State Action on CCS Continues in Alaska, Colorado, Illinois, Alabama, and Pennsylvania

Several states have broken new legislative ground to introduce or expand legal frameworks for carbon capture and sequestration (CCS) in the first half of 2024. As described below, Alaska, Colorado, Illinois, Alabama, and Pennsylvania each enacted significant new CCS legislation in the Spring 2024 legislative sessions. The Western Governors’ Association has also announced an initiative to support CCS in its region.

More detailed information on state CCS legislation and related state actions is available on Arnold & Porter’s state-by-state CCS Tracker, a collaboration with Columbia Law School’s Sabin Center for Climate Change Law.

Alaska Creates New Procedure for CCS Projects; Opens Public Lands

Alaska House Bill 50 incorporates many core provisions that are becoming common in state CCS statutes. They include:

• A mechanism to encourage transfer of pore space ownership to allow unitization when approved by regulators.
• New fees imposed on operators to fund the Carbon Storage Closure Trust Fund for long-term monitoring of storage facilities.
• A path for long-term stewardship: 50 years after injection has concluded, an operator will be eligible to obtain a certificate of completion. This process will transfer title of the stored carbon dioxide to the owner of the pore space, and will transfer responsibility for long-term monitoring and maintenance to the state. For more on long-term stewardship, see Arnold & Porter’s February 2023 Advisory.

The Alaska law also creates a two-step process of exploration and licensing that may open public lands to future storage operations. Interested operators must first obtain a carbon storage exploration license. Following termination of the exploration license, if a license holder can demonstrate that the project will not interfere with existing water, oil, gas, or other mineral interests, they will be able to obtain a storage facility permit.

Colorado Builds a Legislative Framework, Expanding on Past CCS Action

CCS featured prominently on the 2024 legislative agenda in Colorado, resulting in the successful passage of legislation that could provide greater certainty for CCS projects in the state. The enacted framework:

• Establishes an ownership structure for pore space. Title in the pore space (referred to as the “sequestration estate”) is assigned to the owner of the surface estate if not otherwise severed, conveyed, or reserved.
• Creates a process for project operators to unitize pore space through “geologic storage units.” This process allows operators to combine ownership interests across parcels, so long as the operator has the approval of 75% of the pore space owners, provides how owners will be compensated, and adopts a management plan for injection.
• Approves the assessment of fees from CCS operators, which will be credited to the existing Carbon Management Cash Fund to support regulatory oversight.
• Establishes state agency oversight of CCS injection facility closure, including potential liability if an operator is found to have made a material misrepresentation.
• Provides technical assistance for local governments to facilitate siting.

The state legislature also addressed CCS in 2023 by authorizing the state to apply for Class VI “primacy,” which would allow Colorado to take over permitting responsibility from the Environmental Protection Agency (EPA).

Illinois Enacts Sweeping CCS Legislation That Includes Unique Obligations for CCS Operators

Through the passage of Senate Bill 1289, Illinois established a new framework for potential carbon capture projects in the state, following negotiations among both environmental and industry groups.

The statute includes:

• Formalizing pore space ownership in the surface owner, including a prohibition on severing pore space from the surface estate.
• Unitization procedures that allow project owners to combine ownership interests across multiple pore space owners, with the consent of 75% of the owners by surface area consent.
• Special funds to support ongoing monitoring and regulation, as well as to support water resource planning, and an environmental justice grant program, supported by fees levied against CCS operators.

In addition to the standard features of a CCS regulatory framework, the Illinois statute adds several provisions focused on labor rights and environmental protections. They include:

• Environmental justice analyses, documenting the public health impacts of the CCS project on environmental justice communities and economically disadvantaged rural communities, evidence of public engagement with these communities, and alternative proposals for state policy makers that would improve outcomes for these communities.
• Project labor agreements that establish apprenticeship requirements for minorities and women, and agreements between operators and labor organizations regarding labor relations.
• Emergency response plans which minimize the threat posed by a release of the sequestered carbon.
• Demonstrating that the project will create no net increase in the allowable potential emissions of the six pollutants regulated under the Clean Air Act’s NAAQS framework.
• Baseline reporting on air and soil conditions, as well as air and soil monitoring reports.
• Assessments of potential impacts to nearby air and water resources.
• Financial assurance requirements.

