CO2 capture and storage not possible without financial aid

CO2 capture and storage not possible without financial aid

Jasper Groen
22 June 2011

Rotterdam port: the CCS Directive (2009/31/EC) presents a problem for European port authorities working on the practical feasibility of CCS logistics.

European Union’s present system as embodied in the CCS Directive opens the door for governments to make claims against former operators indefinitely.

THE European Union has set aside hundreds of millions of euros to subsidise the capture and geological storage of carbon dioxide. It is all part of the European Commission’s Climate Action to reduce the emission of greenhouse gases.

However, what it gives with one hand, it takes back with the other. This conclusion has to be drawn on the basis of the CCS Directive (2009/31/EC).

This has an adverse effect on the commission’s Climate Action, and especially for port authorities throughout Europe working on the practical feasibility of CCS logistics.

Looking for example to the Port of Rotterdam area, where many CCS projects are being developed, there exists Road, a progressive pilot project and part of the Rotterdam Climate Initiative.

Road is keen to become the CO2 hub of Europe and to contribute to a 50% reduction of CO2 emissions by 2025. Road has been awarded with a significant amount of subsidies, coming from both the EU, €180m, ($258m) and the Dutch state, €150m, for the period 2010-2020, being the investment and demonstration phase of the project.

But other initiatives are at hand, with Denmark also striving to become a key hub. The Danish plan includes a 17.9 km long CO2 pipeline network under the North Sea. Connection of the infrastructure to enable the network to transport CO2 to the storage sites at sea is expected to require investments of approximately €26bn up to 2050.

It is clear that the feasibility of this ambition for a large part depends on the level of subsidies in combination with the financial risks involved.

Most countries consider the use of both the traditional energy sources such as oil, gas and coal, in combination with nuclear power and renewables, a healthy mix for their energy household.

It is the way to assure a well balanced and above all continuous availability of energy resources facilitating a stable economic environment. The use of a mix like this inevitably means the continuation of CO2 emissions.

As a consequence, the capture and storage of CO2 is unavoidable and very much necessary as a bridging technology in the ambition to mitigate climate change.

Following the Kyoto Protocol, two important routes have been set up by the European Commission in support of its Climate Action. This road map shows the establishment of a trading scheme for greenhouse gas emissions on basis of the ‘ETS Directive’ (2003/87/EC and 2009/29/EC), which is combined with the CCS Directive.

The CCS Directive came into force in June 2009 and it has to be implemented by all EU member states before June 25, 2011. It is not meant as an incentive to increase the share of fossil fuel power plants, but instead it should form an interim until sufficient and structural renewable energy sources are in place.

However, where the European Commission on the one hand subsidises the development of capital intensive CCS projects, on the other hand it fails to provide a solid legal environment to promote the geological storage.

Looking to the CCS Directive, in conjunction with the Netherlands Mining Act and related legislation, the exploration required for the selection of storage sites, as well as the storage itself, are subject to permits.

Member states have to ensure that no such activities are conducted without a prior permit and that there shall only be one operator for each storage site. The application for such a permit should already be accompanied with financial security being furnished before the actual commencement of the injection. But more important, there seems no end to this financial constraint.

Where the European Commission on the one hand subsidises the development of capital intensive CCS projects, on the other hand it fails to provide a solid legal environment to promote the geological storage

If after CO2 injection a storage site has been closed, the operator remains responsible for the monitoring, reporting and corrective measures and for all obligations in case of leakages, including preventive and remedial actions until the responsibility for the storage site is transferred to the ‘competent authority’.

In the Netherlands, this authority is the State Supervision of Mines (Staatstoezicht op de Mijnen), part of the Ministry of Economic Affairs, Agriculture and Innovation.

In theory, this transfer of responsibilities looks good. However, the CCS Directive provides that all legal obligations can be transferred only if particular conditions are met. These conditions, among others, will be that all available evidence indicates that the CO2 stored will be completely and permanently contained, and that the site has been sealed and the injection facilities have been removed.

The operator is under obligation to sufficiently document and demonstrate the same. For that purpose the operator has to submit report to the competent authority, which confirms the actual behaviour of the injected CO2 in combination with long term stability on the absence of any detectable leakage.

If the competent authority approves the transfer of responsibility, once again the operator has to submit financial security to be decided as a condition to the transfer of responsibility.

This latter financial contribution is meant to cover the costs borne by the competent authority after the transfer of responsibility to ensure that the CO2 is completely and permanently contained in the geological storage sites.

On this basis the (last known) operator should be waived from any responsibility. However, in cases where there has been a fault on the part of the operator, including simple cases of deficient data, or concealment of relevant information, the simple negligence, but also wilful deceit or a failure to exercise due diligence, opens the door for further recovery against the operator. Under these circumstances the competent authority is again in the position to recover any costs incurred after the transfer of responsibility.

It should be considered that the latter criterion enables the competent authority to recover costs from former operators, even after the transfer of responsibility. It requires little imagination to see that this criterion is so broadly defined that it could hardly form the basis for a transfer of responsibilities in the truest sense. It merely forms the basis for a financial open end when it comes to the responsibility of an operator over a CO2 storage site.

Not only a simple case of deficient data, or simple negligence of the operator, makes the operator liable for future costs. An alternative could have been a criterion, for example on the basis of gross negligence or wilful misconduct only, or setting a prescription period for the recovery of damages and costs.

The present system as embodied in the CCS Directive, however, opens the door for national governments to seek recovery against former operators for ever and ever.

Jasper Groen is a Rotterdam-based lawyer and partner of Van Steenderen Mainport Lawyers. He specialises in maritime and logistics and has a special focus on energy and renewables, acting for oil majors and traders in this field.