CEQ Recommends Carbon Capture Policy Fixes to Congress for the Path Ahead

The White House Council on Environmental Quality (CEQ) recently issued a report to Congress on Carbon Capture and Storage (CCS) that outlines a variety of policy recommendations to bolster CCS projects in the US. CEQ proclaims that the administration “is committed to accelerating the responsible development and deployment of CCUS to make it a widely available, increasingly cost-effective, and rapidly scalable climate solution across all industrial sectors.” And it notes that organizations from the Intergovernmental Panel on Climate Change (IPCC) to the International Energy Agency (IEA) place heavy reliance on carbon capture in scenarios limiting global temperature rise to 1.5 degrees Celsius. Whether this vision will be realized depends on how federal and state governments and the private sector respond to the many challenges outlined in the report, including those highlighted here.

Streamline NEPA Review: CCS projects (including infrastructure) that entail federal approval or funding will require review under the National Environmental Policy Act (NEPA). For a massive build-out of carbon capture capacity to be achieved in an efficient manner, streamlining the NEPA process will be key. CEQ’s report suggests a number of policy measures that could help. Federal agencies could prepare programmatic environmental impact statements (EIS’s) for categories of CCS projects, for example, which would allow much shorter and faster environmental assessments on a project-specific basis. CEQ also suggests that it is considering issuing CCUS-specific NEPA guidance. Indeed, CEQ is in the midst of developing new NEPA regulations and guidance for consideration of climate impacts. The CEQ report also highlights the need to develop guidance on how to conduct life cycle analyses (LCA) of the greenhouse gas emissions captured and utilized by various types of CCS projects. We will be closely monitoring whether and how those proposals specifically address the environmental impacts—both beneficial and adverse—of CCS projects.

Expedite Permitting: The CEQ report highlights legal mechanisms available to facilitate timely CCS project implementation. Among other things, the Utilizing Significant Emissions with Innovative Technologies (USE IT) Act made CCS infrastructure projects, including pipelines, eligible for special permitting treatment under Title 41 of the Fixing America’s Surface Transportation Act (FAST-41). FAST-41 is intended to improve the timeliness, predictability, coordination and transparency of the federal permitting process, across federal agencies. CEQ cited an example of a CO2 pipeline project that successfully took advantage of the FAST-41 process in 2019. Critics, however, have questioned whether the FAST-41 process has lived up to its hype. President Biden recently appointed Christine Harada, a California-based solar energy executive and former Obama official, as the new head of the Federal Permitting Improvement Steering Council. Whether the FAST-41 process will be able to help facilitate CCS build-out will be one of several important issues on her plate.

With respect to CO2 pipeline infrastructure in particular, CEQ notes the need for a more extensive pipeline network in key regions in the US. Pipeline safety is governed at the federal level by the Pipeline and Hazardous Materials Safety Administration (PHMSA), part of the Department of Transportation (DOT). CEQ suggests that DOT and other agencies could issue new rules and guidance specifically designed to facilitate the construction and safe operation of CO2 pipelines to support CCS build-out.

Bolster Funding and R&D: As highlighted in the CEQ report, the Biden-Harris Administration recognizes that more needs to be done both with respect to facilitating projects through both regulatory certainty and financial incentives. To stimulate CCS, Biden’s infrastructure plan calls for $35 billion in new R&D funding for both renewable energy and CCS; further expansion of the 45Q tax credit; $15 billion for demonstration projects for technologies including CCS; and funding for 10 carbon capture “retrofits” for large GHG emitters like steel mills, cement plants, and chemical production facilities, emphasizing construction in disadvantaged communities. In addition, the Biden-Harris’ FY 2022 discretionary budget request includes $46.1 billion for the Department of Energy, with a portion of those funds to be directed towards revitalization of the Office of Fossil Energy and Carbon Management to spur further investment in CCS, direct air capture, and hydrogen projects.

Expand Tax Incentives: New investments in carbon capture are being spurred by the enhanced “45Q” tax credit for CCS projects, with the Internal Revenue Service issuing more detailed final regulations in early 2021. (See here for more information on 45Q). As highlighted in the CEQ Report, the Biden-Harris Administration has proposed to expand and enhance the 45Q and other tax credits to incentivize CCS.

As CEQ recognizes, investment in CCS is also benefiting from the California low-carbon fuel standard (LCFS), which provides substantial credit generation opportunities for fuel producers that utilize CCS. The California Air Resources Board (CARB) has adopted a CCS Protocol, which creates a framework for obtaining the necessary CARB approval of CCS projects in order to generate credits. Projects may include CCS associated with both traditional and renewable fuel production, as well as direct air capture projects. The credit generation opportunities for renewable fuel producers such as ethanol plants are substantial. For example, the Red Trail Energy ethanol plant in North Dakota obtained an LCFS preliminary pathway approval of 37 gCO2e/MJ associated with a CCS project, as compared with a non-CCS pathway carbon intensity value of 76.46 gCO2e/MJ (see here). The federal Renewable Fuel Standard program does not currently take CCS into account in assigning credits for renewable fuels.

Clarify Regulatory Framework: Permitting for underground injection wells is extensively regulated under the federal Safe Drinking Water Act. Outside of that program, however, the legal and regulatory landscape for sequestration of CO2 on non-federal lands is governed by a state-by-state patchwork of regulations and case law dealing with issues ranging from ownership of pore space to long-term liability regimes. The CEQ report recognizes that a number of states, including Illinois, Louisiana, North Dakota, Texas, Wyoming, and most recently Nebraska, have enacted special legislation to improve the regulatory environment for CCS. Nebraska, where there are many ethanol plants interested in potentially pursuing CCS projects, now has greater clarity around a number of aspects of CCS projects, including pore space ownership, state permitting procedures, and perhaps most importantly for storage operators, the potential to transfer ownership of the storage facility and discharge responsibilities for the facility and the CO₂ to the state.

With respect to sequestration projects on federal lands, the CEQ report acknowledges the need for further regulatory clarity from federal land management agencies. It notes that the Departments of Agriculture and Interior are developing such a strategy. The CEQ report outlines the lack of clarity surrounding offshore CCS projects as a particular area for attention. The Outer Continental Shelf (OCS) offers great potential for CCS in theory, but has never been used for permanent geologic storage of CO2.

Address Impacts on Communities: CEQ’s report cautions that CCS will only deliver the desired societal and environmental benefits if it is “well-designed and well-governed.” It notes that the administration is particularly focused on the potential for job creation and “addressing cumulative impacts in historically disadvantaged and overburdened communities.” Indeed, the emphasis on CCS has generated controversy among some environmental justice advocates. The White House Environmental Justice Advisory Council, for example, called for omitting CCS, as well as direct air capture, from Biden's pledge to deliver 40% of clean energy “benefits” to environmental justice (EJ) communities. More recently, the Center for Biological Diversity along with a large number of national advocacy and grassroots groups sent a letter to Congressional leaders calling for exclusion of CCS from the Clean Electricity Standard. But Biden’s chief climate adviser, Gina McCarthy, and Secretary of Energy Jennifer Granholm have signaled that the administration will continue to back CCS projects, while looking for ways to address environmental justice concerns.

Stay tuned for further updates on federal and state developments in the CCS space.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.