The legislation also includes a moratorium on approvals of new carbon pipelines until the federal Pipeline and Hazardous Materials Safety Administration (PHMSA) finalizes new safety rules, to expire by July 2026 if PHMSA has not finalized rules by that time.

Alabama Provides Clarity to Future CCS Projects, Opening the Door to Public Projects

House Bill 327 establishes a process for carbon capture operators to plan future projects in Alabama:

• Unless conveyed separately or otherwise reserved, ownership of the surface estate and the pore space are both vested in the owner of the surface estate.
• The consent of two-thirds of owners by land area is required for amalgamation of pore space rights, also establishing a process for compensating non-consenting owners.
• The law creates a fund to support ongoing regulation of carbon capture facilities, as well as a process for transferring ownership to the state of Alabama. Operators may begin the state certificate of project closure and completion process 10 years after injection ceases.
• Enacting additional regulation for establishing CCS near existing coal or mineral operations, and a procedure for leasing public lands.

Pennsylvania Legislature Enacts CCS Framework; Grants State Agency Authority to Develop Permitting Criteria

The Pennsylvania legislature passed Senate Bill 831, providing a framework for state agencies to implement a regulatory structure for CCS in the state. Other features of the law include:

• Pore space will be tied to the surface estate unless severed through a separate conveyance, with a public hearing required for the conveyance of any pore space under public land.
• “Co-tenancy” requirements on how parcels can be unitized for CCS projects. Project operators must receive consent from 75% or more of the pore space owners to receive a collective storage order, and public land cannot be unitized without the direct consent of the government.
• Implementation of a fee structure to support the Carbon Dioxide Storage Facility Fund, which will support the long term monitoring and support of CCS facilities.
• A certificate of project completion process, available 50 years after injection (or an alternative time period approved by the state Environmental Quality Board), transferring title of the stored carbon dioxide to the state.
• Requirements that operators maintain seismic monitoring systems.
• Authorization for the state Environmental Quality Board to promulgate regulations, with directions to consider public health and environmental justice.
• Requirements that commercially valuable minerals be isolated from the carbon dioxide plume.
• Liability protections for operators that are compliant with federal permits and exercising reasonable care.

Western Governors’ Association Plans for the Future of CCS in the Region

Alongside individual legislative efforts, the Western Governors’ Association (WGA) has made CCS technology a regional priority. As chair of the organization, Wyoming Governor Mark Gordon (R-WY) led the Decarbonizing the West Initiative, which includes expansion of CCS investment in its priorities for decarbonization efforts in the region. The WGA chair was joined by governors Brad Little (R-ID), Jared Polis (D-CO), and Tina Kotek (D-OR).

WGA articulated the following priorities:

• Recommending that the Department of Energy commit resources to supporting CCS funding agreements and investing in pilot-scale projects.
• Calling for greater coordination between state and federal agencies in the permitting process; urging EPA to establish clear guidelines on how to achieve primacy so that state regulators can expedite permitting decisions for local projects.
• Encouraging expansion of the 45Q tax credit.
• Advancing a vision for regional collaboration
• Proposing that the Department of Energy partner with other federal agencies to establish a universal Monitoring, Reporting, and Verification baseline.

For questions or additional information, please reach out to the authors of this Advisory or your Arnold & Porter contact. More detailed information on state CCS legislation is available on Arnold & Porter’s state-by-state CCS Tracker, a collaboration with Columbia Law School’s Sabin Center for Climate Change Law.

* Alex Izbiky, a summer associate in Arnold & Porter’s Denver office, contributed to this Blog.

© Arnold & Porter Kaye Scholer LLP 2024 All Rights Reserved. This blog post 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.