LONG-TERM LIABILITY FOR CARBON CAPTURE AND STORAGE IN DEPLETED NORTH AMERICAN OIL AND GAS RESERVOIRS A COMPARATIVE ANALYSIS

Abstract

State legislation in North America that addresses whether a government will accept long-term liability for damage arising from the release of carbon dioxide (CO2) after capture and storage (CCS) in depleted oil and gas reservoirs is in its infancy. Three states have developed legislation that conveys two different approaches to long-term liability. The federal governments in the United States and Canada have not developed legislation to address the issue. This article examines emerging legislative frameworks, in a limited number of jurisdictions, that have been adopted to manage long-term liability: viz., Wyoming, Kansas, Montana, the European Union (EU), and Australia. The majority of state governments to date, including Wyoming, Kansas, and the State of Victoria in Australia, are not prepared to assume long-term liability, while the EU and the State of Montana are prepared to proceed with a conditional transfer of liability from the CCS developer/operator to the government. We conclude that while a model that incorporates a conditional transfer of liability to a “pool,” such as in Montana and the EU, may encourage more investment in CCS, such a model does not incorporate the “polluter pays” principle. Arguably the incentive is greater to prevent future gas releases and thereby minimize the long-term risk to the public in jurisdictions such as Wyoming, Kansas, and the State of Victoria, where the CCS developer and/or operator retains long-term liability under the common law. As has been the practice in some jurisdictions in the North American petroleum industry, if the CCS developer/operator is either required to purchase and maintain third party liability insurance, or to post a bond or other form of security with the government for site remediation and reclamation, such an approach will help to minimize the long-term liability for the government and taxpayers. However, in the case of CCS, given the extraordinarily long duration of the risk associated with carbon storage, it is by no means certain that either insurance or bonds can be purchased for such an extended time period. We recommend a pooling approach to the management of remediation and reclamation funds based largely on arguments that it is more economically efficient to do so. While it would be theoretically possible for such a pool to be private, it is likely that the need for independent oversight will result in a governmental entity assuming the management function for such a liability/compensation scheme.