On Wednesday 21 January 2008, the European Parliament and the Council of the European Union published the long awaited Proposal for a Directive of the European Parliament and of the Council on the geological storage of carbon dioxide (the “Proposal”), as part of its package of energy proposals. The Proposal could become law as early as 2009, providing a clear legal framework on which to base investment in carbon storage projects.

The publication of the Proposal is an important step by the European Union (EU), in acknowledging that climate change is a priority and that safe and widespread deployment of carbon capture and storage (CCS) technologies is a core strategy to meeting the EU’s climate change objective. The EU is still committed to limiting average global temperature increases to 2ºC above pre-industrial levels and achieving at least a 30 per cent reduction of greenhouse gas emissions by 2020. The European Union has acknowledged that investment in technologies such as CCS will be required in order to achieve these reduction targets.

This publication outlines the key operative provisions of the Proposal and provides an overview of the potential commercial impact of a renewed focus on CCS.

CCS in context

It is recognised that CCS (also called “carbon sequestration”), can contribute significantly to mitigating greenhouse gas emissions. Carbon capture and storage is a three-stage process consisting of the capture and separation of carbon dioxide (CO2) pre- or post-combustion, the transportation of CO2 to a storage location, and the long-term isolation of CO2 from the atmosphere in secure spaces such as geological formations. Depleted oil and gas reservoirs and deep saline formations and unmineable coal seams are often cited as suitable storage locations. There may be suitable storage locations worldwide if deep, porous rock formations with trapped natural fluids such as oil, natural gas or highly salty and unusable water are found.

Once the CO2 is injected into the storage locations at sufficiently high pressures and temperatures, the CO2 in a supercritical state can diffuse readily through the pore spaces of solids and become trapped. Over time, the CO2 fluid will dissolve in water already in the rock formation and then may combine chemically with the rocks to trap the CO2 more securely. The suitable CO2 storage location will need to be at sufficient depths, far below the surface, to maintain the supercritical fluid state of the CO2.

Conventional fossil-fuel power generation is still needed in Europe today to ensure security of electricity supply. On the assumption that CCS can remove approximately 85-90 per cent of the carbon emissions associated with conventional power generation, CCS has the potential to make a significant contribution towards emissions reduction targets.

The EU has formally recognised that CCS projects are required to achieve its CO2 emission reduction targets. At the January 2008 European Commission (EC) Climate Change Meeting, the President of the EC, José Manuel Barroso, said in this context that:

“We have to continue to be able to exploit fossil fuels as a key source of energy for decades to come. But this risks ballooning global emissions by mid century. So we need to make CCS the norm for new power plants, and to set up 12 demonstration plants by 2015. Again, significant investment will be needed, and from public and private sources.”

Creating a legal framework

The Proposal is the latest in a series of initiatives which have been taken with a view to clarifying the legal framework for carbon capture and storage projects. It has become clear that without such clarification projects will not move forward as the risks will not be sufficiently clearly defined to be bankable. The initiatives have included:

  • November 2006 – agreement among the Contracting Parties to the amendment of the 1996 Protocol to the London Convention, a global convention to limit disposal of wastes and other matter at sea.
  • June 2007 – agreement by the 15 Contracting Parties and the European Commission to amend the OSPAR Convention, the convention which safeguards the marine environment of the North East Atlantic.
  • November 2007 – launch in the UK of a competition for a carbon dioxide capture and storage demonstration project.
  • November 2007 – publication of a report Development of a CO2 Transport and Storage Network in the North Sea commissioned by the Governments of the UK and Norway.

This is just a snapshot of the many initiatives taking place at national and international levels to create the necessary legal and regulatory framework for CCS.

Key features of the Proposal

The Proposal outlines the legal framework for CO2 geological storage (also sometimes called “geological sequestration” or “geosequestration”), including the division of responsibilities between the EU and Member States. However, the Proposal does not aim to regulate further the activities of carbon capture or carbon transportation. The view of the EC is that sufficient regulation currently exists in respect of analogous activities. Where possible, the EC proposes to rely on existing provisions in currently operative Directives, some examples of which are set out in the table.

Summary of the draft Directive

Chapter 1 ? Subject matter and scope

Chapter 1 summarises the scope of the draft Directive and contains a definitions section. Article 1 states that the Directive establishes a legal framework for the geological storage of CO2 and that the purpose of geological storage is permanent containment of CO2 in such a way as to prevent or reduce, as far as possible, negative effects on the environment and any resulting risk to human health.

Article 2 notes that storage in the water column is prohibited. The Directive is not intended to apply to geological storage of CO2 undertaken for research, development or testing of new products and processes.

Chapter 2 ? Site selection and exploration permits

Article 4 provides that Member States have the right to determine the areas where storage sites may be selected. Selection of the appropriate storage site is crucial for the long-term security of geological storage. The suitability of a geological formation for use as a storage site must be determined through a detailed characterisation and assessment process which is described in Annex I to the Proposal. A geological formation will only be approved as a storage site if the assessment has concluded that there is no significant risk of leakage, and if no significant environmental or health impacts are likely to occur.

Pursuant to Article 5, Member States must ensure that a person wishing to explore for possible storage sites holds an exploration permit. Member States must ensure that all entities possessing the necessary capacities based on objective published criteria are granted exploration permits. In order to stimulate activity, exploration permits may be granted for a limited volume area and for no more than two years, renewable once for a maximum of two years. The permit holder will have exclusive exploration rights and Member States must ensure that no conflicting uses of the permitted area are authorised during the period of the permit’s validity.

Chapter 3 ? Storage permits

Member States must ensure that a person operating a storage site holds a storage permit. Similar to the procedures for granting an exploration permit, Member States must ensure non-discriminatory access to the exploration of potential CO2 storage complexes and ensure the criteria for granting permits are based on objective, published criteria.

