On 27 August 2010 the Department of Energy & Climate Change ("DECC") published a response to the September 2009 consultation on the proposed offshore carbon dioxide storage licensing regime. The aim of this consultation was to introduce a licensing regime for carbon capture and storage ("CCS") under the powers of the Energy Act 2008, thus implementing Directive 2009/31/EC on the geological storage of carbon dioxide (the "Directive").

In general, respondents were supportive of the broad structure of the proposed licensing system, including the proposal for a licence which would cover all phases of such developments (exploration/appraisal, operating and post-closure) and would convey an exclusive but time-limited right to apply for the storage permit required by the Directive.

A number of issues prompted particular interest or comment. These included the scope of the licence and its relationship to the lease. There was also interest, and some concern, about the possibility of closely adjacent developments, or even situations in which two relevant geological formations, though separated in depth, might overlap in plan. The relationship between carbon storage projects and existing petroleum developments also came under review from the respondents, which this article will go on to explain in more depth. Similarly, a umber of comments were received on the draft licensing regulations, and some changes have consequently been made to the draft.

The key elements of DECC's response are as follows:

  • DECC is considering whether allocating priority rights to an incumbent petroleum licensee for a carbon storage licence is appropriate. There were numerous responses to such priority ranking – both for and against. DECC is considering such responses and will report back in the near future.
  • The overwhelming response from the respondents was to favour an electronic based register system for CCS, consisting of a copy of the licence, storage permit, any written opinions from the EC, estimates of the storage capacity, notices served, details of irregularities or leakages/remedial actions, and all other relevant reports.
  • The proposed framework will be amended to enable a licensee to transfer his licence to a third party with the consent of the Minister of State for Energy. This is applicable at all stages of the licence duration, rather than barring such transfer after the initial stages have began. This will not affect any decommissioning liability of the licensee which will stay unchanged as per the arrangements for petroleum licence transfers.
  • Any incidental discoveries of hydrocarbons must be reported to DECC within a 30 day reporting period. Respondents queried the fairness of not allocating preferential licences to these hydrocarbons to the carbon storage licence holder. DECC is however bound by law to comply with the Hydrocarbon Licensing Directive (Directive 94/22/EC) which stipulates that licences must be awarded in an open competition. While the carbon storage licence holder will not get preferential rights, they would be well placed to bid for such a licence.
  • DECC is considering the issues of financial liability under the Directive along with the EC to produce a guidance note to be published covering these issues. There were fears regarding overly stringent financial arrangements acting as a barrier to prospective developers entering the market. To put this into perspective, the Intergovernmental Panel on Climate Change Special Report on Carbon Capture Storage suggests that a typical 1.5MtCO2 project would give rise to an annual monitoring costs of £120,000 to £225,000 per project per annum.
  • The costs relating to the application for each carbon storage licence are still uncertain, with the only estimate given thus far being the "doubling of the effort" and therefore doubling of the cost compared to that of a Field Development Plan. On that basis, DECC gave an estimate of £612,000 for a storage permit submission. This figure, given that the technology is still to be proved to be commercially viable, seems high and potentially may deter further development of this technology.
  • The consultation also introduced a somewhat controversial method of mapping the seabed. The storage permit will be defined by using three-dimensional coordinates, while the licence itself will refer to an essentially two dimensional plan. Such mapping would allow two or more developments at different levels to overlap where this is technically feasible. For example, separate leases could be granted for a petroleum reservoir used for methane storage and for a carbon dioxide storage development above or below this, using a saline formation. The initial agreement for lease issued by The Crown Estate will relate to the same two dimensional area as the petroleum licence, while the subsequent lease will incorporate the three dimensional area from the permit. This differs from traditional oil and gas licences which allow exclusive rights within an area usually defined by a two dimensional plan view only.

The Scottish Government has seen and noted the responses to this consultation. It will now be informed by these responses and will lay separate regulations in the Scottish Parliament for the licensing of carbon storage as regards Scotland and its territorial sea. There is no timescale at present for this.

Click here to access the consultation documents.