use to authorize offshore CCS – by lease, easement, or right-of-way (or some combination thereof). Easements and rights-of-way may provide more flexibility to the agency in structuring the authorizations. On the other hand, DOI’s existing leasing regulations may provide a more fleshed-out framework to guide the CCS authorization process. Another significant issue that will have to be addressed is the liability of operators and lessees or rights holders for potential leaks from offshore CCS projects. On April 28, 2022, during a House Committee on Natural Resources hearing conducted by the Subcommittee on Energy and Mineral Resources, Dr. Timothy Meckel testified that the DOI regulations need to create long-term liability rules for potential deep-sea carbon storage leakage, considering the technology required to monitor offshore induced pressure is still being developed. Although operators would remain liable during the offshore lease or easement term, no regulatory answer has been established regarding the entity liable after the expiration of the lease or easement. DOI could choose to model such regulations on existing offshore CCS regulations of the European Union, which transfer liability to the government after operators confirm proper decommissioning of the well but do contain provisions allowing the EU member state to reopen the operator’s liability after lease expiration in the event an operator provided erroneous data, acted negligently, or if a subsequent hazard arises. Finally, the regulations will likely address other key issues including transportation pipelines, spacing between lease areas, environmental monitoring requirements, and use of legacy OCS infrastructure for CCS purposes.
Interior is currently conducting ongoing research on various technical and operational issues associated with offshore CCS. In May of 2022, BOEM established a rulemaking team for consideration of: financial, economic, and environmental considerations; pre-lease exploration/site characterization; leasing; plans for operations, facilities, and pipelines; well qualification and offset infrastructure; emergency response and mitigation; monitoring and reporting; decommissioning; and liability. Since then, BOEM has created three national CCS Environmental Studies Programs covering the regions it regulates (the Atlantic, Gulf of Mexico, Pacific, and Alaska), all slated for performance in 2023-2025. Notably, the FYs 2023 and 2024 Environmental Studies Programs seek to identify potential effects on the human and marine environments from potential migration and leaks, fugitive CO2 emission concerns, and cumulative impacts surrounding the largely uncharted territory of regulating long-term offshore CCS. Although in 2017 BOEM issued its “Best Management Practices for Offshore Transportation and Sub-Seabed Geologic Storage of Carbon Dioxide,” which mirrors EPA guidance for onshore wells and CCS, these three BOEM studies will make clear what the new offshore regulations need to address relating to potential storage malfunctions and when and how to decommission sites.
In addition to BOEM and BSEE, several other administrative agencies are conducting work related to offshore carbon capture. The Council on Environmental Quality (CEQ) issued a “Report to Congress on Carbon Capture, Utilization, and Sequestration” in June of 2021. The CEQ report noted that royalty rate reduction credits for carbon capture could potentially create financial incentives for investment and recognized the need to address long-term liability after a storage site has been closed. On April 18, 2022, CEQ closed its public comment period for its CCS guidance, and on September 26, 2022, CEQ closed its acceptance of nominations for its brand-new “Federal Lands and Outer Continental Shelf Permitting Task Force” vacancies, which are anticipated to be filled by December 31, 2022. Additionally, on May 31, 2022, the DOE’s Office of Fossil Energy and Carbon Management, in conjunction with the EPA, issued a brand new “Compendium of Computational Tools to Support Geologic Carbon Storage Environmentally Protective UIC Class VI Permitting” that contains an offshore CO2 saline storage calculator with guidance on long-term storage resource distributions for OCS saline environments.
The Gulf of Mexico has an incredible amount of storage space for CCS, where BOEM has already identified 21 depleted reservoirs with Tier 1 reservoir shale in 9 different fields prime for geologic storage.. The Gulf Coast’s industrial sector, including refining, petrochemicals, gas liquification, and more – comprises a significant percentage of U.S. total CO2 emissions. Emissions from these operations can be transported to existing OCS infrastructure retrofitted for sequestration via injection into saline aquifers and depleted oil and gas reservoirs. In 2021, ExxonMobil announced its proposed $100 billion Houston Ship Channel CCS Innovation Zone which aims to create a multi-user CCS “hub” to capture the CO2 emissions from the chemical, manufacturing, and power plants located in Southeast Texas; ExxonMobil estimates the project will capture 100 million metric tons of CO2 emissions annually by 2040. This presents a significant opportunity for the Gulf of Mexico to be in a leading role in helping the U.S. achieve our carbon reduction goals. In addition, recent legislation, including the 2022 Investment Reduction Act, which revised the requirements and qualifications criteria for the Internal Revenue Code (IRC) Section 45Q carbon capture credit (part of the renewable energy tax policy created to meet U.S. COP26 pledges established at the 2021 UNCCC), is likely to push CCS projects forward. The multiple administrative players and the myriad issues that require considered analysis have no doubt delayed the issuance of DOI regulations in time to meet the November 2022 Congressional deadline, but CCS is a significant focus within DOI and other agencies for 2023. As a result, offshore carbon capture continues to gain momentum as DOI works through the process of developing a regulatory framework pursuant to the IIJA. Stakeholders should prepare for what will likely be a robust public engagement period as DOI works to propose and potentially finalize the framework sometime in 2023, while at the same time working through the workforce and infrastructure issues necessary to bring offshore CCS projects online.
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