1. Delivering sustainable solutions in a more competitive world Policy and regulatory challenges for CCS Dr Paul Zakkour, ERM Energy & Climate Change Services, UK International Workshop on CCS in the Power Sector: R&D Priorities for India. Delhi 23 rd January 2008

2. Delivering sustainable solutions in a more competitive world Overview Policy: Designing approaches to promote and incentivise climate change mitigation measures (e.g. technology) Regulation: Ensuring effective deployment of those measures (including safety and cross-media considerations)

3. Delivering sustainable solutions in a more competitive world Policy to incentive CCS Public policy is vital to incentivise CCS development and deployment: on the whole, CCS is a solely climate change driven technology (exc EOR) Options include: Market mechanisms (carbon trading): cap and trade or project based Fiscal (tax relief): on capital and operating costs R&D support (grants, subsidies): grants, competitions, feed-in tariffs Mandatory obligations: difficult for new technology Combinations thereof

4. Delivering sustainable solutions in a more competitive world Market mechanisms and CCS International AAU trading (Art 17 of KP) Approval of 2006 IPCC GLs will allow govt to govt trade of any AAUs from CCS EU Emissions Trading Scheme Various workstreams ongoing to ensure recognition of CCS by 2013 at latest Kyoto project mechanisms (Art 6 & 12 of KP) Not in CDM. Lack of support from NAI countries Some legitimate concerns, but no good reasons to reject so long as framework is right– esp. early opps

5. Delivering sustainable solutions in a more competitive world Liability and permanence are tricky! Source: ERM 2004

6. Delivering sustainable solutions in a more competitive world Other incentive mechanisms Fiscal Tax relief, feed-in tariffs (generally market mechs are chosen instrument for climate change) R&D CCS in power sector will need R&D support. Some early opps (high purity CO2 streams) may be possible with carbon market, but not power. Fiscal and R&D can be linked (e.g. auction fund recycle) Mandatory CCS Difficult to mandate until proven. Combined approaches Likely to be the most effective approach…market mechanism “plus”

7. Delivering sustainable solutions in a more competitive world Combining approaches time $ / tCO 2 Price convergence point Marginal abatement cost – CCS ($ / t CO 2 ) CO 2 price ($ / tCO 2 ) Other support mechanisms + ETS?ETS $20 / tCO 2 ? 2012 ?

8. Delivering sustainable solutions in a more competitive world Regulating CCS Why regulate? To mitigate risk of leakage and/or unintended migration To ensure liability allocated to recover cost of damages Will help to build confidence in the technology What to regulate? Capture: as for other chemical and power installations (not covered today) Transport: as for other gas pipelines (also not covered here) Storage: new area of regulation needed Note: Regulations and incentives inherently linked in context of liability for any emissions

9. Delivering sustainable solutions in a more competitive world Regulatory issues for CO 2 storage Leakage IS NOT always an inherent function of storing CO 2 Leakage IS more a function of: Site characterisation and selection Risk assessment Risk management - Monitoring and reporting - Remediation and short-term liability Decommissioning Stewardship and long-term liability Think: Leakage events, rather than leakage rates

10. Delivering sustainable solutions in a more competitive world Risks posed by leakage Geological sequestration risks LocalGlobal Surface release  Suffocation  Ecosystem impacts (tree roots, ground animals CO 2 in subsurface  Metals mobilisation  Other contaminant mobilisation Quantity-based  Ground heave  Induced seismicity  Displacement of groundwater resources  Damage to hydrocarbon production Surface release  CO 2 back to the atmosphere Source: Wilson and Keith (2002) Local EHS regulatory issues International issue (UNFCCC/Kyoto)

11. Delivering sustainable solutions in a more competitive world Site characterisation and selection - trapping Ultimate objective: to find and select sites with evidence of effective long term trapping mechanisms Source: IPCC SRCCS, 2005