Although storage permits are matters of national jurisdiction, Member States must inform the EC of all draft storage permit applications and any other facts taken into consideration by the national competent authority in reaching its draft decision. The EC then has a period of up to six months within which it may issue an opinion on the draft permits which the relevant competent authority is required to take into account when making its final decision. If the competent authority deviates from the EC’s opinion, it must provide the EC with its reasons.

The primary reason for the involvement of the EC in the permitting process is to ensure consistency in implementing the proposed directive across Member States in what is a complex new area of activity and thereby also enhancing public confidence in CCS.

Chapter 4 ? Operation, closure and post-closure obligations

Article 12 imposes constraints on the composition of the CO2 stream. The CO2 stream must consist overwhelmingly of CO2 and its composition must be verified prior to injecting and storing it. This verification ensures the safety and security of the transport and storage network. Further, the constraints are consistent with the primary purpose of geological storage, being to isolate CO2 emissions from the atmosphere.

Article 13 requires all Member States to monitor the injection facilities, the storage complex (including where possible, the CO2 plume), and where appropriate, the surrounding environment, according to a monitoring plan which meets the criteria set out in Annex II of the Proposal. The plan must be updated every five years to take account of technical developments. All plans including any update has to be submitted to and approved by the competent authority in the applicable Member State. Monitoring the storage complex is essential to assess whether injected CO2 is behaving as expected. For example, CO2 streams may contain incidental associated substances from the source or injection process, and concentration levels may be harmful. Most importantly, monitoring for any leakages is critical, especially where there is risk of damaging the environment or human health.

Article 15 requires that a system of routine and non-routine environmental inspections of all geological storages is implemented. Following each inspection, the competent authority must prepare a report on the results of the inspection. The report and results must be communicated to the operator and will be publicly available two months from the date of inspection.

Chapter 5 ? Third-party access

This Chapter covers access to both transport and storage sites.

Pursuant to Article 20, Member States must take the necessary measures to ensure that potential CO2 transport system users are able to obtain access to CO2 pipeline networks and to geological storage sites. Member States will need to apply an objective test of what is fair and open access.

Article 21 requires Member States to ensure they have in place dispute settlement arrangements, including an authority independent of the parties, with access to all relevant information to enable disputes relating to access to CO2 transport networks and to storage sites to be settled expeditiously.

Chapter 6 ? General provisions

Obligations of Member States under this Chapter include the following:

  • To establish a competent authority to fulfil the duties set out under the Directive.
  • To establish and maintain a register of all closed storage sites and surrounding storage complexes.
  • To implement a penalty regime for infringement of the national provisions adopted pursuant to the Directive. Penalties must be effective, proportionate and dissuasive and the Member State must notify the EC of such penalties, including if they are subsequently amended.
  • To submit a report to the EC on the application of the Directive every three years.

Further, Article 23 provides that in the cases of transboundary CO2 transportation, or transboundary storage of CO2, Member States have a joint responsibility to meet the requirements of the Directive and of other relevant Community legislation.

Chapter 7 ? Amendments

This Chapter is explicitly concerned with the removal of regulatory barriers, detailing amendments required to other legislation in order to avoid conflict between overlapping regulatory instruments.

Chapter 8 ? Final provisions

Chapter 8 describes the action to be taken by Member States to implement the Proposal. The EC intends that Member States must bring into force the laws, regulations and administrative provisions necessary to comply with the Directive within a specified time after publication. This time period has not yet been fixed.

Next steps

The Proposal falls under the co-decision procedure and so must be approved by both the Council of the EU and the European Parliament in order to become law. Both the Council and Parliament are expected to commence debate soon and a final decision adopting the modifications to the Proposal could be taken as early as 2009.

EU Emissions Trading Scheme

As part of the same energy package just announced by the EC there is a proposal to strengthen and expand the EU Emissions Trading System. Directive 2003/87/EC, which lays down the provisions governing the EU Emission Trading System, does not explicitly refer to carbon capture and storage as a potential option to curb greenhouse gases from European industries. However, in Phase II (2008-2012) CCS projects can be recognised through Member State inclusion under Article 24 of the Emissions Trading Directive.

Inclusion of CCS beyond 2012 will be particularly important given the long term potential for emissions reductions from CCS. For Phase III (2013 onwards), under the proposal to amend the Emissions Trading Directive, capture, transport and storage installations would be explicitly included in Annex I of the EU Emissions Trading System.

Whilst the other changes just announced in the EU energy package will enhance the legal framework for CCS projects, this strengthening of the EU Emissions Trading System will be critical in order to improve the bankability of CCS projects.

CCS in the UK

The draft Directive acknowledges that the legislative framework for CCS will consist of a combination of regulations at Community and national level. By way of example, in parallel with the EC, the UK Government has also been taking action to promote CCS. In its recently published Energy Bill the UK Government has set out proposals for a domestic regulatory framework to enable private sector investment in carbon capture and storage projects. The Bill proposes legislation to confer legal rights on the UK to licence the offshore sub-surface space, to apply general offshore law and rights and obligations on operators of offshore CCS facilities and to set up a regulatory regime, the details of which will be contained in licences and secondary legislation. Without legislation storage would not be possible beyond territorial waters.

Conclusion

The EU Proposal, together with actions being taken at national level as in the UK, represents long-awaited action to create the essential legal framework for investment in CCS projects. Whilst there are a number of phases of consultation and debate before the Proposal may become law, the very fact that there is now a proposed legislative document in the public domain will assist those who are seeking to move CCS from the debating chamber to the point of project implementation.