12. Delivering sustainable solutions in a more competitive world Risk assessment - FEPs Feature: characteristic of system components boreholes, lithography, nearby communities.. Event:a particular happening pipe fracture, nearby earthquake, meteorite impact.. Process: natural phenomenon corrosion of casing, dissolution of packing material, convection of groundwater.. Scenario

13. Delivering sustainable solutions in a more competitive world Risk management - remediation Potential escape mechanisms A. Extract & purify ground water B. Extract & purify ground water C. Remove CO2 & re-inject elsewhere D. Lower injection rates or pressures E. Re-plug well with cement F. Intercept & re- inject CO2 G.Intercept re-inject CO2 A. CO 2 gas pressure exceeds capillary pressure & passes through siltstone B. Free CO 2 leaks from A into upper aquifer up fault C. CO 2 escapes through ‘gap’ in cap rock into higher aquifer D. Injected CO 2 migrates up dip, increases reservoir pressure & permeability of fault E. CO 2 escapes via poorly plugged old abandoned well F. Natural flow dissolves CO 2 at CO 2 /water interface & transports it out of closure G.Dissolved CO 2 escapes to atmosphere or ocean Remedial measures Fault A B C D E F G Injected CO 2 migrates up dip maximising dissolution & residual CO 2 trapping Aquifer Storage formation

14. Delivering sustainable solutions in a more competitive world Risk management - approaches Local EHS risks Civil, Criminal law, etc. Evidence of damage and proof of negligence key features Will depend on liability in regulatory regime Global EHS risks Regulate and Offset, or ………? MONITORING & REPORTING Environmental (H&S) Impact Assessment Physical remediation Financial instruments (insurance, bonds etc.

15. Delivering sustainable solutions in a more competitive world IPCC 2006 GHG Inventory g/lines Site characterisation Risk assessment Risk management (monitoring) Risk management (reporting)

16. Delivering sustainable solutions in a more competitive world The role of Impact Assessment EIA will be an important component of project approval Needs risk-based approach Gorgon (Aus): Risk-based EIA approval process for CCS being tested

17. Delivering sustainable solutions in a more competitive world A step-wise process to manage risks 1. Literature & data review 2. Build static Earth model 3. Run Dynamic models 4. Define risks (ESHIA) 5. Define monitoring scheme Data catalogue (geology, geophysics, old wells, other uses) Agreed / qualified / verified set of static Earth models inc. rational behind decisions / choices – define project boundary Source sink matching; injection plan; numerical simulations; plume behaviour; ultimate fate; trapping mechs; flux rates across boundary, secondary containments; seepage pathway; hydro-geology; biosphere EIA; environmental baseline Detailed monitoring plan QA/QC StepDocumentation

18. Delivering sustainable solutions in a more competitive world Summary: regulatory needs for CO 2 storage NEEDBASIS FOR REGs Site characterisation and selection IPCC 2006 Risk assessmentIPCC 2006, FEPs, others Risk management - remediation & liability - monitoring and reporting EIA, ESHIA IPCC 2006 EU CCS Directive DecommissioningPetroleum/mining regs, EIA, ?? Stewardship and long-term liability Financial instruments, EIA, ??

19. Delivering sustainable solutions in a more competitive world Approaches to designing CCS regulations Carbon trading Creates a chain of custody for CO2 from capture to storage Provides mechanism to manage “global” risk Environmental, health and safety Need to modify existing EHS regulations to fit the regulatory needs highlighted above Provide mechanism to manage “local” risk Legal systems Property (storage) rights, licensing, liability etc…

20. Delivering sustainable solutions in a more competitive world

21. Regulating and Incentivising CCS Dr Paul Zakkour, Email: paul.zakkour@erm.com T: +44 20 7465 7200paul.zakkour@erm.com International Workshop on CCS in the Power Sector: R&D Priorities for India. Delhi 23 rd January 2008

22. Delivering sustainable solutions in a more competitive world